2025 (8) TMI 48 - AT - Income Tax

AO must refer land valuation to DVO; registered valuer's report holds evidentiary value under the Act

Jaswin Kaur Sethi Versus DCIT, International Taxation, Gurgaon.

The ITAT Delhi held that the AO erred in determining the fair market value (FMV) of the land without referring the matter to the Departmental Valuation ... LTCG - Determination of fair market value of the land - Departmental Valuation Officer, assumption of jurisdiction to determine the value - conversion rates taken as a benchmark for comparability with the fair market value of an independent property - HELD THAT:- When the Act prescribes specific modes for accepting the valuation of a property, then, without establishing that the two modes are not rationally applicable or have any hardship to comply with, the valuation cannot be on the basis of independent parameters. These independent parameter like circle rates or conversion rates notified by the Ministry of Urban Development may be used to corroborate the valuation reports prepared by expert or the DVO but resorting to these independent parameters without getting DVO report is not what the Act expects. The evidentiary value of the valuation report given by expert needs to be disturbed by the AO on the basis of factual findings in the valuation report, rather on a general assumption or applying the rules of prudence, like done in present case. The valuation report of the registered valuer has been prepared by qualified expert in the field after inspection of the premises and carrying out technical analysis. The same cannot be brushed aside on bald allegations that valuation done has been on higher side. As a matter of fact, supplementary comparable sale deeds were provided by the assessee during assessment proceedings to corroborate the FMV determined by the registered valuer in the valuation report, however, the same have also not been considered by the AO. AO having sufficient powers of inquiry on his own has also not done any exercise of his own to inquire into the value of the surrounding property to disturb the FMV given by the qualified expert. Then, without mentioning reasons for not making reference to Departmental Valuation Officer, assumption of jurisdiction to determine the value on his own, on the basis of circle rates and that too by interpolation and extrapolation of the rates was certainly not sustainable and, therefore, the DRP had rightly intervened to hold that AO was supposed to refer to DVO. DRP also committed an error in giving direction to compute the cost of acquisition of the impugned property by applying Land & Development Office conversion rates. We find justification in the contention of the ld. AR that conversion rates cannot be taken as a benchmark for comparability with the fair market value of an independent property, which is both a residential and commercial. Ld. counsel has drawn our attention to Sanjeev Kumar Kathuria [2025 (3) TMI 143 - ITAT CHANDIGARH] where the L&DO land conversion rates were not approved for the purpose of determining fair market value/cost of acquisition of the property. Thus, we are of the considered view that the AO, without rebutting and contradicting the valuation report of expert, which has a rebuttable evidentiary value under the Act, could not have resorted to any other mode but to make a reference to DVO only for the purpose of valuation of the impugned property. As in the case of Vidhi Agarwal [2017 (12) TMI 134 - ALLAHABAD HIGH COURT] has approved the finding of the Tribunal noting that when there is nothing on record to doubt the correctness of the report or its contents, the Valuer’s Report should have been accepted by the Department. As in Ved Kumari Subhash Chander [2019 (10) TMI 239 - ITAT DELHI] has, in similar facts and circumstances, set aside the order directing the AO to recompute the fair market value of the land by taking into account the rate as adopted by the valuer. Assessee appeal allowed. ISSUES: Whether the Assessing Officer (AO) can reject the valuation report of a registered valuer without referring the matter to the Departmental Valuation Officer (DVO) under section 55A of the Income Tax Act, 1961.Whether the AO/Dispute Resolution Panel (DRP) can determine the fair market value (FMV) of property by relying on circle rates or Land & Development Office (L&DO) conversion rates without technical valuation or DVO report.Whether L&DO conversion rates can be treated as FMV or circle rates for the purpose of determining cost of acquisition of property as on a specified date.Whether the AO/DRP erred in not considering supplementary comparable sale deeds submitted by the assessee to substantiate FMV.Whether penalty proceedings under section 270A of the Act can be initiated without satisfaction of mandatory statutory ingredients and where the impugned addition is legally unsustainable. RULINGS / HOLDINGS: The AO cannot reject the valuation report of a registered valuer without referring the matter to the DVO as mandated under section 55A of the Act; the valuation report has a 'rebuttable evidentiary value' and cannot be brushed aside on bald allegations.The AO/DRP's suo-moto determination of FMV based on circle rates or L&DO conversion rates, without obtaining a DVO report or technical analysis, is 'not what the Act expects' and is legally unsustainable.L&DO land conversion rates are 'neither the circle rates nor the FMV of the property' but are rates to determine unearned increase and transfer charges payable to L&DO; thus, they cannot be used as a benchmark for FMV or cost of acquisition.The AO erred in ignoring supplementary comparable sale deeds submitted by the assessee, which corroborated the valuation report of the registered valuer.Penalty proceedings under section 270A are not sustainable where the addition is legally unsustainable and mandatory statutory ingredients are not satisfied. RATIONALE: The legal framework under section 55A of the Income Tax Act mandates that if the AO does not accept the valuation report of a registered valuer, the matter must be referred to the DVO for determination of FMV. This procedure ensures that valuation disputes are resolved through expert technical analysis rather than arbitrary or suo-moto computations.Precedents from various High Courts and coordinate Benches of the Tribunal establish that the valuation report of a registered valuer has significant evidentiary value and cannot be discarded without material contrary evidence or proper inquiry.The DRP's direction to use L&DO conversion rates was found erroneous, as these rates pertain to transfer charges and unearned increment calculations, not FMV or circle rates, and thus cannot replace expert valuation.Judicial decisions cited emphasize that the AO's rejection of a registered valuer's report without referral to DVO is invalid, and the valuation must be accepted unless contradicted by evidence.The approach taken by the AO and DRP in relying on interpolation/extrapolation of circle rates or L&DO rates without expert valuation represents a doctrinal shift away from the prescribed statutory valuation mechanisms and is therefore unsustainable.