Court’s decision
The Income tax appellate tribunal allowed the appeal and set aside the assessment order, holding that an assessment completed under Section 143(3) while a reference under Section 50C(2) was pending before the Departmental Valuation Officer was legally unsustainable. The Tribunal held that once the Assessing Officer invoked Section 50C(2), the statutory scheme mandated that the valuation exercise be completed before finalising the assessment.
The Tribunal rejected the approach of completing an assessment “subject to rectification” upon receipt of the DVO report, holding that the Income-tax Act does not contemplate provisional or contingent assessments. It further held that the subsequent rectification under Section 154 could not cure the foundational illegality in the original assessment order.
Accordingly, the assessment order and the consequential rectification order were quashed. The Tribunal held that the statutory right conferred on the assessee under Section 50C(2) could not be diluted by administrative convenience or limitation concerns.
Facts
The assessee filed a return declaring nil income and reported a loss. During scrutiny, the Assessing Officer noticed that the assessee had sold immovable property and that the consideration disclosed in the registered sale deed was lower than the value adopted by the stamp valuation authority. On this basis, Section 50C(1) was invoked.
The assessee disputed the adoption of stamp duty valuation and expressly requested a reference to the Departmental Valuation Officer under Section 50C(2). The Assessing Officer made such a reference but proceeded to complete the assessment before receipt of the DVO’s report, citing limitation concerns. The assessment order explicitly stated that it was subject to rectification upon receipt of the valuation report.
Subsequently, the DVO determined a value lower than the stamp duty valuation. Based on this report, the Assessing Officer passed a rectification order under Section 154 reducing the capital gains. The assessee challenged both the original assessment and the rectification, contending that the assessment itself was void.
Issues
Whether an assessment under Section 143(3) can be validly completed while a reference under Section 50C(2) remains pending.
Whether an assessment order stating that it is “subject to rectification” is recognised under the Income-tax Act.
Whether a subsequent rectification under Section 154 can cure a jurisdictional defect in the original assessment.
Whether failure to await the DVO report violates the statutory right granted to the assessee under Section 50C(2).
Petitioner’s Arguments
The assessee contended that once the Assessing Officer accepted the objection to stamp duty valuation and made a reference under Section 50C(2), the assessment could not be lawfully completed without awaiting the DVO report. It was argued that Section 153 expressly excludes the period spent awaiting valuation from limitation computation, thereby negating the justification of time barring.
It was further submitted that the assessment order was inherently provisional, as it expressly stated that it was subject to rectification, a concept unknown to the Act. The assessee argued that such an order was without jurisdiction and void ab initio.
The assessee also contended that the rectification order under Section 154 could not validate an illegal assessment, as rectification is confined to mistakes apparent on record and cannot substitute a mandatory statutory procedure.
Respondent’s Arguments
The Revenue argued that the Assessing Officer was justified in completing the assessment to avoid limitation, especially since the DVO report was delayed. It was contended that the reference under Section 50C(2) had been duly made and therefore the statutory requirement stood satisfied.
The Department submitted that the Act provides for rectification once the valuation report is received, and therefore the assessment could not be said to be provisional or without jurisdiction. It was argued that the subsequent rectification effectively corrected the valuation and no prejudice was caused to the assessee.
The Revenue supported the appellate order, contending that administrative practicality justified the approach adopted by the Assessing Officer.
Analysis of the law
The Tribunal analysed the scheme of Section 50C and held that subsection (2) confers a substantive statutory right on the assessee to have the property valued by an independent valuation authority. Once this mechanism is triggered, the Assessing Officer cannot bypass it.
The Tribunal emphasised that Section 153 expressly provides for exclusion of the period taken for valuation from limitation. Therefore, apprehension of time barring cannot justify truncating the statutory process.
The Tribunal further held that the Act does not recognise provisional assessments under Section 143(3). An assessment must be final, reasoned, and complete at the time it is passed. Any order contingent upon a future event is alien to the statutory framework.
Precedent Analysis
The Tribunal relied on judicial precedents holding that once a reference to the valuation officer is made, the Assessing Officer must await the report before finalising assessment. Decisions disapproving contingent or provisional assessment orders were relied upon.
The Tribunal distinguished cases where rectification was permitted for arithmetical or clerical mistakes, holding that valuation disputes and jurisdictional defects fall outside the scope of Section 154.
These precedents reinforced the principle that statutory safeguards under Section 50C cannot be rendered illusory by administrative expediency.
Court’s Reasoning
The Tribunal found that the Assessing Officer consciously chose to invoke Section 50C(2), thereby accepting that stamp duty valuation was disputable. Having done so, it was impermissible to complete the assessment without the DVO report.
The Tribunal held that describing an assessment as “subject to rectification” betrayed a fundamental misunderstanding of statutory powers. Such an order lacked finality and legal authority.
It further held that the rectification order could not retrospectively legitimise an assessment that was void at inception. The violation of Section 50C(2) struck at the root of jurisdiction and rendered the entire proceedings invalid.
Conclusion
The Tribunal quashed the assessment order and the subsequent rectification order. It held that compliance with Section 50C(2) is mandatory and not a procedural formality.
The appeal was allowed in favour of the assessee.
Implications
This judgment provides authoritative clarity that valuation-based assessments cannot be hurried at the cost of statutory rights. It reinforces that limitation provisions cannot override express exclusions under the Act.
The ruling has wide implications for capital gains assessments involving stamp duty valuation, ensuring that taxpayers are not subjected to contingent or incomplete assessments.
