Section 50C: ITAT Mumbai Says AO Cannot Ignore a Pending DVO Reference
When the assessee disputes stamp-duty valuation, can the Assessing Officer complete the assessment by adopting the stamp-duty value without waiting for the DVO’s report?
The Mumbai Bench of the Income Tax Appellate Tribunal has delivered an important ruling highlighting the significance of the valuation mechanism under Section 50C(2).
In Sawalchand Chunilal Bafna HUF v. ITO, ITA No. 7492/Mum/2025, order dated 16 October 2026, the Tribunal held, on the facts of the case, that where the Assessing Officer had made a reference to the Departmental Valuation Officer (DVO) after the assessee disputed the stamp-duty valuation, the assessment could not properly be completed by simply adopting the Sub-Registrar’s value without awaiting the outcome of that reference. The case was listed in the Mumbai ITAT’s records for ITA No. 7492/Mum/2025.
The Facts: Property Sold for ₹21 Lakh
The assessee sold two plots of land situated at Bhinmal, Rajasthan, for an aggregate consideration of ₹21 lakh:
– Plot 1 – ₹3 lakh
– Plot 2 – ₹18 lakh
During assessment proceedings, the Assessing Officer noticed that the stamp-duty valuation was substantially higher than the actual consideration disclosed in the sale documents.
The assessee explained that the properties were affected by disputes and encroachment-related litigation, which had adversely affected their marketability and consequently the price at which they could be sold.
The assessee therefore disputed the stamp-duty value and sought determination of the fair market value by the Departmental Valuation Officer.
The Crucial Twist: DVO Reference Was Made — But Assessment Was Completed Anyway
This is where the case becomes particularly important.
The Assessing Officer did make a reference to the DVO.
However, instead of waiting for the valuation report, the assessment was completed by adopting the valuation furnished by the Sub-Registrar for the purpose of computing capital gains.
The assessee challenged the addition before the CIT(A), but the first appellate authority upheld the Assessing Officer’s action.
The matter consequently reached the ITAT.
What Did ITAT Mumbai Hold?
The Tribunal found substance in the assessee’s grievance.
Once the assessee had disputed the stamp-duty valuation in accordance with the statutory mechanism and the Assessing Officer had actually made a reference to the DVO, the valuation process could not simply be abandoned midway.
The Tribunal held that the reference to the DVO ought to have been taken to its logical conclusion before finally determining the capital gains.
Consequently, the addition based upon the stamp-duty valuation was deleted and the assessee’s grounds were allowed.
The Tribunal relied upon the reasoning adopted by Rajni Arvind Birla v. ITO, ITA No. 930/Ahd/2025, ITAT Ahmedabad, order dated 28 November 2025.
Understanding Section 50C
Section 50C contains a special deeming mechanism for determining the full value of consideration in certain transfers of land or building or both.
Where the value adopted or assessed by the stamp valuation authority exceeds the consideration declared by the assessee, the stamp-duty value may become relevant for computing capital gains, subject to the statutory safeguards.
But Section 50C is not simply a provision allowing the Department to substitute the stamp-duty value mechanically in every case.
Section 50C(2): The DVO Safeguard
The important protection for taxpayers is contained in Section 50C(2).
Where the assessee claims before the Assessing Officer that:
1. the value adopted or assessed by the stamp valuation authority exceeds the fair market value of the property; and
2. the value so adopted or assessed has not been disputed in any appeal, revision or reference before any authority or Court,
the Assessing Officer may refer the valuation of the capital asset to the Valuation Officer in accordance with the statutory provisions.
This mechanism recognises an obvious practical problem.
Stamp-duty value and actual market value are not necessarily identical.
A property may command a lower price because of litigation, encumbrances, defective title, physical difficulties, access problems, tenancy, encroachment or other circumstances affecting its marketability.
Can the AO Make the DVO Reference and Then Ignore It?
That is the central lesson emerging from the Mumbai ITAT decision.
If the Assessing Officer considers it appropriate to make a DVO reference after the assessee has challenged the stamp-duty valuation, the reference cannot become a mere procedural formality.
The valuation exercise should be carried through before the final determination of capital gains, particularly where the DVO’s report could materially affect the deemed consideration under Section 50C.
In simple terms:
Reference made to DVO → valuation report awaited → assessment completed using stamp value
is precisely the sequence that came under scrutiny in this case.
The Tribunal found that the valuation reference should have been taken to its logical conclusion.
Why the Property’s Condition Matters
The case also demonstrates why taxpayers should not merely state that the stamp-duty value is excessive.
A proper objection should ideally be supported by evidence explaining why the actual consideration was lower.
For example:
– pending litigation concerning the property;
– encroachment;
– defective or disputed title;
– restrictions on development;
– access difficulties;
– physical condition of the property;
– comparable transactions;
– location-specific disadvantages; and
– other factors affecting the property’s actual market value.
In the present case, the assessee had specifically pointed to disputes and encroachment-related litigation.
Such circumstances can be relevant when determining whether the stamp-duty value fairly represents the property’s market value.
A Simple Illustration
Suppose a property is actually sold for ₹50 lakh, but the stamp valuation authority adopts a value of ₹80 lakh.
The assessee demonstrates that the property is subject to litigation and encroachment and disputes the stamp value.
If the statutory conditions are satisfied and the AO refers the matter to the DVO, the valuation reference becomes important to the ultimate determination.
If the DVO determines the fair market value at ₹55 lakh, the difference between ₹80 lakh and ₹55 lakh becomes highly material.
Therefore, completing the assessment at ₹80 lakh without properly dealing with the valuation reference could defeat the very purpose of the statutory safeguard.
Section 153 and the Time-Limit Issue
One practical concern for Assessing Officers is that valuation references can consume time.
However, the Income-tax Act contains provisions dealing with exclusion of specified periods connected with a valuation reference while computing the limitation period for completing an assessment.
Therefore, the existence of a DVO reference does not by itself mean that the AO has to sacrifice the statutory limitation period.
The proper course is to consider the applicable limitation provisions and the statutory exclusions while completing the assessment.
Important Distinction: This Is Not a General Rule That Stamp Value Can Never Be Adopted
The ruling should not be misunderstood.
The ITAT has not held that stamp-duty valuation can never be adopted under Section 50C.
Nor does the decision mean that every objection raised by an assessee automatically requires acceptance of the declared sale consideration.
The important factual circumstance here was that:
the assessee disputed the valuation, the AO made a DVO reference, but the assessment was completed without awaiting the outcome of that reference.
Therefore, the ruling is principally about following the statutory valuation mechanism once it has been invoked.
What Should Taxpayers Do?
Whenever Section 50C is invoked, taxpayers should immediately examine:
1. Actual sale consideration
Verify the consideration with the registered sale deed, bank statements and other supporting records.
2. Stamp-duty valuation
Obtain the precise value adopted by the stamp valuation authority.
3. Difference between the two values
Quantify the proposed impact on capital gains.
4. Objection under Section 50C(2)
If the stamp value does not represent the fair market value, make a specific and properly supported objection.
5. Evidence of adverse factors
Collect litigation papers, encroachment records, valuation reports, comparable transactions and other relevant evidence.
6. DVO reference
If a reference is made, track the proceedings and ensure that the valuation report is properly considered.
7. Assessment order
If the assessment is completed without dealing with a pending valuation reference, examine the validity of the addition in appeal.
The Larger Message
Section 50C creates a statutory deeming fiction, but the Act also provides a mechanism to address cases where the stamp-duty value does not represent the fair market value.
The DVO mechanism is therefore not merely decorative.
The Mumbai ITAT ruling serves as a useful reminder that once the statutory valuation safeguard has been invoked and a reference has actually been made, the Revenue must deal with that process properly before determining the final capital gains.
For taxpayers involved in sale of land and buildings, the practical lesson is equally important:
> If you believe the stamp-duty value is excessive, raise the objection during assessment itself and support it with evidence.
And for the Assessing Officer:
> If a valid valuation reference has been made, the valuation process should not be bypassed merely because the assessment is otherwise ready for completion.
Case at a Glance
Particular Details
Case Sawalchand Chunilal Bafna HUF v. ITO
Appeal ITA No. 7492/Mum/2025
Forum ITAT Mumbai
Order Date 16 October 2026
Issue Section 50C and pending DVO reference
Property Two plots at Bhinmal, Rajasthan
Actual consideration ₹21 lakh
Key principle DVO reference should be taken to its logical conclusion before final determination of capital gains
The TAX Talk Takeaway
Section 50C may create a deemed value, but it does not eliminate the taxpayer’s right to challenge an excessive stamp-duty valuation.
When the assessee invokes the statutory safeguard and the AO himself makes a reference to the DVO, the valuation exercise must be properly completed and considered.
A DVO reference cannot be made in the morning and forgotten by the evening!
For taxpayers selling immovable property, this decision underlines one golden rule: never ignore the stamp-duty valuation difference—object, document and preserve the valuation evidence at the assessment stage itself.
Legal note: The above article is based on the case details supplied and the available ITAT listing. The complete order should be examined before relying upon the precise reasoning or operative directions in any assessment or appellate proceeding.
The copy of the order is as under:
