AO not justified in rejecting registered valuer’s report without making a reference to the DVO – ITAT
In a recent judgment, ITAT has held that AO was not justified in rejecting the registered valuer’s report and taking the cost of improvement as Nil, without making a reference to the DVO
ABCAUS Case Law Citation:
5174 (2026) (06) abacus.in ITAT
The only ground of appeal in this case was related to computation of the cost of acquisition to be taken while computing capital gain on sale of immovable property.
The assessee was an NRI. He sold a property. Since this amount was not disclosed by the assessee, proceedings u/s 147 were initiated and a notice u/s 148 was issued. In response, it was explained by the assessee, that the impugned property, was originally allotted to his uncle by the DDA. Subsequently, it was gifted to the assessee by his uncle after 24 years.
It was submitted that major renovations had been undertaken during various years by the uncle, the assessee, obtained a valuation report of the Registered Valuer which determined the cost of improvement undertaken by the uncle. Based on these, computation of capital loss was submitted by the assessee to the AO.
In the absence of any documentary evidences to support the cost of improvement undertaken by the previous owner, the AO adopted the cost of acquisition at much less amount then claimed and vide the draft assessment order proposing to add resultant Capital Gain.
Against the draft assessment order, the assessee filed objections before the DRP. The DRP, observed that the cost of improvement claimed in two years were exorbitant considering the cost of acquisition claimed in initial years and that the assessee did not produce any documentary evidence, in support of these improvements, rejected the objections of the assessee. As a result, the assessment was accordingly finalized vide order u/s 147 r.w.s. 144 of the Act.
Before the Tribunal the assessee argued that the DDA had allotted a basic structure in initial year on which the uncle of the assessee had made substantial improvement in the same FY as well as second time after eight years. Since, the flat was transferred to the assessee by way of gift and was eventually sold, the requisite documentary evidences regarding cost of improvement were not available due to considerable lapse of time. Hence, based on the details provided by the assessee, the registered value computed the cost of improvement as per the prescribed rates prevalent in the corresponding years.
It was further submitted that if the AO was not satisfied with the registered valuer’s report, he should have made a reference to the Departmental Valuation Officer (DVO), which was not done. The assessee placed reliance on the decision of the coordinate bench in support of his contention that the AO is bound to accept the report of registered valuer if reference to DVO has not been made u/s 55A of the Act.
The Tribunal observed that under Section 55A of the Act, the AO is empowered to make a reference to the DVO in case he is not satisfied with the report of the registered valuer.
The Tribunal further observed that the estimate by registered value was rejected by the AO on the ground that the same appeared exorbitant and was not supported by any documentary evidence or credible basis of computation. However, in that case the AO should have made a reference to the DVO u/s 55A of the Act instead of rejecting the registered valuer’s report.
The Tribunal opined that the AO erred in simply rejecting the cost of improvement claimed on the basis of registered valuer’s report and computing the capital gain by adopting the cost of acquisition being the cost of purchase from DDA. Since he did not accept the assessee’s contention regarding substantial improvement undertaken subsequent to the purchase from DDA, he ought to have made a reference to the DVO as required u/s 55A of the Act.
The Tribunal also noted that the issue had been decided in assessee’s favour in several decisions of the coordinate benches.
Accordingly, the Tribunal held that the AO was not justified in rejecting the registered valuer’s report and taking the cost of improvement as Nil, without making a reference to the DVO. As a result, the Tribunal directed the AO to allow the claim of the assessee regarding cost of improvement as per the registered valuer’s report and recompute the capital gains accordingly.
