Rajiv Nivas Vs DCIT (ITAT Bangalore)
Wrong Forum Forgiven, Wrong Valuation Reopened: ITAT Restores ₹1.31 Crore Capital-Gain Dispute
Summary: In Rajiv Nivas v. DCIT, ITA No. 759/Bang/2024, decided on 28 August 2026, the Bangalore Bench of the Income Tax Appellate Tribunal condoned a substantial 410-day delay caused by the assessee’s bona fide filing of the appeal before the wrong appellate forum. On merits, it disapproved the computation of capital gains based on a Valuation Committee rate when the AO, despite referring the property to the DVO, passed the draft assessment order without awaiting the DVO’s report. The valuation issue was restored to the AO for fresh determination.
Relevant Facts
The assessee was a non-resident individual who filed his return for AY 2020-21, declaring total income of approximately ₹71.41 lakh. He had sold an inherited, converted non-agricultural property with a building situated at Casaba Village, Mangalore District.
The property was sold to Northern Sky Properties Pvt. Ltd. for ₹14 crore, of which the assessee’s 25% share was ₹3.50 crore. The assessee received ₹1.68 crore in cash, while ₹98.20 lakh was adjusted towards purchase of a flat from the buyer. He also invested ₹50 lakh in specified bonds & claimed exemption u/s 54EC.
Since the property had been acquired before 1 April 2001, the assessee adopted its fair market value as on that date as the cost of acquisition. A registered valuer determined the land value at ₹2.10 crore & building value at ₹31.09 lakh. For his proportionate share, the assessee claimed total cost of ₹60.27 lakh, comprising land cost of ₹52.50 lakh & construction cost of ₹7.77 lakh.
The AO accepted the construction cost but restricted the land cost to ₹7.21 lakh, resulting in indexed cost of ₹43.32 lakh against the assessee’s claim of approximately ₹1.74 crore. The difference after indexation was ₹1,30,86,281.
The AO referred the matter to the DVO on 18 March 2022, but passed the draft assessment order merely five days later, on 23 March 2022, without waiting for the valuation report. Significantly, the DVO’s first notice to the assessee was also issued on 23 March 2022. The AO instead adopted the Valuation Committee rate of approximately ₹1.37 lakh per cent obtained from the local authorities.
The DRP upheld the computation, observing that the DVO’s valuation could not be completed because the assessee had allegedly failed to furnish the necessary information. The final assessment order dated 10 January 2023 assessed total income at ₹2.02 crore.
Delay & Maintainability Issue
Against the final order passed u/s 143(3) read with section 144C(13), the proper appellate forum was the Tribunal. However, the assessee mistakenly filed an appeal before the CIT(A) on 6 February 2023. After realising the error, he filed the appeal before the Tribunal on 24 April 2024 & later withdrew the CIT(A) appeal. This resulted in a reported delay of 410 days.
The assessee explained that, being an NRI, he had approached the wrong forum under a bona fide mistaken belief. He had continuously pursued his remedy & gained no advantage from filing before the CIT(A). The Revenue opposed condonation, arguing that approaching the wrong authority did not automatically constitute sufficient cause.
The Tribunal found no mala fide intention or deliberate inaction. The original appeal had been filed promptly, though before the wrong forum. Once the mistake was discovered, the assessee approached the Tribunal & withdrew the earlier appeal. As the circumstances established sufficient cause, the Tribunal condoned the entire delay & admitted the appeal.
Submissions on Valuation
The assessee contended that the registered valuer’s report validly determined the fair market value as on 1 April 2001. The AO neither properly rejected this report nor produced comparable sale instances demonstrating that the adopted committee rate represented the property’s actual market value.
It was also argued that the AO applied a guidance value relating to a property in a different locality, namely Maidan Road, whereas the transferred property was situated elsewhere in Mangalore. The rate lacked comparability regarding location, proximity, nature & marketability.
Further, once the matter had been referred to the DVO, the AO ought to have awaited the report. The assessee maintained that he furnished complete information pursuant to the DVO’s subsequent notice dated 14 July 2022. Therefore, the DRP incorrectly blamed him for non-completion of the valuation.
The Revenue supported the authorities’ orders & maintained that the DVO report could not be completed due to the assessee’s failure to furnish details.
Tribunal’s Findings & Legal Reasoning
The Tribunal recognised that a property acquired before 1 April 2001 entitled the assessee to substitute fair market value as on 1 April 2001 for actual cost while computing capital gains. The assessee had supported his claim through a registered valuer’s report.
The Tribunal found the assessment procedure fundamentally deficient. The DVO reference was made only at the end of the proceedings on 18 March 2022, while the draft order was passed on 23 March 2022. Since the DVO issued his first notice on that very date, the assessee received no effective opportunity before the AO crystallised the addition.
Moreover, the Valuation Committee rate was adopted without material establishing comparability, proximity or similar marketability. The Tribunal therefore disapproved both the AO’s methodology & the DRP’s endorsement of it.
The issue was restored to the AO with directions to examine the assessee’s valuation report. If the DVO report was available, its copy must be supplied to the assessee, who should be permitted to submit objections. The fair market value must thereafter be determined afresh in accordance with law. The appeal was allowed for statistical purposes.
Practical Implications
The ruling confirms that pursuing a remedy before the wrong forum under a bona fide mistake can constitute sufficient cause for condonation. On valuation, it establishes that guidance values cannot replace a reasoned fair-market valuation without demonstrating comparability. Once a DVO reference is made, the report & the assessee’s objections should ordinarily be considered before finalising capital gains.
FULL TEXT OF THE JUDGMENT/ORDER OF INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE
1. This appeal has been filed by Mr. Rajiv Nivas, the assessee/appellant, for assessment year 2020–21 against the order dated 10 January 2023 passed by the Deputy Commissioner of Income Tax, International Taxation, Circle 2(2), Bangalore (“the learned AO”), under section 143(3) read with section 144C (13) of the Income-tax Act, 1961 (“the Act”), whereby the assessee’s total income was assessed at ₹2,02,30,210.
2. The Assessee has raised the following grounds of appeal:
1. The order passed by the learned Deputy Commissioner of Income Tax, International Taxation, Circle – 2(2), Bengaluru, (“Assessing Officer”), under section 143(3) r.w.s 144C of the Income Tax Act, 1961 (“the Act”), insofar as it is against the Appellant, is opposed to law, weight of evidence, natural justice and probabilities on the facts and circumstances of the Appellant’s case.
2. The Appellant denies himself liable to be assessed on a total income of Rs. 2,02,30,211/- as against the returned income of Rs. 71,43,930/- on the facts and circumstances of the case.
3. The proceedings conducted by the learned Assessing Officer, the learned Dispute Resolution Panel and the District Valuation Officer (“DVO”) are without jurisdiction, without following the mandatory procedures and in gross violation of principles of natural justice on the facts and circumstances of the case.
4. The authorities below erred in law and on facts in concluding the assessment without directing the DVO to submit the valuation report on the facts and circumstances of the case.
5. The learned DVO erred in law and facts in holding that the Appellant has not submitted the relevant documents for estimating the cost of acquisition on the facts and circumstances of the case.
6. The learned DVO was bound to submit the valuation report by estimating the cost of the property on the basis of document available on record on the facts and circumstances of the case.
7. The authorities below erred in law and on facts in restricting the indexed cost of acquisition to Rs. 43,32,670/- as against Rs. 1,74,18,951/- claimed by the Appellant, thereby making an addition of Rs. 1,30,86,282/- being long term capital gains on the facts and circumstances of the case.
8. The authorities below made perverse finding of facts by applying incorrect stamp duty value for arriving at the cost of acquisition on the facts and circumstances of the case.
9. The authorities below erred in law and on facts in considering stamp duty value of the property instead of fair market value for arriving at the cost of acquisition on the facts and circumstances of the case.
10. The authorities below failed to appreciate that section 55(2)(b)(i) of the Act contemplates fair market value and not the stamp duty value for arriving at the cost of acquisition.
11. The authorities below failed to appreciate that the insertion of the 1st proviso to section 55(2)(b)(i) of the Act stipulating that the fair market value shall not exceed the stamp duty value was inserted vide Finance Act, 2020 with effect from 01.04.2021 and therefore, is prospective and inapplicable to the instant case on the facts and circumstances of the case.
12. The authorities below failed to appreciate that prior to 01.04.2021, the fair market value could have exceeded the stamp duty value and hence, restricting the cost of acquisition to the stamp duty value is bad in law on the facts and circumstances of the case.
13. The authorities below erred in law and on facts in rejecting the Registered Valuer’s report on the facts and circumstances of the case.
3. Briefly stated, the assessee is a non-resident individual who filed his return of income for the relevant assessment year on 2 September 2020, declaring total income of ₹71,40,930 and computing long-term capital gain on the sale of immovable property situated at Mangalore. The return was selected for scrutiny and statutory notices were issued. During assessment proceedings, the Assessing Officer made a reference to the Departmental Valuation Officer on 18 March 2022 to determine the value of the immovable property sold. However, without awaiting the valuation report, the Assessing Officer passed a draft assessment order on 23 March 2022 by adopting the stamp-duty value of the property. On the same date, the Departmental Valuation Officer issued a notice to the assessee seeking certain details. Since the draft assessment order had already determined the capital gain by applying the cost of acquisition by applying the circle rate and consequential tax liability, the assessee did not have an effective opportunity to respond to the Departmental Valuation Officer. The assessee filed objections before the Dispute Resolution Panel on 24 April 2022, contending that the land in question was situated at Mangalore and not at Laloo, thereby disputing both the location of the property and the manner in which committee valuation rates were applied. Thereafter, the Departmental Valuation Officer issued further notice on 14 July 2022, in response to which the assessee submitted complete details on 19 July 2022. Meanwhile, by directions dated 20 December 2022, the Dispute Resolution Panel rejected the assessee’s objections, observing that the valuation report could not be furnished because the assessee had allegedly failed to submit the required documents before the Departmental Valuation Officer. Pursuant to those directions, the Assessing Officer passed the final assessment order on 10 January 2023 under section 143(3) read with section 144C (13) of the Act.
4. The issue before us is confined to the assessee’s claim regarding the cost of acquisition of the property sold. The assessee stated that the total cost of acquisition was ₹60,27,319, comprising land cost of ₹52,50,000 and construction cost of ₹7,77,319. The learned Assessing Officer accepted the construction cost of ₹7,77,319 but restricted the land cost to ₹7,21,875, as against ₹52,50,000 claimed by the assessee. Thus, the disputed difference in the cost of acquisition is ₹45,28,125, which, after indexation, amounts to ₹1,30,86,281. Accordingly, while the assessee claimed indexed cost of acquisition of ₹1,74,80,952, the learned Assessing Officer allowed only ₹43,32,671.
5. The assessee’s contention is that the learned Assessing Officer adopted the guidance value of a property situated in an entirely different locality, namely Maidan Road Mangalore, for determining the value of the land sold by the assessee. According to the assessee, the land actually sold was located at different area, and the adoption of the stamp-duty value relating to another property was impermissible. It is therefore submitted that, since the sale property and the property whose stamp-duty value was relied upon are different, the resulting addition cannot be sustained.
6. Before proceeding further, we note that the Registry has reported a delay of 410 days in filing this appeal. The assessee has filed an application seeking condonation of the delay, supported by an affidavit.
7. The assessee explained that, upon receiving the assessment order, he mistakenly filed an appeal before the learned CIT(A) on 6 February 2023 instead of approaching the Tribunal. Once he realized that the appeal had been filed before the wrong forum, he promptly filed the present appeal before the Tribunal. Thereafter, having filed the appeal before the coordinate bench on 29 April 2024, the assessee withdrew the appeal pending before the learned CIT(A). The condonation petition states that the delay occurred due to a bona fide mistake in choosing the appellate forum and was beyond the assessee’s control. The assessee therefore prayed that the delay of 410 days be condoned, relying on several judicial precedents.
8. The learned authorized representative, Shri Hemanth Pai, Advocate, submitted that the delay arose because the assessee, under a mistaken belief, approached the wrong appellate forum for redressal of his grievance. He stated that the assessee had filed an appeal before the learned CIT(A), as evidenced by the e-filing acknowledgement, and that, upon realizing that the appeal ought to have been filed before the Tribunal, the assessee promptly instituted the present appeal. According to him, the delay of 410 days was thus caused by a bona fide mistake and constituted sufficient cause for condonation. He further submitted that, after filing the appeal before the coordinate Bench, the assessee addressed a letter dated 19 July 2024 to the Commissioner of Income Tax (Appeals)-12, Bangalore, seeking withdrawal of the appeal pending before that authority and explaining the above circumstances. He contended that, if the present appeal is not entertained, the assessee would be left without an effective remedy.
9. The learned CIT-DR, Dr. Divya K.J., submitted that the appeal was filed with a delay of 410 days and that the assessee had not shown sufficient cause for condonation. She contended that the assessee’s failure to file the appeal within the prescribed time could not be excused merely because an appeal had been filed before the learned CIT(A), and that such filing did not, by itself, constitute sufficient cause for condoning the delay.
10. We have considered the rival submissions and the assessee’s explanation for the 410-day delay in filing this appeal. The assessment order was passed on 10 January 2023, and the assessee filed an appeal before the learned CIT(A) on 6 February 2023. On realizing that the Tribunal was the proper appellate forum, the assessee filed the present appeal before the coordinate Bench on 24 April 2024 and later withdrew the appeal pending before the learned CIT(A) on 12 July 2024/19 July 2024. In our view, the assessee, being a non-resident Indian, had approached the wrong forum under a bona fide mistaken belief. Once he became aware of the correct remedy, he acted promptly by filing the appeal before the Tribunal. We find no mala fide intention in the assessee’s initial failure to approach the Tribunal, nor any advantage gained by pursuing the appeal before the wrong forum while remaining aggrieved. Accordingly, the 410-day delay is supported by sufficient cause and is condoned. The appeal is admitted.
11. On merits, we note that the assessee inherited a converted non-agricultural immovable property with a building at Casaba Village, Mangalore District. The property was sold to Northern Sky Properties Private Limited for ₹14 crore, of which the assessee’s 25% share amounted to ₹3,50,00,000. Of this amount, ₹1,68,07,175 was received in cash and ₹98,20,525 was adjusted towards the purchase of a flat from the buyer. The assessee also invested ₹50,00,000 in capital gains bonds and claimed exemption under section 54EC of the Act. In computing capital gains, the assessee adopted a cost of acquisition higher than the fair market value prescribed by the State Government of Karnataka. As the assessee could not support this value with comparable sale instances through the registered valuer, the learned Assessing Officer rejected the valuation report and adopted the rate of ₹1,37,500 per cent fixed by the Valuation Committee of Mangalore City. On that basis, he determined the land cost at ₹28,87,500 and the value of the commercial building at ₹31,09,275. In response to the opportunity granted, the assessee submitted on 21 March 2022 that the fair market value as on 1 April 2001 was based on a registered valuer’s report. The assessee also objected that the Assessing Officer had no statutory basis to adopt the Valuation Committee rate for determining the cost of acquisition and that section 55(2)(b)(ii) applied only from assessment year 2021–22 onwards. The Assessing Officer then referred the matter to the District Valuation Officer to determine the fair market value of the land and building as on 1 April 2001. However, without awaiting the valuation report, he computed capital gains using the Valuation Committee rate and passed the draft assessment order. The assessee challenged the draft order before the Dispute Resolution Panel-2, Bangalore, which rejected the objections by directions dated 16 December 2022, resulting in the final assessment order under appeal. The Panel observed that the Assessing Officer had obtained information from Mangalore City Corporation showing the Valuation Committee rate at ₹1,37,000 per cent and that the building value of ₹31,09,275 adopted by the Assessing Officer was consistent with the relevant valuation. It therefore found no infirmity in the Assessing Officer’s approach. The Panel further noted in paragraph 2.3 of its directions that, although a reference had been made to the District Valuation Officer, the valuation could not be completed in time because the assessee had not furnished the required information. On this basis, the Panel upheld the Assessing Officer’s action.
12. The learned authorized representative, Shri Hemant Pai, Advocate, submitted that the assessee had obtained a valuation report as on 1 April 2001, placed at pages 198 to 206 of the paper book. In that report, dated 14 November 2019, the registered valuer determined the fair market value of the land at ₹2,10,00,000, while the value of the building remained ₹31,09,275, resulting in a total value of ₹2,41,09,275 for the land and building. He submitted that, since the property had been acquired before 1 April 2001, the assessee was entitled to substitute the fair market value as on that date for the actual cost of acquisition and had done so on the basis of the registered valuer’s report. The Assessing Officer, however, without rejecting that report, adopted different rates based on the prevailing market value and guideline rate obtained from the Sub-Registrar’s office. He also referred the matter to the District Valuation Officer for determining the fair market value under the relevant provisions of the Act. According to the learned authorized representative, as the District Valuation Officer’s report was not available, the Assessing Officer could not have proceeded to adopt different rates and compute capital gains without awaiting the valuation report. He pointed out that the reference to the District Valuation Officer was made on 18 March 2022 and the draft assessment order was passed on 23 March 2022. The District Valuation Officer’s first notice, also dated 23 March 2022 and placed at page 225 of the paper book, was issued after the Assessing Officer had already formed his view, leaving no meaningful purpose in furnishing the details then called for. He further submitted that the reference made to the District Valuation Officer did not mention the registered valuer’s report already submitted by the assessee. When the District Valuation Officer issued a second notice on 14 July 2022, the assessee furnished all required details for determining the fair market value of the property. It was therefore contended that the Dispute Resolution Panel erred in attributing the delay in obtaining the District Valuation Officer’s report to the assessee. On this basis, he submitted that the addition made by the Assessing Officer was unjustified and that the Assessing Officer ought to have awaited the District Valuation Officer’s report.
13. The learned CIT-DR, Dr. Divya K.J., strongly supported the orders of the lower authorities. She submitted that the delay in obtaining the District Valuation Officer’s report was attributable to the assessee’s failure to furnish the required details. She therefore supported the directions issued by the learned Dispute Resolution Panel.
14. We have carefully considered the rival contentions and perused the orders of the lower authorities. The facts show that the assessee sold property acquired before 1 April 2001. Accordingly, for computing capital gains, the assessee was entitled to substitute the actual cost of acquisition with the fair market value as on 1 April 2001. To support this claim, the assessee obtained a registered valuer’s report and adopted that value in the capital gains computation. The Assessing Officer, without rejecting the registered valuer’s report, referred the matter to the District Valuation Officer only at the far end of the assessment proceedings. The reference was made on 18 March 2022, and the draft assessment order was passed on 23 March 2022. The District Valuation Officer’s first notice to the assessee was also issued on 23 March 2022, by which time the Assessing Officer had already completed the draft assessment order. Thus, the Assessing Officer computed capital gains by adopting the Valuation Committee rate without any supporting material to show comparability, proximity of location, or marketability of the property sold by the assessee. In these circumstances, we do not approve the manner in which the Assessing Officer made the addition, nor the directions of the Dispute Resolution Panel upholding that action.
15. In view of the above, we restore the issue to the file of the learned Assessing Officer with a direction to examine the valuation report furnished by the assessee. If the Departmental Valuation Officer’s report is available, the Assessing Officer shall provide a copy to the assessee and afford him an opportunity to submit his objections or explanations. Thereafter, the Assessing Officer shall decide the issue afresh by determining the fair market value forming part of the cost of acquisition of the transferred property. Accordingly, Ground Nos. 3 to 13 are allowed for statistical purposes as indicated above.
16. The remaining grounds raised by the assessee are either general or consequential in nature and are therefore dismissed.
17. In the result appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 28th August, 2026.
