ITAT Upholds Section 263 Revision: FMV of Land Valuation Found Unsupported and Unverified

The assessee, Nitabahen Dineshbhai Bharwad, did not file her return for AY 2018-19. The case was reopened under Section 147 based on information that she was a 1/8th co-owner of land sold for Rs. 3.70 crore, with her share amounting to Rs. 46.25 lakh. The Assessing Officer proceeded under Section 144 after treating the assessee’s unverified return as invalid, ultimately accepting a fair market value (FMV) of the land as on 01.04.2001 at Rs. 526 per sq. m. based on a registered valuer’s report and completing the assessment at Rs. 4,53,940/-. The assessee’s claim under Section 54B was also denied.

Appeal before PCIT: During revision, the PCIT noted that the valuer’s report lacked sale instances, relied on vague local enquiries, and provided no concrete basis for adopting a rate of Rs. 526 per sq. m.  Also, the jantri rate notified in 2006 for the same land category was only Rs. 220 per sq. m., making the accepted valuation excessive and unverified. Holding that the AO accepted the valuation mechanically without necessary enquiry, the PCIT invoked Section 263 and set aside the assessment for proper FMV determination.

Issue Raised: Whether the PCIT was justified in invoking Section 263 on the ground that the AO accepted an unsupported valuation report without making the enquiries mandated by Explanation-2 to Section 263.

ITAT Held: The Tribunal held that the AO made only a general query regarding the purchase and sale of property and did not probe the valuation methodology or seek supporting material for the valuer’s rate determination. The registered valuer admitted that no comparable sales were available, cited broad enquiries with unnamed villagers, and furnished no verifiable instances supporting the rate of Rs. 526 per sq. m. In such circumstances, the AO ought to have either sought specific sale data, questioned the valuer, or referred the matter to the DVO. His failure to do so meant that the assessment was completed without the necessary enquiry, making it prejudicial to the interest of Revenue.

The Tribunal also concurred with the PCIT’s observation that the jantri rate in 2006 was only Rs. 220 per sq. m., further demonstrating that the adopted 2001 rate lacked justification. The assessee’s reliance on earlier Tribunal decisions was rejected as factually distinguishable. With the AO’s lack of enquiry clearly established, the Tribunal upheld the PCIT’s order under Section 263. The appeal was dismissed

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