By TIOL News Service

NEW DELHI, NOV 24, 2018: THE ISSUE IS - Whether erroneous approach to AO in not referring the matter of valuation of property to the DVO, can be rendered as fatal, so as to make the entire assessment as invalid. NO IS THE ANSWER.

Facts of the case:

During the course of scrutiny assessment proceedings, the AO came to know that the assessee had sold property for Rs. 11 lakhs, which had been assessed at Rs. 19.74 lakhs by the authorities for stamp duty purposes. Accordingly, the assessee was required to explain as to why provisions of section 50C should not be applied and why market value of Rs. 19.74 lakhs should not be taken as full value of consideration. In his reply, the assessee stated in most of the cases, commercial properties value adopted by stamp valuation authorities was generally much higher price than the fair market price. It was explained that the stamp duty value had been taken on the basis of fair rental value in the locality and not on the basis of stamp value applicable for commercial land and building. The assessee asked the AO to refer the matter to the DVO as per the provisions of section 50C. However, the AO declined the request of assessee and completed the assessment by taking stamp duty value at Rs. 19.74 lakhs as full value of sale consideration and computed capital gains tax liability accordingly. On appeal, the CIT(A) upheld the order of AO.

Tribunal held that,

++ it is true that during the course of scrutiny assessment proceedings itself, the assessee requested the AO to refer the matter of valuation to the DVO. It is equally true that the AO declined the request. The undisputed fact is that the AO computed the capital gains tax liability by adopting the assessed value as full value of consideration which is in line with the provisions of section 50C of the Act. No doubt, the provision also provides for reference to the DVO if the assessee asks so. Thus, by not referring the matter to the DVO on the request of the assessee, the AO may have erred. But such error cannot be so fatal so as to make the assessment annulled. Rather, such errors can be cured by setting aside the matter with a direction to refer the issue of valuation to the DVO and then decide the issue afresh. By setting aside the issues to the file of AO with a direction to refer the matter to the DVO does not amount to giving second innings to the AO as valuation by the DVO would be binding on the AO. Therefore, the AO is directed to refer the issue relating to valuation to the DVO and decide the issue afresh after giving a reasonable and fair opportunity of being heard to the assessee.

(See 2018-TIOL-2227-ITAT-DEL)