DVO Reference and Pending Assessments: What the ITAT Clarified
In a key ruling, the Income Tax Appellate Tribunal (ITAT) recently held that a reference to the District Valuation Officer (DVO) is valid only when income tax assessment or reassessment is pending. This decision provides crucial clarity on how and when Assessing Officers (AOs) can invoke Section 55A of the Income-tax Act, 1961.
Let’s break this down for Indian taxpayers, consultants, and CA firms.
What is a DVO Reference in Income Tax?
A DVO reference allows the AO to refer a property to the District Valuation Officer for determining its fair market value (FMV) — usually to challenge the sale consideration or cost claimed by the taxpayer, especially in capital gains cases.
This power comes under:
- Section 55A of the Income-tax Act, 1961
- Supported by CBDT Instruction No. 96/2008 dated 30.06.2008
Key Ruling: ITAT on Assessment Status and DVO Validity
In the recent case before the Hyderabad Bench of ITAT, the Tribunal ruled that:
“No valid reference to DVO can be made if no assessment or reassessment proceedings are pending.”
Legal Basis:
- The power to refer to a DVO must be exercised during a live assessment/reassessment proceeding.
- Once the assessment is completed, the AO becomes functus officio — i.e., no longer empowered to act under Section 55A.
This ruling follows principles laid down in past decisions like:
- Smt. Amiya Bala Paul v. CIT (2003) 262 ITR 407 (SC) – which had already narrowed the scope of DVO references.
- CIT v. Daulal Mohta (HUF) (2014) 360 ITR 680 (Bom HC) – reinforcing that such references cannot be made casually post-assessment.
Practical Impact for Taxpayers
Here’s what this means in simple terms:
- If assessment is pending, AO can refer property valuation to DVO.
- If assessment is completed, AO cannot refer to DVO to reopen or recalculate value.
- If a DVO reference is made post-assessment, such a report has no legal standing.
Expert View: Don’t Panic Over DVO Notices Without Open Assessment
Many taxpayers get DVO notices long after filing returns, especially in real estate cases. But this ruling gives you legal ground to contest such notices, provided:
- There’s no Section 147/148 notice (reassessment) pending.
- The original assessment is already finalised.
👉 “In such cases, a DVO report may be challenged as invalid, and any addition based on it can be struck down in appeal,” says a senior tax counsel familiar with the case.
When Can AO Legally Refer to DVO? (Checklist)
| Scenario | DVO Reference Allowed? |
|---|---|
| During Section 143(3) assessment | ✅ Yes |
| During Section 147 reassessment | ✅ Yes |
| After assessment is over | ❌ No |
| On mere suspicion post-assessment | ❌ No |
| To initiate reassessment | ❌ No |
CBDT Instruction Also Limits Powers
Per CBDT Instruction No. 96/2008, AOs must follow procedural safeguards before referring to a DVO. These include:
- Recording reasons for doubt on FMV
- Referring only during assessment/reassessment stage
- Not using DVO reports to retrospectively revise completed cases
This adds administrative teeth to the ITAT ruling.
Read the Instruction on incometaxindia.gov.in
Final Word: DVO Reference is Not a Backdoor Tool
The ITAT’s ruling protects taxpayers from arbitrary valuations once their assessments are done. It prevents misuse of DVO machinery to reopen settled matters without proper notice under Section 147.
If you’re facing a DVO notice after your assessment is over, consult your CA or legal advisor. You may have a solid ground to get it quashed.
Need Help With Capital Gains Scrutiny or DVO Disputes?
At Efiletax, we handle complex scrutiny and appeals involving DVO references, reassessments, and capital gains issues. Our team is well-versed with ITAT and High Court precedents.
👉 Talk to our tax experts now and safeguard your compliance.
FAQs
Q1. Can the AO refer a case to DVO after issuing intimation under Section 143(1)?
A: No. Intimation under 143(1) is not an assessment. Unless a full scrutiny is opened under 143(2), DVO reference cannot be made.
Q2. What should I do if I receive a DVO notice post-assessment?
A: Verify whether any reassessment is open. If not, reply stating the DVO reference is invalid, citing the ITAT ruling.
Q3. Is a DVO report always binding on the AO?
A: No. The AO may rely on it, but if the report is based on an invalid reference, it can be rejected in appeal.
Summary
A DVO reference under Section 55A is valid only during pending assessment or reassessment proceedings, says ITAT. Learn how this protects taxpayers from post-assessment valuation issues.