ITAT Quashes Assessment Passed Without Awaiting DVO Report: Section 50C(2) Safeguards Reaffirmed

The assessee, Rajni Arvind Birla, had sold commercial units in Mumbai for Rs. 1.75 crore for AY 2018-19. While the sale was duly reported, the Sub-Registrar valued the property at a higher figure of Rs. 2.23 crore for stamp duty purposes. During scrutiny, the AO invoked Section 50C(1). Upon the assessee disputing the stamp valuation and requesting reference to the Valuation Officer, the AO did refer the matter to the DVO under Section 50C(2). However, before receiving the valuation report, and despite the statutory exclusion of time under Section 153, the AO hurriedly passed an assessment order on 22.09.2021 adopting the stamp value, expressly stating that the order was “subject to rectification upon receipt of the valuation report.” During appeal, the DVO submitted a valuation of Rs. 1.94 crore. Based on the report, the AO gave rectification order u/s 154 in November 2024.

The CIT(A) upheld both the original assessment and the rectification order, also allowing disallowances relating to cost of acquisition, improvement, and transfer expenses. Aggrieved, the assessee approached the ITAT.

Main Issue: Whether an assessment made under Section 143(3) adopting the stamp duty valuation is valid, and whether the AO could later use Section 154 to substitute the capital gains computation based on the later valuation report.

ITAT’s Decision: The Tribunal held that once the AO invokes Section 50C(2) and refers valuation to the DVO, the assessment cannot be finalised until the DVO’s report is received. Explanation 1(iii) to Section 153 expressly excludes this period from limitation, making it clear that the AO was expected to await the report rather than preempt it. Therefore, the assessment order dated 22.09.2021 was declared invalid.

The assessee’s statutory right to valuation under Section 50C(2) was violated, and CIT(A)’s reasoning suffered from non-application of mind. Thus, both the assessment order and the Section 154 rectification were quashed in full, making all additions infructuous.

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