ITAT Kolkata Orders Fresh Assessment in Capital Gains Dispute, Says DVO Reference Mandatory Under Section 50C(2)

June 18, 2026 : In a significant ruling concerning the computation of capital gains on property transactions, the Income Tax Appellate Tribunal (ITAT), Kolkata Bench, has held that an Assessing Officer cannot reject a taxpayer’s request for valuation by a Departmental Valuation Officer (DVO) when the assessee disputes the stamp duty valuation adopted for taxation purposes. The Tribunal remanded the matter for a fresh assessment after finding a violation of Section 50C(2) of the Income Tax Act, 1961.

The case involved taxpayer Tapan Das, who challenged an order passed by the National Faceless Appeal Centre (NFAC) for the Assessment Year 2014-15. The appeal arose from an assessment in which the Income Tax Department had made an addition of ₹63.52 lakh towards Long-Term Capital Gains on the sale of land. The assessment had originally been completed under Section 143(3) of the Income Tax Act on December 16, 2016, and the first appellate authority later upheld the addition.

Before examining the merits of the dispute, the Tribunal addressed a delay of 118 days in filing the appeal. The assessee explained that health-related difficulties prevented the appeal from being filed within the prescribed limitation period. Relying on the Supreme Court’s landmark judgment in Collector, Land Acquisition v. Mst. Katiji & Others, the Bench adopted a liberal approach and condoned the delay, observing that substantial justice should prevail when sufficient cause is shown.

The central issue before the Tribunal concerned the application of Section 50C of the Income Tax Act, a provision that allows the stamp duty valuation of immovable property to be treated as the deemed sale consideration for calculating capital gains where the declared sale value is lower. However, Section 50C(2) provides an important safeguard to taxpayers. If an assessee disputes the valuation adopted by the stamp valuation authority, the Assessing Officer may refer the matter to a Departmental Valuation Officer for an independent determination of the property’s fair market value.

Counsel appearing for the assessee argued that despite a specific request for such a reference, the Assessing Officer refused to send the matter to the DVO and proceeded with the addition. It was contended that both the Assessing Officer and the appellate authority failed to comply with the statutory mandate contained in Section 50C(2), thereby rendering the assessment legally flawed.

The Revenue, on the other hand, defended the assessment and argued that the addition had been made in accordance with law. The Department maintained that the assessee had failed to satisfactorily explain the source of income and therefore no interference with the assessment order was warranted.

After examining the record, the Tribunal found that the assessee had indeed requested a valuation reference to the DVO. The Bench observed that when a taxpayer disputes the valuation and seeks a DVO reference, the Assessing Officer is under a legal obligation to follow the procedure prescribed under Section 50C(2). The Tribunal noted that the request had been rejected despite the statutory requirement.

Explaining the legal position, the Bench observed that, “when the Assessee disputes the value of consideration and subsequently requests the Assessing Officer for referral to DVO, the Assessing Officer is duty bound to refer the matter to the DVO as per section 50C(2) of the Act.” The Tribunal further held that the Assessing Officer had violated the provision by refusing the request for valuation.

Consequently, the ITAT set aside the relevant findings and remanded the matter to the Assessing Officer for fresh adjudication. The officer has been directed to comply with Section 50C(2) and obtain the necessary valuation in accordance with law. At the same time, the Tribunal directed the assessee to establish the source of consideration used for purchasing the property involved in the transaction. The assessment will now be reframed after considering these aspects.

The ruling is important for taxpayers involved in property transactions because it reinforces procedural safeguards available under the Income Tax Act. The decision clarifies that valuation disputes cannot be brushed aside by tax authorities and that statutory mechanisms intended to ensure fair assessment must be followed. For taxpayers facing additions based solely on stamp duty valuations, the judgment underscores the significance of seeking a DVO reference where there is a genuine disagreement regarding the property’s market value.

The appeal was ultimately partly allowed for statistical purposes, with the matter being restored to the Assessing Officer for a fresh assessment in accordance with law.

Case Reference : Tapan Das v. ITO, Ward-1(1), Siliguri