Fair market value disputes require DVO reference when requested, prompting remand for fresh valuation and decision.

Addition under the tax provision treating the gap between stamp duty value and consideration was examined and sustained on the merits; the challenge to delete the addition was dismissed. Separately, where the assessee expressly sought valuation by the Departmental Valuation Officer in objections, the tribunal held that the AO must consider and, where appropriate, refer the dispute to the DVO for determination of fair market value. The valuation issue was remanded to the AO with direction to obtain DVO reference and decide afresh after affording the assessee opportunity to be heard.

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Issues: (i) Whether the addition of Rs. 10,98,896/- under section 56(2)(vii)(b) of the Income-tax Act, 1961 arising from difference between stamp duty valuation and purchase consideration is sustainable; (ii) Whether the Assessing Officer/DRP was required to refer the valuation to the Departmental Valuation Officer under section 50C(2) of the Income-tax Act, 1961 and whether the matter should be remanded for such reference.

Issue (i): Whether the addition under section 56(2)(vii)(b) of the Income-tax Act, 1961 is warranted on the facts of the case.

Analysis: The provision of section 56(2)(vii)(b) treats the difference between stamp duty valuation and actual consideration as taxable unless specific exceptions apply. The Court examined the statutory scope of section 56(2)(vii)(b) and noted that purchase from a reputed or listed seller does not fall within the exceptions that negate the statutory operation of the provision.

Conclusion: The addition of Rs. 10,98,896/- under section 56(2)(vii)(b) is upheld and the assessee's challenge to delete the addition is dismissed.

Issue (ii): Whether the AO/DRP should have referred the valuation to the Departmental Valuation Officer under section 50C(2) of the Income-tax Act, 1961 and whether the matter should be remanded for such reference.

Analysis: The assessee had expressly requested in objections filed under section 144C(2) that valuation be referred to the DVO; the Court considered statutory procedure under section 50C(2) together with the requirement under sub-clause (b) of section 144C(2) that objections be filed to both the DRP and the AO. The Court concluded that the request made to the DRP could not be divorced from AO proceedings and that substantial justice required proper determination of fair market value by reference to the DVO where disputed. The Court therefore found it appropriate to set aside the issue to the AO with a direction to refer the matter to the DVO and decide afresh after affording opportunity to the assessee; the AO was permitted to follow DRP procedure again if necessary.

Conclusion: The ground claiming failure to refer valuation to the DVO under section 50C(2) is allowed and the matter is set aside to the Assessing Officer with direction to make reference to the DVO and decide the issue afresh.

Final Conclusion: One substantive challenge to the addition under section 56(2)(vii)(b) is dismissed while the procedural claim for reference to the DVO under section 50C(2) is allowed by remand; overall the appeal is partly allowed and the valuation issue is to be reexamined by the AO following the directed reference to the DVO.

Ratio Decidendi: Where an assessee disputes stamp duty value and has sought reference to the Valuation Officer in objections filed under section 144C(2), the Assessing Officer must consider and, where appropriate, make a reference to the Departmental Valuation Officer under section 50C(2) to determine fair market value before finalizing additions under section 56(2)(vii)(b).

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