Section 50C IT Act | AO Cannot Make LTCG Addition Without DVO Reference Even Under Limitation Pressure : ITAT Lucknow

The Income Tax Appellate Tribunal, Lucknow, has delivered a significant ruling affirming that an Assessing Officer cannot sustain an addition under Section 50C of the Income Tax Act merely because the limitation period for assessment is expiring. The Tribunal held that statutory compliance with the mandatory procedure of referring valuation disputes to the Departmental Valuation Officer is non-negotiable, regardless of procedural delays or administrative convenience.

Background & Facts

The Dispute

The appellant, Vijay Pal Singh, sold an immovable property during the assessment year 2019-20. The Assessing Officer (AO) determined a Long Term Capital Gain (LTCG) addition of Rs. 1,95,92,277/-, based on the circle rate valuation of Rs. 2,52,34,000/-, despite the sale deed disclosing a consideration of Rs. 65,00,000/-. The appellant contested the circle rate valuation, asserting that the actual fair market value (FMV) was lower and requested the AO to refer the matter to the Departmental Valuation Office (D.V.O.) under Section 50C(2) of the Income Tax Act, 1961.

Key Facts

• The property was sold by the appellant, who held a 25% share, with co-owners holding the remaining 75%.
• The sale deed dated 25.05.2016 and supporting Power of Attorney documents (filed on 27.10.2023) clearly specified the shareholding of all co-owners: Rukmani Devi, Vijay Laxmi, and Manju Lata.
• The appellant submitted bank statements showing receipt of sale proceeds proportionate to his 25% share: Rs. 35,00,000 on 21.09.2017, Rs. 6,00,000 on 17.09.2018, Rs. 6,00,000 on 14.09.2018, and Rs. 6,00,000 on 31.07.2018.
• The appellant formally requested reference to the D.V.O. via letter dated 11.11.2021 and reiterated the request on 05.12.2023.
• The AO did not make the reference until 14.03.2024, just 17 days before the statutory deadline of 31.03.2024.
• The assessment order dated 21.03.2024 was passed without awaiting the D.V.O. report, citing time constraints.
• The appellant filed an RTI application on 05.02.2026, receiving a reply on 18.02.2026, which confirmed that no formal reference was made to the D.V.O. under Section 50C(2) or Section 55A.
• The AO’s order erroneously treated the appellant as the full owner and assumed all sale proceeds were received by him, ignoring documented co-ownership and payment evidence.

Procedural History

• 11.11.2021: Appellant first requests reference to D.V.O. under Section 50C(2).
• 05.12.2023: Second written request for reference to D.V.O.
• 14.03.2024: AO finally refers matter to D.V.O. under Section 55A (not Section 50C), just 17 days before limitation.
• 21.03.2024: AO passes assessment order under Section 147 read with Section 144B, making addition of Rs. 1,95,92,277/- without awaiting D.V.O. report.
• 08.12.2025: CIT(A) dismisses appeal, upholding the addition.
• 28.03.2026: Appeal filed before ITAT Lucknow (I.T.A. No. 56/LKW/2026).
• 30.03.2026: ITAT Lucknow delivers judgment.

Relief Sought

The appellant sought deletion of the LTCG addition of Rs. 1,95,92,277/-, correction of ownership share to 25%, and adjustment of capital gains based on actual proceeds received by him. He also sought to prevent the matter from being remanded to the AO, arguing that such a step would effectively extend the statutory limitation period.

The Legal Issue

The central question was whether the Assessing Officer can sustain an addition under Section 50C of the Income Tax Act when the statutory requirement to refer the valuation dispute to the Departmental Valuation Officer has not been complied with, even if the assessment is time-barred and the reference is made belatedly.

Arguments Presented

For the Appellant

The appellant’s counsel relied on multiple precedents, including Nirmal Singh v. ITO (ITA No. 83/Lkw/2024), Lalit Kumar Jalan v. ITO (168 taxmann.com 529), and Rajni Arvind Birla v. ITO (ITA No. 930/Ahd/2025), to argue that Section 50C(2) imposes a mandatory obligation on the AO to refer valuation disputes to the D.V.O. when the assessee disputes the stamp duty valuation. He emphasized that non-compliance vitiated the assessment, as held in Aditya Narain Verma (HUF) v. ITO. He further cited Gauranginiben S. Shodhanindl. (2014) 45 taxmann.com 356 (Gujarat HC) to show that Section 55A requires a recorded opinion, which was absent. He argued that the RTI reply proved no reference was made, and that remanding the case would amount to extending limitation, which is legally impermissible.

For the Respondent

The Departmental Representative contended that the matter should be remanded to the AO for obtaining the D.V.O. report and passing a fresh assessment under Section 155(15). He argued that the valuation was critical and that the AO’s delay was inadvertent, not intentional. He relied on the general power of revision under Section 155(15) to justify restoration.

The Court's Analysis

The Tribunal rejected the Department’s reliance on Section 155(15), observing that this provision applies only when a valuation report has been issued and is subsequently revised - a situation that does not exist here, as no valid reference was ever made. The Tribunal noted that the RTI reply conclusively established that no reference was sent to the D.V.O. under Section 50C(2), despite the appellant’s repeated requests.

"The Assessing Officer has mentioned in the assessment order that vide letter dated 14.03.2024 reference was made to DVO for valuation of property. However, the reply dated 18.02.2026 received by the assessee... showed that in effect there was no reference made to the DVO."

The Tribunal held that the statutory mandate under Section 50C(2) is not discretionary but mandatory. The legislature intended for the D.V.O., as an expert, to determine FMV, not the AO. Non-compliance with this procedure renders the addition unsustainable, irrespective of the limitation deadline. The Tribunal cited Nirmal Singh and Rajni Arvind Birla to affirm that an assessment completed without awaiting the D.V.O. report is vitiated for breach of mandatory procedure and natural justice.

The Tribunal further rejected the AO’s presumption that the appellant was the full owner and received all proceeds. The sale deed and bank statements clearly established the 25% share and proportionate receipt of funds. The AO’s failure to consider this evidence was arbitrary and contrary to the principle of fair assessment.

The Tribunal emphasized that allowing remand in such circumstances would effectively extend the limitation period, which is not permitted under the Act. The limitation period includes the time taken for valuation proceedings, and the delay was attributable solely to the AO’s inaction.

The Verdict

The appellant succeeded. The ITAT Lucknow deleted the LTCG addition of Rs. 1,95,92,277/-, holding it unsustainable due to non-compliance with Section 50C(2). The Tribunal declined to remand the matter to the AO, ruling that doing so would unlawfully extend the limitation period. The appellant’s share in the property was recognized as 25%, and the assessment was closed with no further adjudication required. The appeal was allowed for statistical purposes.

What This Means For Similar Cases

Mandatory Reference Under Section 50C Is Non-Negotiable

• Practitioners must insist on a written request for D.V.O. reference whenever stamp duty valuation exceeds declared consideration.
• If the AO fails to refer despite request, the addition under Section 50C is void ab initio - no need to wait for the report.
• RTI applications can be strategically used to prove non-compliance and establish administrative negligence.

Limitation Period Cannot Be Extended by Remand

• Assessments completed without awaiting D.V.O. reports cannot be revived by remand, even if the valuation is critical.
• Delay by the revenue cannot be used to circumvent statutory timelines - the burden of timely compliance rests on the AO.
• Courts and Tribunals will not permit the revenue to benefit from its own inaction.

Ownership and Proceeds Must Be Proven with Documentary Evidence

• Assessee’s share in jointly owned property must be established through sale deed and bank records - AO cannot presume full ownership.
• Proportionate receipt of consideration must be documented and submitted; oral assertions are insufficient.
• Failure to consider documentary evidence renders the assessment arbitrary and liable to be set aside.