Zabuben Mepabhai Bharvad Vs PCIT (ITAT Ahmedabad)
Pending Valuation Enquiry Cannot Be Ignored: Later DVO Report Supports Revision Under Section 263
Initiating an Enquiry Is Not Completing It
The Ahmedabad Tribunal upheld revision under section 263 where the Assessing Officer referred a property valuation to the Departmental Valuation Officer but completed the assessment without awaiting the report.
The Tribunal found no evidence that the Assessing Officer had independently verified the assessee’s valuation before accepting it. The subsequent DVO report, available when the Principal Commissioner examined the record, revealed a substantial difference affecting capital gains. However, neither the revision order nor the Tribunal’s decision directed automatic adoption of the DVO’s valuation.
Property Sale and Disputed Acquisition Value
The reassessment concerned the assessee’s share in the sale proceeds of an immovable property held jointly with other persons. The order records receipt of ₹42,50,000 towards her share.
For computing capital gains, the assessee claimed a value of ₹43,21,060 as on 1 April 2001, supported by a registered valuer’s report.
The Assessing Officer considered independent verification necessary and made a reference under section 142A. Nevertheless, he completed the assessment on 18 September 2023, accepting the returned total income of ₹3,03,940, without receiving the DVO’s report.
The report subsequently determined the relevant property value at ₹8,21,500. After examining the record, the Principal Commissioner held the assessment erroneous and prejudicial to the Revenue and ordered fresh assessment by his revisional order dated 18 March 2026.
Assessee Claims a Plausible View Was Taken
The assessee argued that the Assessing Officer had conducted enquiries, applied his mind and adopted a plausible view. Merely receiving a different valuation after assessment, she contended, could not justify revision.
She further submitted that the DVO’s report was received beyond the six-month period prescribed under section 142A and therefore had no value. Reliance was placed on the Bangalore Tribunal’s decision in Bashir Ahmed Abdurrahman Matte, ITA Nos. 6 and 7/Bang/2021, dated 21 September 2022.
The assessee also cited Shree Krishna Colonisers, ITA No. 95/Rpr/2022, against revision founded on a valuation report received after assessment.
Additionally, she invoked consistency, arguing that the Department had accepted the registered valuation in proceedings involving three other co-owners.
Subsequent Material Forms Part of the Revisional Record
The Tribunal rejected the proposition that the later receipt of the DVO report made it irrelevant to section 263.
Under Explanation 1(b) to section 263, the record includes all records relating to proceedings under the Act available when the Principal Commissioner examines them. The DVO report had already been received at that stage and directly affected the computation of capital gains.
The Tribunal also emphasised that the Assessing Officer himself had considered the valuation sufficiently doubtful to require statutory verification. Yet nothing demonstrated an independent examination or recorded satisfaction supporting acceptance of the registered valuer’s figure while the reference remained pending.
On these facts, the assessment could not be protected merely by describing the accepted valuation as a plausible view.
Six-Month Objection Examined Alongside Assessment Limitation
The DVO reference was made on 17 February 2023, and the report was received on 1 November 2023. The order records that the normal assessment limitation expired on 31 March 2023.
The Tribunal considered Explanation 1(v) to section 153, which excludes the period from the valuation reference until actual receipt of the report when computing assessment limitation.
It held that the Assessing Officer could have awaited the report because the relevant period was liable to exclusion. In the circumstances, receipt after six months did not, by itself, establish that the report was a nullity or require completion of assessment without it.
This reasoning addressed the objection in the context of the revision under consideration.
Valuation Merits and Co-Owner Evidence Remain Open
The Tribunal stressed that the Principal Commissioner had directed examination of the DVO report and fresh assessment after hearing the assessee. He had not fixed the final acquisition value or ordered an addition of a specified amount.
The assessee remained entitled to raise permissible objections to the DVO valuation. She could also produce relevant material concerning valuations accepted for the other co-owners.
The Tribunal therefore upheld the section 263 order and dismissed the appeal. The fresh assessment directed by the Principal Commissioner remained operative.
Author’s Comments
The decision distinguishes between initiating verification and reaching an informed conclusion. An unanswered statutory reference, followed by unexplained acceptance of the disputed figure, may leave the assessment vulnerable to revision.
The later DVO report was relevant because section 263 defines the record with reference to the material available during revisional examination. Its relevance does not make its valuation conclusive.
The treatment of the six-month objection also deserves careful reading: the Tribunal relied on the assessment-limitation exclusion and the particular circumstances. Practitioners should examine both provisions rather than treating either timeline in isolation.
For the assessee, the substantive valuation contest remains available. Revision requires reconsideration; it does not establish that the DVO’s figure is necessarily correct.
Cases Discussed
- Basir Ahmed Abdurrahman Matte — ITA Nos. 06 & 07/Bang/2021, dated 21.09.2022 (ITAT Bangalore): Relied upon by the assessee regarding the six-month period for furnishing a DVO valuation report under section 142A. The Tribunal considered this decision while examining the separate assessment-limitation exclusion under Explanation 1(v) to section 153 and rejected the assessee’s objection in the circumstances of the present case.
- Shree Krishna Colonisers — ITA No. 95/Rpr/2022 (ITAT Raipur): Cited by the assessee against section 263 revision founded on a DVO report received after assessment. The Tribunal did not separately analyse this precedent but held that the subsequently received report formed part of the revisional record under Explanation 1(b) to section 263.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
This appeal filed by the Assessee is directed against the order of Principal Commissioner of Income Tax (PCIT), Ahmedabad – 1, [hereinafter referred to as “PCIT”] dated 18.03.2026 for the Assessment Year (A.Y.) 2018-19, passed in his revisional jurisdiction u/s. 263 of the Income Tax Act [hereinafter referred as “the Act”].
2. The brief facts of the case are that the assessee did not file his return of income for A.Y. 2018-19. The case of the assessee was reopened on the basis of information received by the AO that the assessee had carried out high value transaction of sale of immovable property during the year. The AO had issued a notice u/s. 148 of the Act on 27.07.2023 after recording his reason, in response to which the assessee had filed his return of income on 30.04.2022 disclosing income of Rs.3,03,940/-. In the course of assessment, it transpired that the assessee had received an amount of Rs. 42,50,000/- being 1/8th of the sale consideration of Rs. 3.70 crores towards sale proceeds of an immovable property, in which the assessee was a co-owner. The assessee had claimed cost of acquisition of the said property at Rs. 43,21,060/- for which a valuation report of a registered valuer was filed. The AO had made a reference to the Departmental Valuation Officer (DVO) u/s. 142A of the Act, for determining the value of the property as on 01.04.2001 vis-a-vis the cost of acquisition as claimed by the assessee. The AO had, however, completed the assessment without awaiting for the report of the DVO and accordingly the assessment order was passed u/s. 147 read with section 144B of the Act on 18.09.2023 at total income of Rs. 3,03,940/-, as per return. Subsequently the case record was called for and examined by the Ld. PCIT. He noticed that the AO had accepted the value of the property as on 01.04.2001 at Rs. 43,21,060/-, as declared by the assessee, whereas the fair market value of the property as on 01.04.2001 was determined by the DVO at Rs. 8,21,500/- only. Therefore, the Ld. PCIT held that the order of the AO was erroneous and prejudicial to the interest of revenue. He accordingly set aside the assessment order dated 18.09.2023 with a direction to pass a fresh order after considering the report of the DVO and after allowing an opportunity of being heard to the assessee.
3. Aggrieved with the order of the PCIT, the assessee is in appeal before us.
4. The following grounds have been taken in this appeal:
1. That the Ld. Principal Commissioner of Income Tax 1, Ahmedabad has erred in law and on facts while passing the order u/s 263 of the Income Tax Act, 1961 dated 18.03.2026 and hence it requires to be quashed.
2. That the order passed by ITO, NFAC Delhi u/s 147 r.w.s. 144B of the Income Tax Act, 1961 dated 18.09.2023 after considering all the submissions and inquiry made by him, therefore the order passed was neither erroneous nor prejudicial to the interest of revenue, however Ld. PCIT-1, Ahmedabad has initiated proceedings u/s 263 of the Income Tax Act, 1961 is against facts on record and requires to be quashed.
3. The Ld. PCIT erred in holding the assessment order as erroneous despite the fact that the Assessing Officer had applied his mind, made a reference to the DVO u/s 142A and consciously accepted the valuation based on available material and therefore, the Ld. PCIT-1, Ahmedabad has initiated proceedings u/s 263 of the Income Tax Act, 1961 is against facts on record and requires to be quashed.
4. That the Ld. PCIT 1, Ahmedabad failed to appreciate that in the case of other co-owners of the same property, the same valuation was accepted by the department and thus violating the principle of consistency and non-discrimination and therefore, proceedings u/s 263 of the Income Tax Act, 1961 initiated by the Ld. PCIT-1, Ahmedabad requires to be quashed.
5. That the Ld. PCIT – 1, Ahmedabad erred in holding the assessment order as erroneous despite the fact that the Assessing Officer had applied his mind, made a reference to the DVO u/s 142A and consciously accepted the valuation based on available material and thus, the AO adopted a plausible view which is not amenable to revision under section 263 therefore, proceedings u/s 263 of the Income Tax Act, 1961 initiated by the Ld. PCIT -1, Ahmedabad requires to be quashed.
6. Your appellant craves leave to add, alter, amend or drop any of the grounds till the appeal is finally heard and disposed of.
5. Shri Harish Gamara, the Ld. AR of the assessee submitted that in the course of assessment the AO had conducted proper inquiry, applied his mind and taken a plausible view and, therefore, the assessment order cannot be treated as erroneous. He explained that the valuation report of the DVO was received on 01.11.2023 which was beyond the statutory period of six months and, therefore, this report had no value. In this regard he relied upon the decision of Co-ordinate bench of Bangalore Tribunal in the case of Bashir Ahmed Abdurrahman Matte in ITA No 06 & 07/Bang/2021 dated 21.09.2022 [ITAT Bangalore]. The Ld. AR submitted that when the assessment was completed by the AO on 18.09.2023 the valuation report of the DVO was not available on record. Therefore, the order of the AO could not have been treated as erroneous and prejudicial to the interest of revenue. He submitted that the revisionary proceeding u/s. 263 of the Act on the basis of DVO report received after completion of assessment; was illegal, bad in law and unsustainable. In this regard he relied upon the decision of Raipur Bench of the Tribunal in the case of Shree Krishna Colonisers [ITA No. 95/Rpr/2022]. The Ld. AR further submitted that the assessee was only a co-owner and in the proceeding initiated in the case of other three co-owners, the Department had accepted the valuation report. He submitted that the Revenue cannot discriminate among co-owners by doubting the cost of acquisition of the property in the case of one of the co-owner.
6. Per contra, Shri Kiran Unavekar, the Ld. CIT-DR submitted that the AO in the course of assessment proceeding had referred the matter to the DVO to find out the correct value of the property as on 01.04.2001. However, the AO had completed the assessment without awaiting for the report of the DVO. The Ld. CIT-DR submitted that when the matter was examined by the Ld. PCIT, the report of the DVO was available on record from which it was evident that the order of the AO was erroneous and prejudicial to the interest of Revenue. The Ld. CIT-DR has submitted that as per clause (b) of Explanation (1) to section 263 of the Act, the record includes all records relating to the proceeding available at the time of examination by the PCIT. Thus, the order of the DVO received subsequent to the passing of assessment order was part of the record and on the basis of such record, the Ld. PCIT had rightly concluded that the order of the AO was erroneous and prejudicial to the interest of revenue.
7. We have considered the rival submissions. The undisputed facts are that the assessee claimed the cost of acquisition of the property as on 01.04.2001 at Rs.43,21,060/- on the basis of a registered valuer’s report. The Assessing Officer did not simply accept the said valuation at the initial stage. On the contrary, he considered it necessary to ascertain the fair market value independently and, accordingly, made a reference to the DVO u/s 142A of the Act. Thus, the AO himself had formed an opinion that the valuation adopted by the assessee required verification through the statutory valuation mechanism. Once such reference had been made, the valuation report of the DVO constituted material directly relevant to the determination of the cost of acquisition and consequently to the computation of capital gains. The assessment order, however, was passed without the benefit of the DVO’s report. There is nothing brought on record before us to demonstrate that, in the absence of the DVO’s report, the Assessing Officer had independently examined the valuation adopted by the assessee and recorded any satisfaction regarding its correctness. The assessment was thus completed by accepting the very valuation which the AO had considered necessary to verify through the DVO.
8. We also find merit in the submission of the learned CIT-DR that the subsequent availability of the DVO’s report cannot, by itself, render the material irrelevant for the purposes of section 263. Clause (b) of Explanation 1 to section 263 specifically provides that, for the purposes of the said section, “record” shall include and shall be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the PCIT. The clause (b) of Explanation (1) of section 263 of the Act, stipulates as under:
Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,—
(b) “record” shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner;
In the present case, when the assessment record was examined by the learned PCIT, the DVO’s report had already been received and formed part of the record. The report disclosed a substantial difference between the valuation claimed by the assessee and the valuation determined by the DVO. The report, therefore, constituted relevant material having a direct bearing upon the computation of capital gains.
9. The question before us is not whether the DVO’s valuation of Rs.8,21,500/- is to be finally adopted in determining the taxable capital gain. That issue has not been decided by the learned PCIT. The limited question is whether the assessment order, in the facts and circumstances of the case, was erroneous insofar as it was prejudicial to the interests of the revenue. In this regard, it is material that the learned PCIT has not directed the AO to mechanically adopt the valuation determined by the DVO. The assessment has been set aside with a direction to examine the DVO’s report and to pass a fresh order after affording adequate opportunity of hearing to the assessee. Thus, the learned PCIT has merely directed the Assessing Officer to undertake the examination which had become necessary in view of the DVO’s report and to determine the correct taxable income in accordance with law. The assessee would consequently be entitled to raise all permissible objections before the Assessing Officer, including objections relating to the valuation adopted by the DVO.
10. We now consider the contention of the learned AR that the DVO’s report was received beyond the period of six months prescribed u/s 142A of the Act and, therefore, could not be relied upon. We have considered the decision of the Coordinate Bench of the Bangalore Tribunal in the case of Basir Ahmed Abdurrahman Matte (supra), relied upon by the learned AR. However, in the present context, it is also necessary to consider the specific provisions contained in Explanation-1 to section 153 of the Act dealing with exclusion of the period attributable to a reference made to the Valuation Officer. Clause (v) of Explanation 1 to section 153 provides for exclusion of the period commencing from the date on which the Assessing Officer makes a reference to the Valuation Officer under section 142A(1) and ending with the date on which the report of the Valuation Officer is received by the Assessing Officer. The language employed in the said clause specifically refers to the date on which the report of the Valuation Officer is actually received by the Assessing Officer. Thus, for the purposes of computation of the limitation period u/s 153, the statute contemplates exclusion of the period from the date of reference to the date of actual receipt of the DVO’s report. In the present case, the reference to the DVO was made on 17.02.2023 and the DVO’s report was received on 01.11.2023. The normal limitation period had expired on 31.03.2023. The period covered by the reference to the DVO was, however, liable to be excluded in accordance with Explanation-1 to section 153. Consequently, the mere fact that the DVO’s report was received after six months cannot, in the facts of the present case, lead to the conclusion that the report was a nullity or that the AO was required to complete the assessment without awaiting the report. The relevant statutory provision for limitation itself contemplates that the period up to the actual receipt of the DVO’s report is to be excluded.
11. It is also relevant that the AO himself had initiated the valuation proceedings by making a reference to the DVO. Having considered the valuation issue sufficiently material to warrant a reference u/s 142A, the AO ought to have taken into consideration the outcome of such statutory process before finalising the assessment, particularly when the limitation period was capable of being extended by exclusion of the period prescribed under Explanation-1 to section 153. The completion of the assessment without awaiting the report, despite the statutory provision permitting exclusion of the relevant period for limitation purposes, resulted in the assessment being completed without consideration of material which was directly relevant to the determination of the taxable capital gain.
12. As regards the contention of the learned AR that the valuation adopted in the cases of the other co-owners had been accepted by the Department, we are of the view that the said contention does not require adjudication in the present appeal. The appeal before us arises from the order passed by the learned PCIT u/s 263 of the Act. The issue requiring consideration is whether the assessment order was erroneous insofar as it was prejudicial to the interests of the revenue. Moreover, the impugned order does not finally determine the correct fair market value of the property or direct the AO to make an addition of any particular amount. The AO has merely been directed to examine the DVO’s report and complete the assessment afresh after providing due opportunity to the assessee. The assessee would be at liberty to place before the AO all relevant material, including the valuation adopted in the cases of other co-owners, if otherwise permissible in law.
13. In view of the foregoing discussion, we find that the AO had himself considered the determination of the fair market value of the property as on 01.04.2001 to be necessary and had accordingly made a reference to the DVO u/s 142A of the Act. The assessment, however, was completed without awaiting the result of such reference. The subsequent DVO’s report disclosed a substantial variation between the value declared by the assessee and the value determined by the DVO and constituted relevant material having a direct bearing on the computation of capital gains. The fact that the DVO’s report was received after the assessment order was passed does not, in the facts of the present case, preclude its consideration by the learned PCIT, particularly in view of clause (b) of Explanation-1 to section 263, under which the record includes the material available at the time of examination by the PCIT. Further, the limitation provisions contained in Explanation-1 to section 153 specifically provide for exclusion of the period commencing from the date of reference to the Valuation Officer and ending with the date of receipt of his report. Therefore, the Assessing Officer could have awaited the DVO’s report before finalising the assessment. We accordingly hold that the assessment order was erroneous insofar as it was prejudicial to the interests of the revenue. The learned PCIT was justified in exercising jurisdiction u/s 263 of the Act and in setting aside the assessment with a direction to the AO to examine the DVO’s report and pass a fresh order in accordance with law after providing due opportunity of hearing to the assessee.
14. In the result, the order passed by the learned PCIT u/s 263 of the Act is upheld and the grounds raised by the assessee are dismissed.
15. In the result, the appeal of the assessee is dismissed.
Order pronounced in the Court on 08/10/2026 at Ahmedabad.
