Summary: In the case of Rajni Arvind Birla Vs ITO concerning Assessment Year 2018–19, the ITAT Ahmedabad examined whether an assessment under section 143(3) r.w.s. 144B is valid if the AO finalizes the order without waiting for a DVO report under section 50C(2). The assessee sold a Mumbai commercial property, and the AO adopted the stamp-duty value for the assessment despite referring the matter to the DVO. The assessment was marked “subject to rectification,” and a subsequent section 154 rectification used the DVO report issued three years later. The Tribunal held that finalizing the assessment without the DVO report violated section 50C(2) and section 153, rendering it void ab initio. A rectification under section 154 cannot import a valuation report not part of the original record. The ITAT emphasized that the assessment was conditional, beyond jurisdiction, and breached natural justice, and therefore quashed all additions, disallowances, and related rectification orders, reinforcing that statutory procedures and the assessee’s rights must be strictly followed.
Key Issue:-
The central question before the Tribunal was whether an assessment under section 143(3) r.w.s. 144B can be sustained where the Assessing Officer (AO), after invoking the statutory mechanism under section 50C(2) and referring the valuation dispute to the Departmental Valuation Officer (DVO), proceeds to complete the assessment without waiting for the DVO’s report. The matter also required examination of whether a subsequent rectification under section 154—founded entirely on a DVO report that was not on record when the assessment was framed—could cure the jurisdictional defect.
Brief Facts:-
The assessee had sold a commercial property in Mumbai for ₹1.75 crore. The Sub-Registrar, however, adopted a higher stamp-duty value of ₹2,23,37,669. Upon the assessee disputing the valuation, the AO referred the matter to the DVO under section 50C(2).
As the assessment was approaching the statutory time-bar (30 September 2021), the AO finalised the order on 22 September 2021, adopting the stamp-duty valuation under section 50C(1). The assessment order itself stated that it was “subject to rectification on receipt of DVO report.”
The DVO’s valuation report was ultimately issued on 25 September 2024—three years after completion of assessment—determining the value at ₹1,94,81,000. On this basis, the AO passed a rectification order under section 154 on 20 November 2024. Both orders were upheld by the CIT(A).
The assessee appealed to the ITAT.
Issues for ITAT
1. Whether the AO could lawfully complete the assessment without receiving the DVO report, despite invoking section 50C(2).
2.Whether an assessment order described as being “subject to rectification” is essentially provisional and therefore beyond jurisdiction under section 143(3).
3.Whether section 154 can be invoked to adopt a valuation report that was not part of the assessment record.
4.Whether failure to follow the procedure mandated under section 50C(2) read with section 16A of the Wealth-tax Act vitiates the assessment.
ITAT Findings
1. Assessment Without Awaiting the DVO Report is Invalid
The Tribunal held that once the AO chooses to proceed under section 50C(2) and seeks expert valuation, the assessment cannot be finalised until the DVO’s report is received. The statutory scheme under section 153, Explanation 1(iii), expressly excludes the period between the reference and receipt of the valuation report from the time-limit for assessment. Thus, the AO’s concern about limitation was misplaced.
Crucially, the assessment order was found to be conditional and contingent—something the Act does not permit. The Tribunal noted that the Income-tax Act does not recognise a provisional assessment under section 143(3). Consequently, the assessment was held to be without jurisdiction and void ab initio.
2. Subsequent DVO Report Cannot Be Imported Through Section 154
Relying on established jurisprudence (including Kirit P. Thakkar v. ITO, Mumbai ITAT), the Tribunal reiterated that rectification under section 154 is confined to mistakes apparent from the record. Since the DVO’s report was not in existence—and therefore not part of the assessment record—at the time the order was passed, substituting the valuation on its basis is nothing but a review, which lies outside the scope of section 154. The rectification order was therefore unsustainable.
3. Violation of Statutory Rights Under Section 50C(2)
Section 50C(2) is not a procedural formality; it is a substantive right enabling an assessee to challenge the deemed valuation. Further, section 16A of the Wealth-tax Act, which applies to such valuation proceedings, mandates that the assessee be given an opportunity to participate. By finalising the assessment before the DVO’s input, the AO effectively denied this statutory protection. The Tribunal viewed this as a clear breach of natural justice.
4. Disallowances of Cost of Improvement and Transfer Expenses Unsustainable
Since the assessee was not afforded due opportunity regarding these claims—namely, furniture cost (₹3,01,745) and transfer expenses (₹61,000)—and because the assessment itself was void, the related disallowances also could not survive. The Tribunal also criticised the CIT(A) for upholding the orders mechanically, disregarding binding precedents and failing to deal with core jurisdictional issues.
ITAT Decision:-
1. The assessment order dated 22.09.2021 is invalid, as it was passed without awaiting the DVO’s report despite a pending reference under section 50C(2), and contrary to section 153.
2.The rectification order dated 20.11.2024 under section 154 is invalid, since it relies on material not forming part of the original assessment record.
3.The assessment stands vitiated for violating statutory rights and principles of natural justice.
4. All additions and disallowances are quashed.
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