A valuation reference made solely to extend assessment limitation is a colourable exercise of power.

The petitioner-company filed its return for A.Y. 2021–22 on 14 March 2022, declaring total income of ₹8,17,74,420.

The return was selected for scrutiny and notices under Sections 143(2) and 142(1) of the Income-tax Act, 1961 were issued, to which the petitioner responded.

Following search-related material allegedly revealing unaccounted payments and additions to fixed assets, the Assessing Officer issued show-cause notices dated 17 and 20 June 2023.

The petitioner replied on 22 June 2023, disputing the allegations and contending that the assessment proceedings were time-barred.

On 24 June 2023—one day before the assessment limitation was stated to expire on 25 June 2023—the Assessing Officer referred the valuation of the petitioner’s tangible/fixed assets to the District Valuation Officer under Section 142A, requesting an early report.

1. Whether the reference dated 24 June 2023 to the District Valuation Officer under Section 142A was a bona fide and legally relevant reference, or a colourable exercise of power intended merely to extend the limitation period for completing the assessment.

2. Whether valuation of the assets was legally relevant to examining the petitioner’s claim of depreciation, when the Assessing Officer could directly disallow depreciation if the claim was found to be bogus or impermissible.

3. Whether the Revenue could rely on Section 153, Explanation 1(v) to exclude the period between the reference to the Valuation Officer and receipt of the valuation report, in circumstances where the reference itself was impermissible and made immediately before expiry of limitation.

The Court applied Section 142A of the Income-tax Act, 1961, which permits the Assessing Officer to make a reference to a Valuation Officer for estimating the value of an investment or asset where such valuation is relevant to the assessment.

It also applied Section 153, Explanation 1(v), under which the period commencing from a reference under Section 142A(1) and ending upon receipt of the Valuation Officer’s report is excluded while computing the limitation period for assessment.

The Court held that this exclusionary provision cannot be invoked through an artificial or colourable reference lacking a genuine assessment-related purpose.

The Court relied upon Anand Banwarilal Adhukia v. Deputy Commissioner of Income Tax, Circle-14, (2016) 75 taxmann.com 301 (Gujarat), and Me & Mummy Hospital v. Assistant Commissioner of Income Tax, (2014) 45 taxmann.com 248 (Gujarat), as cited by the petitioner.

The Court found that the Assessing Officer had already received the search-related material on 28 December 2022 and had obtained detailed information from the petitioner concerning its assets and payments by 2 December 2022.

Nevertheless, the subsequent show-cause notices dated 17 and 20 June 2023 did not raise any issue concerning asset valuation, and the reference was made only on 24 June 2023, when the assessment was due to become time-barred on 25 June 2023.

The Revenue itself accepted that any allegedly bogus depreciation claim could be examined and disallowed directly, without obtaining a valuation report.

The Court therefore held that the depreciation issue was extraneous to a valuation reference and that the asset-valuation ground was raised belatedly to create an artificial basis for invoking Section 153, Explanation 1(v).

The Revenue also failed to satisfactorily explain its inaction between 28 December 2022 and 17 June 2023.

On the cumulative facts, the reference was held to be an ingenious and colourable attempt to preserve time-barred assessment proceedings.

It held that the reference dated 24 June 2023 under Section 142A was not a bona fide valuation reference but a colourable exercise of power intended to extend the assessment limitation period.

The reference could not validly trigger the exclusion of time under Section 153, Explanation 1(v).

The writ petition was accordingly allowed, and the impugned reference order dated 24 June 2023 was quashed and set aside.