[Section 142A]- Estimates by Valuation Officer in Certain Cases

Section 142A of the Income Tax Act, 1961 empowers the Assessing Officer (AO) to refer matters of asset valuation to a Valuation Officer during the process of assessment or reassessment. The provision is aimed at ensuring that the actual or fair market value of specified assets, properties, or investments is correctly determined for tax purposes when there is doubt or suspicion about the value declared by the assessee.

Key Provisions of Section 142A

• Power to Refer Valuation:
  The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value—including the fair market value—of any asset, property, or investment.
• Applicable Cases:
  This power can be invoked, for example, when estimating the value of investments referred to in sections 69, 69A, or 69B, or the fair market value of property as mentioned in section 56(2) of the Act.
• Procedure:
  • The AO makes a reference to the Valuation Officer (VO).
  • The VO estimates the value after considering the evidence produced by the assessee.
  • The VO has all powers under section 38A of the Wealth-tax Act, 1957.
  • On receiving the VO’s report, the AO must provide the assessee an opportunity to be heard before incorporating the valuation in the assessment.
  • The VO is to submit their report within six months from the end of the month in which the reference is made.
• No Requirement to Reject Books of Account:
  The AO is not required to record dissatisfaction with the assessee’s books or accounts before making a reference to the Valuation Officer. This is irrespective of whether the books of account are found to be unreliable or not.

Practical Example

If during assessment, the AO suspects that the declared value of a property (e.g., land or building) is understated, they can refer the property to a Valuation Officer. The VO will then estimate its fair market value, which will be taken into consideration for assessment after giving the assessee the right to respond to the findings.

Key Points

• The reference under Section 142A can be made for any asset, property, or investment, giving the AO wide discretion in referring cases.
• The goal is to curb tax evasion due to undervaluation or misstatement of asset values.
• The assessee must be given a fair opportunity of being heard before the AO finalizes the assessment based on the VO’s estimate.
• The VO’s estimate is not binding; the AO may accept or disregard it after considering the assessee’s explanation

Summary Table