Assessment Order Valid Without Discussing DVO Report; Revision Under Section 263 Quashed for Lack of Jurisdiction

The ITAT Ahmedabad held that the AO's assessment order was neither erroneous nor prejudicial to Revenue's interest despite the absence of discussion on the DVO report. The AO exercised informed discretion, and the PCIT could not substitute its opinion for the AO's without finding lack of application of mind or reasoning. Both conditions under section 263-error and prejudice-must coexist, which was not established. The alleged prejudice was speculative and based on an untested valuation report not part of the record. The PCIT's revision under section 263 was held without jurisdiction and unsustainable. The revision order was quashed, and the assessee's appeal was allowed.

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ISSUES:

Whether the reassessment orders passed under section 147 read with section 144B of the Income Tax Act, 1961, accepting capital gains computation based on a registered valuer's report, were erroneous and prejudicial to the interests of Revenue to warrant revision under section 263.Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking revisionary jurisdiction under section 263 on the ground that the Assessing Officer (AO) failed to consider the Departmental Valuation Officer's (DVO) report obtained post-assessment.Whether the AO is under a mandatory obligation to refer valuation matters to the DVO under section 55A of the Income Tax Act, 1961.Whether post-facto material, such as a valuation report obtained after the conclusion of assessment proceedings, can be considered as part of the "record" under Explanation 1 to section 263 for the purpose of invoking revisionary jurisdiction.Whether reliance on a DVO report that is factually incorrect, incomplete, and not confronted to the assessee can render an assessment order erroneous and prejudicial to the interests of Revenue.

RULINGS / HOLDINGS:

The reassessment orders passed under section 147 r.w.s. 144B accepting the capital gains computation based on the registered valuer's report were neither erroneous nor prejudicial to the interests of Revenue, as the AO had duly applied mind and examined the relevant documents and explanations.The PCIT's invocation of revisionary jurisdiction under section 263 was unsustainable because the DVO report relied upon was obtained after the assessment order was finalized and did not form part of the "record" as envisaged in Explanation 1 to section 263; therefore, reliance on such post-facto material is impermissible.The AO is not under a mandatory obligation to refer valuation matters to the DVO under section 55A; the use of the word "may" in the provision confers discretionary power, not a binding duty.Post-assessment material, including the DVO report obtained after the order was authenticated, cannot be retrospectively treated as part of the "record" for the purpose of revising an assessment order under section 263.The DVO report was factually incorrect in stating that the assessee did not submit any documents, rendering the valuation exercise one-sided, incomplete, and lacking evidentiary reliability; hence, reliance on such a report to declare the assessment order erroneous and prejudicial is legally unsustainable.

RATIONALE:

The legal framework under section 263 of the Income Tax Act allows the PCIT to revise an assessment order only if it is both "erroneous" and "prejudicial to the interests of the Revenue," and the revision must be based on the "record" available at the time of passing the order, as defined in Explanation 1 to section 263.Section 55A of the Act provides discretionary power to the AO to refer valuation matters to the DVO ("may" refer), and judicial precedent confirms that non-referral does not render an order erroneous if the AO is satisfied with the valuation report submitted by the assessee.Judicial authorities have consistently held that when the AO adopts one of the plausible views after proper application of mind, the order cannot be treated as erroneous merely because the PCIT holds a different opinion.The faceless assessment system's digital timestamps have legal finality; once an order is authenticated and uploaded, it constitutes a concluded proceeding, and subsequent references or material cannot expand the assessment record retrospectively.The DVO report's failure to consider the valuation report and documents submitted by the assessee during reassessment proceedings undermines its evidentiary value and fairness, rendering it unsuitable as a basis for revision under section 263.The PCIT's reliance on a DVO report obtained post-assessment and not confronted to the assessee constitutes an error of law and fact, vitiating the assumption of jurisdiction under section 263 ab initio.

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