ITAT Varanasi on Section 50C(2): AO Must Seek DVO Valuation If Stamp Duty Valuation Is Contested

Background of the Dispute

The Income Tax Appellate Tribunal, Varanasi Bench, in the case of Veena Ojha Vs DC/ACIT (ITAT Varanasi), examined the scope and obligation of the Assessing Officer under Section 50C(2) of the Income Tax Act 1961 where the assessee disputes the stamp duty valuation and supports such objection with an approved valuer’s report.

The appeal arose from the order dated 25.07.2024 passed by the Learned Addl./Joint Commissioner of Income-tax (Appeals)-6, Delhi for Assessment Year 2017-18. The assessee challenged the action of the lower authorities in adopting the stamp duty valuation for computing capital gains without making a reference to the Departmental Valuation Officer (DVO), despite a clear objection and the filing of a valuation report from an approved valuer.

Brief Facts of the Case

Return of Income and Scrutiny

  • The assessee, an individual, filed her return of income on 28.03.2018 declaring a total income of Rs. 23,75,460.
  • The return was selected for scrutiny under the Computer-Assisted Scrutiny System (CASS).
  • During the pendency of the assessment, the assessee, Smt. Veena Ojha, passed away on 26.09.2019, and her legal heir, Sri Sudhakar Ojha, was brought on record and proceedings continued in his capacity as legal representative.

Application of Section 50C and Addition by AO

In the course of the scrutiny assessment proceedings, the Assessing Officer invoked Section 50C of the Act. Instead of accepting the declared sale consideration for the property transfer, the AO adopted the value as per the circle rate fixed by the Stamp Valuation Authority and treated that as the deemed full value of consideration for the purpose of computing capital gains.

  • By substituting the stamp duty value for the actual sale consideration, the AO worked out a higher capital gain.
  • This led to an addition of Rs. 43,94,000 towards capital gains under Section 50C.

The assessee had objected to the adoption of the stamp duty valuation and had submitted a valuation report prepared by an approved valuer, asserting that the fair market value of the property was lower than the stamp duty value.

Appeal Before CIT(A)

Aggrieved by the assessment order, the assessee approached the Learned Commissioner of Income-tax (Appeals). In the appellate proceedings:

  • The assessee reiterated that the stamp duty valuation did not represent the actual fair market value.
  • The assessee relied on the approved valuer’s report and contended that, in terms of Section 50C(2), the AO was legally bound to refer the valuation issue to the DVO once an objection to the stamp duty value was raised.

However, the Ld. CIT(A) dismissed the appeal without entering into a detailed discussion on the merits of the valuation dispute and without directing a reference to the DVO. The order effectively upheld the AO’s adoption of the stamp duty valuation.

This led to the present appeal being filed before the ITAT, Varanasi.

Grounds Raised Before the Tribunal

The assessee challenged the appellate order primarily on the following lines: