AO must consider valuation report if matter was referred to DVO before completing assessment: ITAT

Case Details: Sudalaimani Palanivelrajan v. DCIT - [2023] 146 taxmann.com 162 (Chennai-Trib.)

Judiciary and Counsel Details

• • Mahavir Singh, Vice President & G. Manjunatha, Accountant Member
  • S. Sridhar for the Appellant.
  • Chinthapalli Mehra Chand, JCIT for the Respondent.

Facts of the Case

Assessee, an individual, filed its return of income for the relevant assessment year. During the reassessment proceedings, the AO noticed that a property was purchased by the assessee at a consideration lower than the guideline value fixed by the Sub-Registrars Office.

AO issued notice for income escapement under section 147 and invoked section 56(2)(vii)(b), contending that the difference amount between actual consideration and guideline value must be treated as income of the assessee. On the assessee’s request, the matter was referred to Departmental Valuation Officer (DVO) to determine the correct market value. However, due to time constraints, AO completed the assessment without giving effect to the Valuation Report by DVO.

Aggrieved by the AO’s order, the assessee preferred an appeal to CIT(A) but could not succeed. The matter then reached the Chennai Tribunal.

ITAT Held

The Tribunal held that upon the assessee’s request, AO referred the matter to the DVO, but completed the assessment even before receiving the valuation report from the DVO. The AO should have waited for the DVO’s report to determine the fair market value of the property in accordance with section 56(2)(vii)(b) of the Income-tax Act, 1961 before making any additions.

Since the Assessing Officer made the additions without waiting for the DVO’s report, the matter should be sent back to the Assessing Officer to reconsider the issue after taking into account the DVO’s report. Therefore, the issue was set aside and the matter was sent back to the Assessing Officer to redo the assessment.