ITAT Deletes Capital Gains Addition for AO’s Failure to Await DVO Valuation Report :

The assessee sold two plots of land situated at Bhinmal, Rajasthan, for an aggregate consideration of Rs 21 lakh, comprising Rs 3 lakh for one plot and Rs 18 lakh for the other. In its return of income for Assessment Year 2011–12, the assessee claimed a long-term capital loss arising from the transactions. During scrutiny, the AO noticed a difference between the actual sale consideration and the values reported by the registration authorities. The assessee explained that the properties were subject to disputes relating to encroachment and that the purchasers had settled the disputes using their own resources. 

The AO referred the properties to the DVO but proceeded to complete the assessment by adopting the stamp duty values without waiting for the valuation report. The CIT(A) upheld the AO’s action.

The Tribunal noted that the assessee had specifically challenged the stamp duty valuation and that the AO had himself made a reference to the DVO. Once such a reference had been made, the valuation mechanism under Section 50C(2) was required to be carried through before the capital gains could be finally determined.

The Tribunal further clarified that the pending disputes and financial circumstances surrounding the sale did not, by themselves, override the statutory requirements of Section 50C. However, the assessee had raised a specific objection to the stamp duty valuation and invoked the statutory mechanism for an independent determination of fair market value. The AO could not disregard that process and complete the assessment prematurely.

The Tribunal held that the AO erred in completing the assessment and making the impugned addition without awaiting the DVO’s valuation report. Accordingly, the Tribunal deleted the addition and allowed the grounds raised by the assessee. The appeal was allowed in favour of Sawalchand Chunilal Bafna HUF.