Tribunal Can Remand Matter to Direct Valuation Officer Reference

Tribunal Can Remand Matter to Direct Valuation Officer Reference for Disputed Asset Allocation Under Section 50C

Issue

Whether the Income Tax Appellate Tribunal, while exercising its appellate powers under section 254, has the legal authority to remand a matter and direct the Assessing Officer to refer a property valuation to the Departmental Valuation Officer (DVO), when the allocation of purchase price between tangible assets (land/building) and intangible assets (goodwill) is under dispute.

Facts Point Wise

Business Acquisition: The appellant-company acquired the business assets of a plant for a total consideration of approximately Rs. 281.29 crores.
Price Allocation: In its books, the company split the acquisition cost by attributing Rs. 137.20 crores to tangible assets (land and building) and Rs. 144.09 crores to goodwill.
Depreciation Claim: The appellant subsequently claimed a tax deduction for depreciation on the Rs. 144.09 crores allocated to goodwill.
AO’s Invocation of Section 50C: The Assessing Officer (AO) disputed this allocation. To determine the true value of the land and building, the AO applied section 50C by adopting the local stamp duty circle rates, rather than referencing the valuation to a DVO. This directly reduced the remaining value attributable to goodwill and shrunk the appellant’s depreciation claim.
Tribunal’s Interlocutory Order: On appeal, the Tribunal agreed in principle that goodwill is eligible for depreciation. However, to resolve the factual dispute over the asset split, the Tribunal set aside the assessment and directed the AO to formally refer the valuation of the land and building to the DVO.
Assessee’s Objection: The appellant challenged this remand, contending that the Tribunal exceeded its statutory appellate powers under section 254 by sending the case back to the AO for a fresh DVO valuation.

Decision Point Wise

Appellate Power Scope: It was held that appellate proceedings are inherently a continuation of the original assessment proceedings.
Direction to DVO Valid: The powers of the Tribunal under section 254 are wide enough to rectify procedural or evidentiary gaps. Since the asset price allocation was the core subject matter of the dispute, the Tribunal was fully competent to command a DVO reference.
Procedural Order Uphold: The Tribunal’s directions to remand the matter were upheld as legally sound.
Interim Instruction: The Assessing Officer is directed to execute the reference to the DVO as mandated by the Tribunal and pass a fresh assessment order based on those findings.
Final Outcome: The ruling was decided in favour of the Revenue.

Key Takeaways

Tribunal Powers are Plenary: The Income Tax Appellate Tribunal is not restricted to merely accepting or rejecting an assessment. It holds the power to remand, direct further inquiries, or order regulatory valuations to ensure a lawful and accurate determination of tax liability.
Section 50C and Slump Sale/Asset Allocation: When the division of value between land and other business components like goodwill is arbitrary, tax authorities can deploy Section 50C benchmark circle rates as a primary tool to verify the transaction’s real estate value.
DVO Referral as a Corrective Measure: If an AO fails to refer a disputed valuation to the DVO during initial assessment, higher appellate bodies can order that reference retroactively to prevent miscarriage of justice or tax evasion.

HIGH COURT OF DELHI

BE Pharmaceuticals (P.) Ltd.

Assistant Commissioner of Income-tax, Circle 2(1)^*

Dinesh Mehta and Vinod Kumar, JJ.

IT Appeal No. 249, 250, 251 & 252 OF 2026
CM APPL. No. 18786, 18787, 18788, 18790, 18791, 18792, 18823, 18824, 18825, 18836, 18837 & 18838 OF 2026

MARCH 30, 2026

Nageswar Rao and Parth, Advs. for the Appellant. Indruj Singh Rai, SSC, Sanjeev Menon, Rahul Singh, JSCs and Gaurav Kumar, Adv. for the Respondent.

ORDER

1. By way of present appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’), the appellant has challenged the order of the Income Tax Appellate Tribunal (ITAT), Delhi Bench “F” (hereinafter referred to as ‘the Tribunal’) dated 28.10.2025.

2. Before adverting to the questions which are involved in these appeals, we would like to record facts in a nutshell and the submissions that were advanced by learned counsel for the parties with respect to the varied questions proposed and elaborately argued.

3. By way of a sale deed dated 25.02.2012 (which got registered on 29.02.2012), the appellant had purchased assets of the company known as Kilitch Drugs India Limited (hereinafter referred to as ‘vendor’) having its plant at Village Nihalgarh, Tehsil Paonta Sahib, District Sirmaur, Himachal Pradesh for a total consideration of Rs.281,28,95,923/-. According to the appellant, said consideration comprised of slump purchase of tangible assets of the vendor for a consideration of Rs.137,19,82,389/- which included land and building and remaining part being Rs.144,09,13,534/- was paid as goodwill.

4. The basic question in the present appeals was, as to whether the appellant is entitled to claim depreciation on goodwill and if yes, than on what amount. The Commissioner of Income Tax (Appeals)-I, New Delhi (hereinafter referred to as ‘CIT(A)’) vide order dated 17.07.2019 had reckoned the component of goodwill as Rs.65.8 crores.

5. The Tribunal though in principle accepted appellant’s contention that it was entitled for depreciation on goodwill, however remanded the matter back to the Assessing Officer (AO), with following directions contained in its order dated 28.10.2025 :-

“18. In our considered opinion, the provisions of section 50C of the Act per se cannot be made applicable in the instant case as assessee is only the buyer of capital assets and not the seller. At best, the provisions of section 56(2)(vii)(b) of the Act could be made applicable, which is applicable in the hands of the buyer. Hence the Learned AO applying the provisions of section 50C of the Act by adopting the circle rates for land and building acquired by the assessee under slump sale is patently wrong in view of the fact that acquisition of assets under slump sale is governed by the provisions of section 50 B of the Act. It is pertinent to note that provisions of section 50C creates a deeming fiction in the hands of the seller that the value determined by the stamp valuation authorities for the purpose of stamp duty shall be deemed to be the full value of consideration received by the seller if the value mentioned in the registered sale deed is less than the value determined by the stamp valuation authorities. The provisions of section 50C of the Act as stated earlier is applicable only to the seller, which creates a deeming fiction. The additional ground raised by the assessee is challenging the applicability of provisions of section 50C of the Act to the impugned transactions of the assessee carried out through slump sale agreement. We have already held that assessee being a buyer of the assets under slump sale, the provisions of section 50C of the Act cannot be made applicable to it. However, the provisions of section 56(2)(vii)(b) of the Act shall be applicable, which apparently does not contain any deeming fiction. Hence, the argument advanced by the Learned AR before us that the deeming fiction created by the statute had to be interpreted very strictly and had to be applied only for the section in which such deeming fiction is created and the same cannot be extended to other sections, meaning thereby – the deeming fiction created in section 50C of the Act cannot be extended to slump sale cases which are governed by provisions of section 50B of the Act, is to be rejected. Once the provisions of section 56(2)(vii)(b) of the Act are made applicable, what is to be seen is if the value at which assets were acquired by the assessee at a price lesser than the value determined by the stamp valuation authorities for the purpose of levy of stamp duty, then the acquisition price of the assets shall be substituted with the value determined by the stamp valuation authorities for the purpose of stamp duty. The differential amount shall be treated as inadequate consideration and brought to tax under section 56(2)(vii)(b) of the Act. But it is pertinent to note that the same provisions of section 56(2)(vii)(b) of the Act contains a proviso which says that if there is any dispute with regard to the value between the assessee and the value determined by the stamp valuation authorities, then the proper recourse to the revenue would be to refer the valuation of the land and buildings to the Learned Departmental Valuation Officer and thereafter the valuation of assets need to be governed by the mandate provided in section 50C(2) of the Act.

Admittedly, in the instant case, the Learned AO had not resorted to refer the matter to Learned Departmental Valuation Officer. Hence in the interest of justice and fairplay, we deem it fit and appropriate to restore this issue to the file of Learned AO with the following directions:-

(a)

Learned AO had to refer the valuation of land and buildings acquired by the assessee from Kilitch Drug India Ltd under slump sale pursuant to Business Transfer Agreement, to the Learned Departmental Valuation Officer, to determine the fair market value as on the date of acquisition;

(b)

The Learned Departmental Valuation Officer should ensure that assessee is given due opportunity of being heard before the valuation is finalised. For this purpose, the Learned AO is directed to give suitable directions to the Learned Departmental Valuation Officer;

(c)

The assessee is entitled to file its objections, if any, before the Learned Departmental Valuation Officer;

(d)

The Learned Departmental Valuation Officer shall furnish the valuation report after duly taking into account all the objections of the assessee ;

(e)

If the value so determined by the Learned Departmental Valuation Officer is more than the value shown by the assessee towards land and buildings, then the same (i.e. the value determined by Learned Departmental Valuation Officer) shall be adopted as the value attributable for land and buildings.

(f)

Correspondingly, the Learned AO should attribute the remaining portion of the value towards the Goodwill in view of our decision hereinabove that assessee had actually paid the purchase consideration which includes a portion towards Goodwill also and grant depreciation thereon.

18.1 . We are making it very clear that the Learned Departmental Valuation Officer shall not resort to adoption of circle rates for the purpose of valuation of land and buildings as the circle rates were not even notified by the Himachal Pradesh Government for the transactions carried out upto 31-3-2012.

18.2 . With the abovementioned directions, we hold that the issue of claim of depreciation on Goodwill is restored to the Learned AO.”

6. On the previous date of hearing i.e. on 25.03.2026, learned counsel for the parties argued thus:-

“1. During the course of submissions, Mr. Rao, learned counsel for the appellant submitted that the Assessing Officer (AO) has not only gone through the sale deed but has even reproduced the relevant extracts thereof and since the sale deed was very much with him, it was for him to either refer the matter to the Departmental Valuation Officer (hereinafter referred to as ‘DVO’) or to take the valuation as per his own wisdom.

2. He further argued that the Income Tax Appellate Tribunal (hereinafter referred to as the ‘Tribunal’) has erred in resorting to the provision (Section 56(2)(vii)(b)) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act of 1961’), which is applicable to individual Hindu Undivided Family, whereas the appellant is a company for which the provision of Section 56(2)(x) of the Act of 1961 which came into effect from AY 2017-18 could have been applicable but since such provision did not exist for the relevant period (for AY 2012-13), the Tribunal has misdirected itself.

3. Mr. Indruj Rai, learned senior standing counsel for the respondents, on the other hand, submitted that the reference of Section 56(2)(vii)(b) made in paragraph 18 of the impugned order dated 28.10.2025 of the Tribunal is only for the purpose of making reference to DVO and for issuing appropriate directions to the Assessing Officer while sending the matter back. He added that Section 56(2)(vii)(b) or Section 56(2)(x) as the case may be has not been ordered to be resorted to and there is no direction of levying tax under that provision, which by itself is a separate charging section.

4. During the course of submission, Mr. Rai, learned senior standing counsel for the respondents further submitted that as a matter of fact, the purchase consideration shown in the sale deed in question was Rs.110 crore, as against this, in the list of assets and while claiming depreciation, the appellant-assessee had shown the value of tangible assets (subject land and building) at Rs.40,50,57,400/-.”

7. Today, Mr. Nageswar Rao, learned counsel for the appellant argued that the provision of Section 56(2)(vii)(b) of the Act of 1961 are/were only applicable qua individuals and Hindu undivided family (HUF) and so far as Section 56(2)(x) of the Act of 1961 is concerned, the same came into force with effect from 01.04.2017 and therefore on the relevant date (01.04.2012), the provision enabling reference to the Departmental Valuation Officer (hereinafter referred to as ‘DVO’) did not exist and hence, the Tribunal could not resort to Sections 56(2)(vii)(b) or 56(2)(x) of the Act of 1961.

8. To this submission, Mr. Rai, learned Senior Standing Counsel for the respondents submitted that it was only an observation and no corresponding direction was contained in paras No. 18 and 18.2. He contended that though the tenor of the order may give rise to some confusion but the stand of the Department is, that Sections 56(2)(vii)(b) or 56(2)(x) of the Act of 1961 shall not be used as charging sections and shall be resorted to for the purpose of making reference to DVO and consequential claim of depreciation.

9. Mr. Nageswar Rao, learned counsel for appellant interjected and pointed out the following part of para 18 of the impugned order of the Tribunal to contend that the Tribunal has given direction to tax the appellant as per Section 56(2)(vii)(b) of the Act of 1961, which is reproduced hereinfra: –

“The differential amount shall be treated as inadequate consideration and brought to tax under section 56(2)(vii)(b) of the Act. But it is pertinent to note that the same provisions of section 56(2)(vii)(b) of the Act contains a proviso which says that if there is any dispute with regard to the value between the assessee and the value determined by the stamp valuation authorities, then the proper recourse to the revenue would be to refer the valuation of the land and buildings to the Learned Departmental Valuation Officer and thereafter the valuation of assets need to be governed by the mandate provided in section 50C(2) of the Act. Admittedly, in the instant case, the Learned AO had not resorted to refer the matter to Learned Departmental Valuation Officer.”

10. Mr. Rao vehemently argued that the Tribunal could not have resorted to such provision even for the purpose of making the reference even if the argument advance by Mr. Rai, learned Senior Standing Counsel for the respondents.

11. Learned counsel for the appellant also argued that even if the Tribunal was of the view that the value of the assets as taken by the AO is not correct, the Tribunal could not have doubted the same and remanded the matter for the purpose of valuation inasmuch as the same can be done only by Principal Commissioner or Commissioner under Section 263 of the Act of 1961.

12. We are prima facie not much convinced with this argument because the appellate proceedings are continuation of the assessment proceedings and the Tribunal while exercising the appellate powers under Section 254 of the Act of 1961. It can certainly issue direction to get valuation done, when the same was a subject matter of dispute.

13. However with a view to lend support to his argument that the reference to the DVO could not have been made, learned counsel make alternative plea that since there was no provision, reference could not have been made. He relied upon judgment of Hon’ble the Supreme Court in the case of Smt. Amiya Bala Paul v. CIT 262 ITR 407 (SC).

14. Another ground which has been taken by the appellant in the present case is in relation to the consideration of Rs.20 Crores for Non-Compete Agreement, which the appellant had entered into with the vendor.

15. He submitted that the Tribunal had rejected appellant’s claim for depreciation on said Rs.20 crores relying upon a judgment of this Court titled asSharp Business System v. CIT-III /[2026] 484 ITR 496 (Delhi) but it is noteworthy that appeal against said judgment of the Delhi High Court, has been decided by Hon’ble the Supreme Court vide judgment dated 19.12.2025 reported in Sharp Business System v. CIT (SC) and said judgment of the Delhi High Court has been modified by Hon’ble the Supreme Court by holding that an assessee should be held entitled to claim the amount of Non-Compete Agreement as revenueexpenditure.

16. Another ground or grievance, which the appellant has raised in these appeals is, that the Tribunal has not considered the appellant’s ground of appeal relating to interest on delayed payment of custom duty and sales tax.

17. With regard to ground relating to interest on delay payment of custom duty and sales tax, we find that the Tribunal in his para no.19 of the impugned order has held that such ground raised by the assessee regarding disallowance of interest paid on late payment of custom duty does not emanate from the order of lower authorities.

18. We are of the view that such finding recorded by the Tribunal is purely a finding of fact based on the record available with the Tribunal and the same does not call for any interference.

19. The appeal qua this ground and all other grounds fail, except for the grounds qua which we are framing the questions as enumerated hereunder :-

(i)

Whether in face of the fact that on 01.04.2012, Section 56(2)(vii)(b) of the Act of 1961 did not exist, the Tribunal was justified in remanding the matter for the purpose of calculating de novo valuation of the tangible assets while taking recourse to such provision?

(ii)

Whether reference to Departmental Valuation Officer can be made in the face of judgment of Hon’ble the Supreme Court in the case of Smt. Amiya Bala Paul (supra)?

(iii)

What consequential directions are required to be given by this Court to the Tribunal or the Assessing Officer consequent to judgment of Hon’ble the Supreme Court in the case of Sharp Business (supra) decided on 19.12.2025?

20. Admit.

21. Issue notice. Mr. Rai accepts notice.

22. Meanwhile the Assessing Office shall make reference as directed by the Tribunal and pass the order in terms thereof. He shall however not take any measure for recovery of the demand, if raised as a consequence of the order of the Tribunal.

23. List this case on 28.08.2026.