Income Tax - Assessment order without awaiting the Departmental Valuation Officer's report is violative

Income Tax Appellate Tribunal Quashes Assessment Order for Procedural Breach Assessment Order Invalidated Due to Non-Compliance with Statutory Mandates Under Sections 50C(2) and 153 of the Income Tax Act

In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench "B" has quashed the assessment order against Rajni Arvind Birla, an assessee who challenged the procedural compliance of her assessment under the Income Tax Act, 1961. The Tribunal found that the assessment order, dated September 22, 2021, was passed without awaiting the mandatory report from the Departmental Valuation Officer (DVO), a requirement under Section 50C(2) read with Section 153, thereby rendering the assessment invalid.

The case involved the sale of immovable property in Mumbai, where the sale consideration declared was Rs. 1.75 crore, while the stamp duty authority valued it at Rs. 2.23 crore. The Assessing Officer had adopted the higher stamp duty value for computing capital gains without waiting for the DVO's report, despite the statutory mandate to do so when the assessee disputes the valuation.

The Tribunal, comprising Judicial Member Shri Sanjay Garg and Accountant Member Shri Makarand V. Mahadeokar, emphasized the legislative intent for assessments to be completed based on the DVO's determination and not in anticipation of it. They criticized the Assessing Officer for finalizing the assessment prematurely and conditionally, noting that such conditional assessments are alien to the Income Tax Act's scheme, which envisages only one final assessment.

The subsequent rectification order, dated November 20, 2024, which sought to amend the assessment based on the belated DVO report, was also invalidated. The Tribunal highlighted that rectification under Section 154 is limited to correcting mistakes apparent from the record, and cannot be used to introduce new material post-assessment.

The Tribunal further noted the breach of the assessee's statutory rights under Section 50C(2) and the failure to provide an opportunity to contest the valuation, violating principles of natural justice. Additionally, the appellate authority's failure to engage with judicial precedents cited by the assessee was deemed a non-application of mind.

This ruling underscores the importance of adherence to procedural safeguards and statutory mandates in tax assessments, reinforcing taxpayers' rights to fair and just procedures.

Bottom Line:

Income Tax - Assessment order under Section 143(3) passed without awaiting the Departmental Valuation Officer's (DVO) report violates Section 50C(2) read with Section 153, resulting in procedural breach and jurisdictional infirmity.

Statutory provisions: Sections 50C(2), 153, 154, and 143(3) of the Income Tax Act, 1961

Rajni Arvind Birla v. Income Tax Officer, Ward-3(1)(1), (ITAT)(Ahmedabad Bench "B") : Law Finder Doc Id # 2815062