AO Cannot Override DVO Valuation and Revert to Stamp Duty Value Under Section 56(2)(x): ITAT Mumbai

Case Overview

The Mumbai Bench of the Income Tax Appellate Tribunal rendered a significant ruling in Deepika Dilip Nadkar Vs ITO (ITAT Mumbai) pertaining to Assessment Year 2020-21, partly allowing the assessee's appeal for statistical purposes. The Tribunal addressed two critical questions: first, whether the assessment order was barred by limitation; and second, whether the Assessing Officer was justified in discarding the Departmental Valuation Officer's report and reverting to the stamp duty value while computing the addition under Section 56(2)(x) of the Income-tax Act.

On the limitation ground, the Tribunal ruled against the assessee. On the substantive valuation issue, while the Tribunal agreed that the Assessing Officer had acted contrary to the statutory framework by rejecting the DVO's report, it nonetheless declined to mechanically adopt the DVO's figure and instead directed a fresh valuation exercise.

Background Facts

The assessee, an individual, along with her spouse, jointly acquired flat no. 501, 5th floor, Krushna Castle, Fitwala Road, Lower Parel, Mumbai, on 09/10.04.2019 for a total purchase consideration of Rs. 1.50 crore. Against this actual purchase price, the Stamp Valuation Authority adopted the value of the property at Rs. 2,19,40,792/-.

The assessee, before the Assessing Officer, contended that the difference between the actual purchase price and the stamp duty value was attributable to several distinctive adverse features of the property and accordingly sought a reference to the Departmental Valuation Officer ("DVO"). The Assessing Officer made this reference on 13.09.2022 through the Technical Unit of the National Faceless Assessment Centre.

The DVO submitted his valuation report dated 28.09.2022, determining the fair market value of the property at Rs. 1,68,90,000/—a figure materially lower than the stamp authority's adopted value. However, the Assessing Officer did not accept this determination. He raised a query with the Technical Unit on 01.11.2022, and again sought a specific report on 21.11.2022, receiving a response on 30.11.2022. Ultimately, the Assessing Officer rejected the DVO's report and adopted the stamp duty value of Rs. 2,19,40,792/-.

Considering the assessee's 50% share in the property, the resultant difference of Rs. 69,40,792/- was apportioned, leading to an addition of Rs. 34,70,396/- under Section 56(2)(x). The CIT(A) upheld this addition. The assessee thereafter approached the Tribunal.

Ground 1: Whether the Assessment Was Barred by Limitation

The Assessee's Contention

Before the Tribunal, the assessee's counsel submitted that the statutory time limit for completing the assessment expired on 30.09.2022. The assessee pointed to an email dated 01.10.2022, by which the DVO had forwarded the valuation report to NEAC with a copy to the assessee. The argument was that this email demonstrated receipt of the report by the faceless assessment machinery on 01.10.2022 itself.

Accordingly, the assessee contended that the period to be excluded under Explanation 1(v) to Section 153 should be computed only up to 01.10.2022. Since the remaining period thereafter was less than sixty days, the first proviso to Explanation 1 would extend the limitation to sixty days from that date, placing the deadline at 01.12.2022. Since the assessment order was actually passed on 05.12.2022, the assessee claimed it was barred by limitation.

The assessee also relied upon Section 144B(5), Notification No. 22/2021 dated 31.03.2021, and the concept of concurrent jurisdiction under the faceless assessment mechanism, contending that receipt by NEAC/NFAC should be treated as receipt by the Assessing Officer.

The Tribunal's Reasoning on Limitation

The Tribunal carefully examined the assessment record and noted that para 3.3(iii) of the assessment order itself recorded receipt of the DVO's report through the Technical Unit on 06.10.2022, under DIN No. ITBA/AST/F/222/2022-23/1046181390. This same date of 06.10.2022 was also specifically referred to in the Assessing Officer's communication dated 01.11.2022 to the Technical Unit. The Tribunal observed that this date was not introduced subsequently by the Revenue—it appeared twice in the assessment record.

The Tribunal then examined the statutory architecture of Section 144B. Sub-section (5) mandates that all communications among the assessment unit, technical unit, and other units, or with the assessee, must flow through the National Faceless Assessment Centre. Sub-section (6) similarly prescribes electronic communication as the exclusive mode. Clause (x) of Section 144B(1) specifically requires NFAC to transmit the report received from the Technical Unit to the concerned Assessment Unit.