KALPANA JAYANT DHOKIA,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 14(1), MUMBAI

In the facts and circumstances of the case and in law, impugned order u/s 250 of the Income Tax Act, 1961 ["the Act" for short] passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre ["the CIT(A)" for short] as also the assessment order passed u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 ["the Act" for short] by the Assessing authority, National Faceless Assessment Centre, Delhi ["the Ld. AO" for short] are bad in law and void since the same are passed in gross violation of principles of natural justice.

In the facts and circumstances of the case and in law the impugned Assessment Order deserves to be quashed and the additions made therein deserves to be deleted since the same is passed without obtaining the valuation from the Valuation Officer before passing the assessment order despite the Assessee having raised a specific dispute at the time of assessment in respect of the property purchased by the Assessee on 24.03.2014.

In the facts and circumstances of the case and in law, the impugned assessment order is in violation of section 144B as also section 153 of the Act and therefore invalid and it is prayed that the same be quashed.

In the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Ld. AO in making an addition of Rs. 61.12.183/- in the hands of the Assessee under section 56(2)(x) of the Income Tax Act, 1961 which is in fact contrary to the extant law.

While confirming the action of the Ld. AO. the Ld. CIT(A) failed to appreciate that:

In the facts and circumstances of the case and in law, the addition made by the Ld AO and as confirmed by the Ld. CIT (A) be deleted.

Grounds No. 2 and 3 raised by the assessee are interrelated and interconnected and relate to challenging the order of the Ld. CIT(A) confirming the assessment order, on the ground that the assessment order deserves to be quashed and the impugned addition made therein deserves to be deleted, since the same was passed without obtaining the valuation report from the Valuation Officer before passing the assessment order. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

We have heard the counsels for both the parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. As per the facts of the present case, the assessee purchased a flat at 2405, 24th Floor, Tower A, Samriddhi Garden, Bhandup (West) - 400 078, on 24.03.2014, vide letter of reservation/agreement [page 2 of the AO's order and page 5 of the Ld. CIT(A)'s order]. The said property was registered on 20.05.2017. The case of the assessee was selected for scrutiny. During the course of assessment, the AO invoked Section 56(2)(x) of the Income-tax Act and observed that, since the agreement to sell/letter of allotment/intimation was entered into on 24.03.2014, the stamp duty value as on 24.03.2014 should be taken into consideration for the purchase. Accordingly, a show-cause notice was issued to the assessee proposing to add the difference between the purchase/agreement value and the stamp duty value as on 24.03.2014 to the returned income.

The assessee objected to the proposed addition and requested that the valuation be referred to the Departmental Valuation Officer (DVO). On the request of the assessee, the AO referred the matter to the DVO on 04.03.2021 to determine the fair market value as on 24.03.2014.

However, the assessment order was subsequently passed on 20.09.2021 in the absence of the DVO's report, observing as under:

However, whenever the valuation report from DVO is submitted, if any change is warranted, the assessee may approach JAO for rectification in assessment order and changes can be made by applying the relevant provisions of Income-tax Act, 1961 and giving effect to the report of DVO." 6. Thus, it is an admitted fact that no such valuation report had been received by the AO at the time of completion of the assessment. Therefore, a conditional assessment order was passed while making the addition under Section 56(2)(x) of the Income-tax Act.

Although the assessee preferred an appeal, the same was rejected.

After having considered the facts, we are of the view, no conditional assessment order could have been passed by the AO without obtaining the report of the DVO, particularly when, under Section 142A of the Income- tax Act, the DVO was required to submit the report within six months from the end of the month in which the reference was made. In this regard, reliance is placed on the following decisions:

Rajni Birla v. ITO, ITA No. 930/AHD/2025

We have carefully considered the rival submissions, perused the assessment order, rectification order under section 154, order of the learned CIT(A), the paper book filed by the assessee, and the judicial precedents cited. The controversy essentially lies within a narrow compass, whether the assessment order dated 22.09.2021 passed without awaiting the valuation report from the Departmental Valuation Officer (DVO) is legally sustainable and whether the subsequent rectification under section 154 could cure such a defect. It is an undisputed fact that the Assessing Officer, having noticed that the sale consideration disclosed by the assessee was lower than the stamp duty valuation, invoked section 50C(1) and, upon the assessee's request, made a reference to the Valuation Officer under section 50C(2). Once such a reference is made, the statutory procedure mandates that the Assessing Officer must await the report of the Valuation Officer before finalising the assessment. The scheme of section 50C(2) read with section 142A(6) and Explanation 1(iii) to section 153 makes this position abundantly clear. The law explicitly excludes, for the purpose of limitation, the period commencing from the date of reference to the Valuation Officer till the date on which the report is received.

The legislative intent is that the assessment should be completed on the basis of the DVO's determination and not by pre-empting it. Completion of assessment without awaiting the report would defeat the very purpose of the statutory reference mechanism. The assessment order dated 22.09.2021 passed while the reference was pending and before receipt of the DVO's report cannot be said to be a valid and complete assessment in the eyes of law. The observation of the Assessing Officer that the assessment is "subject to rectification on receipt of valuation report" reinforces that the order was not final. Such a conditional or contingent assessment is alien to the scheme of the Act, which provides for only one final assessment under section 143(3) and does not contemplate a provisional or tentative determination of income.

Accordingly, the so-called rectification order dated 20.11.2024, passed after receipt of the DVO's report, cannot be sustained in law. The report of the Valuation Officer came into existence only after the completion of assessment and, therefore, did not form part of the "record" of the assessment proceedings. The Assessing Officer could not invoke section 154 to re-compute capital gains on the strength of such subsequent material. The authority of law under section 154 extends only to correction of mistakes apparent from the record, not to a situation where a fresh valuation or new evidence is brought in after completion of the assessment. Further, the very act of the Assessing Officer recording in the assessment order that it was "subject to rectification on receipt of valuation report from the Valuation Officer" shows that the order was incomplete and contingent upon a future event. The Income-tax Act does not recognize or authorize any such provisional assessment under section 143(3). Once the Assessing Officer had chosen to refer the matter to the DVO under section 50C(2), he was bound by statute to await the report especially since Explanation 1(iii) to section 153 expressly excludes such period from limitation. By proceeding to finalize the assessment without the DVO's report and by leaving it open for rectification later, the Assessing Officer acted contrary to the legislative scheme and beyond the scope of his jurisdiction. Hence, the subsequent rectification purportedly made under section 154 is not a mere correction of an error apparent on record but a substantive re-determination of income on the basis of fresh material. Such an action amounts to review or reassessment, which is impermissible under section 154.

Section 153(5) read with Explanation 1(iii) provides that the period commencing from the date of reference to the Valuation Officer to the date of receipt of the report is to be excluded for computing the period of limitation. This statutory exclusion is a legislative recognition that the Assessing Officer is expected to await the valuation report and that the assessment cannot be completed prematurely. The Assessing Officer, therefore, had sufficient time in law to defer completion of assessment until the DVO's report was received. The action of finalising the assessment despite the pending reference is contrary to this legislative mandate.

Section 50C(2) of the Act establishes a mandatory procedural safeguard in favour of the assessee whenever the value adopted by the stamp valuation authority is disputed. The provision obliges the Assessing Officer, upon such objection, to refer the valuation of the capital asset to a Departmental Valuation Officer for determination of its fair market value. This mechanism, by incorporation of the procedure prescribed under section 16A of the Wealth-tax Act, 1957, mandates that before finalising such valuation, the Valuation Officer must give the assessee a reasonable opportunity of being heard and to produce evidence in support of the declared value. Failure to adhere to this procedure or to afford the assessee an opportunity to raise objections to the proposed valuation constitutes a violation of the statutory right vested under section 50C(2) and renders the assessment legally unsustainable as being contrary to the principles of natural justice. In the present case, though the Assessing Officer did make the reference, he failed to await the DVO's determination and instead proceeded to compute capital gains based on the stamp duty valuation. This deprived the assessee of the statutory right to contest the valuation before an independent authority. The violation of section 50C(2), being a procedural safeguard founded on principles of natural justice, renders the assessment unsustainable.

In view of the above discussion, we hold that:

Lalit Kumar Jalan v. ITO [2024] 168 taxmann.com 529 (Cuttack Trib.)

Shri Zulfi Revdjee v. ACIT [2019] (11) TMI 76 - ITAT Hyderabad

Since the Co-ordinate Benches of the Tribunal have already held that a conditional assessment order cannot be passed, and, in the present case as well, a conditional assessment order was passed, providing that the assessment would be revised upon receipt of the valuation report from the DVO, we hold that the assessment order is unsustainable in law and accordingly quash the same. Consequently, the additions made therein are also directed to be deleted. Accordingly, Ground Nos. 2 and 3 are allowed. 8

Since we have allowed Grounds No. 2 and 3 raised by the assessee, the other grounds raised by the assessee become academic in nature and, therefore, do not require separate adjudication.

In the result, the appeal filed by the assessee stands allowed.