2025 (7) TMI 1813 - AT - Income Tax

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

Sejalben Patel, Binitaben Sandipkumar Patel Versus The Pr. CIT-1 Vadodara

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 ... Revision u/s 263 - erroneous capital gain computation - as per CIT failure on the part of AO to examine or even mention the DVO report amounted to non-application of mind and inadequate inquiry, thereby rendering the order erroneous and prejudicial to the interest of the Revenue - although the AO had referred the matter of valuation of properties to the Departmental Valuation Officer (DVO) u/s 55A for ascertaining the fair market value as on 01.04.2001, the final assessment order did not contain any discussion or reference to the said DVO report HELD THAT:- AO exercised his discretion in a judicious and informed manner. There is no finding by the PCIT that the AO failed to apply his mind or that the order lacks reasoning or inquiry. It is not open for the PCIT to supplant the AO’s opinion with his own on the ground of mere preference. The essential twin conditions u/s 263—that the order is (i) erroneous and (ii) prejudicial to the interests of the Revenue—must co-exist. In the present case, neither of the conditions stands satisfied. The AO took a conscious view based on available records. The prejudice alleged is speculative and built upon a valuation report not forming part of the record and not tested for fairness. We hold that the assumption of jurisdiction by the learned PCIT under section 263 of the Act is without authority of law and not sustainable either on jurisdictional grounds or on merits. Consequently, the impugned revision order passed under section 263 is quashed. Appeal of the assessee is allowed. 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.