The AO has sent my cost of construction to the Departmental Valuation Officer without saying a word about my books. Can he do that?
Not under the section as it then stood. The Supreme Court held the assessing authority could not have referred the matter to the Departmental Valuation Officer without the books of account being rejected, and where the Tribunal had recorded that the books were never rejected, reliance on the DVO's report was misconceived. The appeal was allowed and the Tribunal's order restored. Read this with the caution below: s.142A was substituted with effect from 1 October 2014 and the substituted section says a reference may be made whether or not the officer is satisfied about the correctness of the accounts.
Decided by the Supreme Court (Supreme Court of India — S.H. Kapadia and Aftab Alam, JJ. (as named on the CaseMine page)) on 2009-10-19, reported as (2010) 328 ITR 513 (SC); Civil Appeal No. 6973 of 2009; LAWS(SC)-2009-10-81. It bears on section 142A, section 145(3) of the Income Tax Act 1961, in Assessment & Scrutiny and Evidence & Burden of Proof matters.
For any period governed by the old s.142A this is the shortest route to knocking out a cost-of-construction or fair-market-value addition: you do not fight the valuation, you attack the reference itself. The department's answer is that the officer is entitled to gather material, and the answer to that is that the Tribunal's finding on whether the books were rejected is a finding of fact that decides the point. What matters most in practice is the date — for years covered by the substituted section the argument has to be made differently, on application of mind to the reference rather than on the books.
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The assessing authority relied on a report of the Departmental Valuation Officer. The Tribunal recorded a categorical finding that the books of account had never been rejected and decided the matter in favour of the assessee. The High Court reversed the Tribunal. The assessee appealed to the Supreme Court, where delay was condoned, leave was granted and the matter was taken up for final hearing by consent. The pages fetched do not give the assessment years, the amounts or the nature of the property valued.
The appeal was allowed. The Tribunal had decided the matter rightly because the assessing authority could not have referred the matter to the Departmental Valuation Officer without the books of account being rejected, and the Tribunal had recorded that the books were never rejected. Reliance on the DVO's report was therefore misconceived. The High Court's judgment was set aside and the Tribunal's order restored.
The Court's reasoning is contained in the operative paragraph itself and is not elaborated. It proceeds from the Tribunal's finding of fact — that the books were never rejected — and treats that finding as decisive of the officer's power to make the reference. Because the power to send the matter to the Valuation Officer was, on the section as it then stood, predicated on the accounts being displaced, a reference made while the books stood unrejected was outside the power, and everything built on the resulting report fell with it. The Court did not go on to consider the valuation on its merits.
In the present case, we find that the Tribunal decided the matter rightly in favour of the assessee inasmuch as the Tribunal came to the conclusion that the assessing authority (AO) could not have referred the matter to the Departmental Valuation Officer (DVO) without books of accounts being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected.
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Handle my notice → Ask a CA on WhatsAppNot under the section as it then stood. The Supreme Court held the assessing authority could not have referred the matter to the Departmental Valuation Officer without the books of account being rejected, and where the Tribunal had recorded that the books were never rejected, reliance on the DVO's report was misconceived. The appeal was allowed and the Tribunal's order restored. Read this with the caution below: s.142A was substituted with effect from 1 October 2014 and the substituted section says a reference may be made whether or not the officer is satisfied about the correctness of the accounts. This was decided by the Supreme Court (Supreme Court of India — S.H. Kapadia and Aftab Alam, JJ. (as named on the CaseMine page)) and bears on section 142A, section 145(3) of the Income Tax Act 1961. It is reported as (2010) 328 ITR 513 (SC); Civil Appeal No. 6973 of 2009; LAWS(SC)-2009-10-81. For any period governed by the old s.142A this is the shortest route to knocking out a cost-of-construction or fair-market-value addition: you do not fight the valuation, you attack the reference itself. The department's answer is that the officer is entitled to gather material, and the answer to that is that the Tribunal's finding on whether the books were rejected is a finding of fact that decides the point. What matters most in practice is the date — for years covered by the substituted section the argument has to be made differently, on application of mind to the reference rather than on the books. If it applies to you, the first step is this: Fix the period first: if the reference falls under the substituted s.142A operating from 1 October 2014, this decision does not do the work and you need a different argument.
The assessing authority relied on a report of the Departmental Valuation Officer. The Tribunal recorded a categorical finding that the books of account had never been rejected and decided the matter in favour of the assessee. The High Court reversed the Tribunal. The assessee appealed to the Supreme Court, where delay was condoned, leave was granted and the matter was taken up for final hearing by consent. The pages fetched do not give the assessment years, the amounts or the nature of the property valued. The matter was decided on 2009-10-19 by the Supreme Court (Supreme Court of India — S.H. Kapadia and Aftab Alam, JJ. (as named on the CaseMine page)). On those facts the Supreme Court held as follows. The appeal was allowed. The Tribunal had decided the matter rightly because the assessing authority could not have referred the matter to the Departmental Valuation Officer without the books of account being rejected, and the Tribunal had recorded that the books were never rejected. Reliance on the DVO's report was therefore misconceived. The High Court's judgment was set aside and the Tribunal's order restored.
The Court's reasoning is contained in the operative paragraph itself and is not elaborated. It proceeds from the Tribunal's finding of fact — that the books were never rejected — and treats that finding as decisive of the officer's power to make the reference. Because the power to send the matter to the Valuation Officer was, on the section as it then stood, predicated on the accounts being displaced, a reference made while the books stood unrejected was outside the power, and everything built on the resulting report fell with it. The Court did not go on to consider the valuation on its merits. In the words reproduced by the source cited on this page: "In the present case, we find that the Tribunal decided the matter rightly in favour of the assessee inasmuch as the Tribunal came to the conclusion that the assessing authority (AO) could not have referred the matter to the Departmental Valuation Officer (DVO) without books of accounts being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected."
It was decided by the Supreme Court on 2009-10-19 and is reported as (2010) 328 ITR 513 (SC); Civil Appeal No. 6973 of 2009; LAWS(SC)-2009-10-81. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 142A, section 145(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed. The Tribunal had decided the matter rightly because the assessing authority could not have referred the matter to the Departmental Valuation Officer without the books of account being rejected, and the Tribunal had recorded that the books were never rejected. Reliance on the DVO's report was therefore misconceived. The High Court's judgment was set aside and the Tribunal's order restored. It arises in Assessment & Scrutiny and Evidence & Burden of Proof matters, on section 142A, section 145(3) of the Income Tax Act 1961, and was decided by Supreme Court of India — S.H. Kapadia and Aftab Alam, JJ. (as named on the CaseMine page). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For earlier periods, get on the record whether the books were rejected — a Tribunal finding that they were never rejected is what carried this appeal. Look for any s.145(3) rejection in the assessment order; an addition built on the DVO's report with the books left intact is the fact pattern here. Keep this separate from the reopening argument. Whether a DVO's opinion is by itself information for reopening is a different question, decided in Dhariya Construction.
Superseded by amendment. For periods governed by the substituted section this no longer holds. Section 142A was substituted by the Finance (No.2) Act, 2014 with effect from 1 October 2014, and sub-section (2) of the substituted section states that the Assessing Officer may make a reference to the Valuation Officer 'whether or not he is satisfied about correctness or completeness of the accounts'. The source states that Sargam Cinema applied to assessment years before 1 October 2014 and that the requirement changed thereafter because the substituted section does not carry the provision Sargam construed. The decision remains authority for periods before the substitution; I have not traced how High Courts have applied it to references straddling that date. That finding was checked against a published source, which is linked on this page, on 2026-08-22. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The brief that sent me here dates this 2010; that is the year of the law report. Two independent hosts give the judgment date as 19 October 2009. The judgment as reproduced is short — delay condoned, leave granted, taken up by consent, and the operative paragraph — so there is no extended reasoning to report and none is invented here. The decision turns on the section as it then stood; it does not say that a valuation report is inadmissible, and it does not decide anything about references made after the 2014 substitution. No assessment years, amounts or description of the property are on any page fetched, and there is no extended reasoning to report. The entry does not tell you what happens where the books are rejected only in the reassessment and not in the original order, nor how the position stands for a reference straddling 1 October 2014. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed. The Tribunal had decided the matter rightly because the assessing authority could not have referred the matter to the Departmental Valuation Officer without the books of account being rejected, and the Tribunal had recorded that the books were never rejected. Reliance on the DVO's report was therefore misconceived. The High Court's judgment was set aside and the Tribunal's order restored.
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