Failure to Await DVO Valuation Makes Assessment Invalid: ITAT Ahmedabad Allows Appeal, Strikes Down S. 143(3) and S. 154 Orders
Sangeetha Prathap
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that an assessment order passed without awaiting the Departmental Valuation Officer (DVO) report violates Section 50C(2) of the Income Tax Act, 1961. The Bench comprising Sanjay Garg (Judicial Member) and Makarand V. Mahadeokar (Accountant Member) observed that where the assessee disputes the stamp duty valuation and requests reference to the DVO, the Assessing Officer is statutorily required to wait for the report before finalising the assessment, and failure to do so vitiates the proceedings.
The assessee had sold an immovable property for ₹1,75,00,000, which was duly declared in the return of income. However, the Sub-Registrar adopted a higher value of ₹2,23,37,669 for stamp duty purposes. Relying on this figure, the Assessing Officer invoked Section 50C(1) and proposed to treat ₹2,23,37,669 as the full value of consideration for computation of long-term capital gains. In response, the assessee maintained that ₹1,75,00,000 was the actual consideration and requested that valuation be referred to the DVO under Section 50C(2).
The Assessing Officer indeed made a reference to the DVO and awaited the valuation report. However, as the assessment was approaching limitation, and the DVO report was still pending, the Officer proceeded to complete the assessment under Section 143(3) read with Section 144B by adopting the stamp-duty valuation of ₹2,23,37,669. The assessee appealed before the CIT(A), but the challenge was rejected.
During the pendency of appeal, the DVO valuation report was received. The DVO determined the fair market value of the property at ₹1,94,81,000, substantially lower than the stamp-duty figure, and not the value adopted in the assessment. Based on the DVO valuation, the Assessing Officer issued a rectification order under Section 154 and reduced the capital gains to ₹39,78,689.
The Tribunal held that the statutory mandate of Section 50C(2) was violated when the assessment order was passed without awaiting the DVO’s report. The Bench reaffirmed that once the assessee disputes the adoption of stamp-duty valuation and requests reference to the DVO, the Assessing Officer must wait for the DVO’s report and cannot complete the assessment until the valuation is available. The Tribunal rejected the view of the CIT(A) that making the reference was sufficient compliance, observing that the assessee’s statutory right would otherwise be rendered meaningless.
The Tribunal further held that the rectification order issued under Section 154 was also invalid. Since the DVO’s report was not part of the assessment record at the time the original assessment order was passed, the rectification could not be justified as a “mistake apparent from record.” The Bench noted that Section 154 cannot be invoked to modify an order based on fresh or subsequent material that was unavailable during the original assessment.
Finding that both the assessment order and the rectification order were passed in breach of statutory mandate and principles of natural justice, the Tribunal set aside the order of the CIT(A) and quashed both orders of the Assessing Officer. Accordingly, the appeal was allowed in full, and both the assessment and rectification orders were annulled.
Appearance
Counsel for Appellant/ Assessee: Shrunjal Shah
Counsel for Respondent/ Department: Abhijit
Cause Title: Rajni Arvind Birla v. Income Tax Officer
Case No: I.T.A. No. 930/Ahd/2025
Coram: Sanjay Garg (Judicial Member), Makarand V. Mahadeokar (Accountant Member)
