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

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 Officer (DVO) as mandated by the Act. The valuation report by the registered valuer, prepared after technical analysis and inspection, carried rebuttable evidentiary value and could not be disregarded on mere assumptions or without factual contradictions. The AO's reliance on circle rates and Land & Development Office conversion rates for valuation was unsustainable. The DRP's direction to apply conversion rates for cost of acquisition was also overturned. The tribunal emphasized that conversion rates are not a suitable benchmark for FMV of mixed-use properties and upheld precedents requiring acceptance of expert valuer reports unless disproved. The assessee's appeal was allowed, restoring reliance on the registered valuer's report and directing reference to the DVO for valuation.

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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.

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