ABC GLASS,BANGALORE vs. ACIT, CIRCLE-6(1)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No. 2991/Bang/2025 Assessment Year : 2020-21

M/s. ABC Glass, The Assistant Commissioner of 41A, Peenya Industrial Estate, Income Tax, Peenya, Bengaluru – 560 058. Central Circle – 6(1)(1), Vs. PAN: AACFA0286G Bengaluru. APPELLANT RESPONDENT

: Ms. Pratibha R, Advocate Assessee by : Sri Shivanad Kalakeri – CIT DR Revenue by

Date of Hearing : 29-04-2026 Date of Pronouncement : 29-06-2026

ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT

ITA No. 2991/Bang/2025 Page 2 of 8 the assessee. The assessee also challenges the findings of the lower authorities, including the denial of business expenditure and the disturbance, in assessment year 2020–21, of the written down value of the block of assets for assessment year 2010–11 without any basis. 3. Briefly, the assessee is a partnership firm engaged in manufacturing toughened safety glass. It was allotted two acres of land at Plot No. 41, Peenya Industrial Area, Bengaluru, by the Karnataka Industrial Areas Development Board under allotment dated 29 May 1975. The allotment was confirmed by letter dated 11 November 1975, possession was delivered under possession certificate dated 27 May 1976, and a sale deed dated 19 June 1986 was later executed in favour of the assessee, followed by certain changes in its name. Of the two acres, the assessee used one acre for its own factory purposes and leased the other acre to Southern Auto Products under an agreement dated 10 November 1986. Under that agreement, Southern Auto Products was permitted to construct a factory for its own use and paid a lease deposit to the assessee. It accordingly constructed a substantial factory building on the leased one-acre plot. When the assessee later decided to sell the entire two-acre property, it entered into a cancellation agreement dated 16 April 2018 with Southern Auto Products to take back the leased land. Since Southern Auto Products had constructed an industrial shed/building on that land, the parties agreed its cost at ₹59,459,326. On cancellation, the assessee agreed to pay Southern Auto Products ₹5,94,59,326 on or before 31 March 2019 towards the building cost, deducted tax at source, settled its claim, and returned the earlier lease deposit/advance of ₹3.30 crore. Thus, the assessee regained possession of the leased land along with the building standing thereon and thereafter sold the entire two-acre plot to the buyer. 4. For assessment year 2020–21, the assessee added ₹59,459,326—the cost of the building acquired from Southern Auto Products under the cancellation deed— to the existing factory building value of ₹40,303,603. This resulted in a closing value of ₹99,762,929 as on 31 March 2019. Thereafter, to sell the plot as open land, the assessee demolished the entire building, converted the land into stock- in-trade, sold it during the year, and offered the resulting income as business

ITA No. 2991/Bang/2025 Page 3 of 8 income. There is no dispute about this treatment. Since the building had been demolished, the assessee claimed ₹99,762,929 as capital loss. 5. The assessee filed its return of income on 28 December 2020, declaring total income of ₹160,333,270. In computing the capital gain, the assessee adopted sale consideration of ₹297,978,500 and reduced therefrom the indexed cost of acquisition of ₹37,973,300, resulting in long-term capital gain of ₹260,005,200 on sale of the land. From this, the assessee set off short-term capital loss of ₹99,762,929 arising from the depreciable factory building, resulting in taxable capital gain of ₹160,242,271. The return also disclosed business profits of ₹348,503 after setting off brought-forward business loss of ₹257,504, and the total income was accordingly computed at ₹160,333,270. 6. The return was selected for scrutiny to verify the large capital gain and the opening written down value of the block of assets. Notices were issued under section 143(2) and section 142(1) of the Income-tax Act, calling for details and supporting documents. In response, the assessee explained that it had computed long-term capital gain after reducing the indexed cost of acquisition and had set off short-term capital loss arising from the demolished factory building. The assessee also submitted the detailed computation and fixed asset schedule showing the relevant written down value and the adjustment of ₹99,762,929 while arriving at the returned total income of ₹160,333,270. 7. Upon examining the claim, the learned Assessing Officer disallowed the addition of ₹59,459,326 to the factory building account, being the agreed cost of the building acquired from Southern Auto Products under the cancellation arrangement. Heobserved that the assessee had not claimed depreciation on these assets for several years,beginning withassessment year 2011–12. He further held that, although the assessee had shown the opening WDV of the asset for assessment year 2011–12 at ₹251,382,475, the WDV of the building as on assessment year 2010–11 should have been only ₹181,544. On that basis, he allowed only ₹56,268 as the WDV of the factory building at the time of sale of the plot and restricted the claimed short-term capital loss of ₹99,762,929 to ₹56,268. 8. The learned Assessing Officer further held that, since the assessee had converted a fixed asset into stock-in-trade and had no business activity, the set-

ITA No. 2991/Bang/2025 Page 4 of 8 off of brought-forward business loss was not allowable. As the assessee did not respond to this query, the brought-forward loss of ₹257,504 was denied. The claims for power and fuel expenditure of ₹430,187, rates and taxes of ₹135,203, and audit fees of ₹100,000 were also disallowed. 9. The assessment order was accordingly passedon 27 September 2022 under section 143(3) read with section 144B of the Income-tax Act, determining total income at ₹260,962,825 against the returned income of ₹160,333,270. 10. Aggrieved, the assessee filed an appeal before the learned CIT(A). Despite detailed written submissions, the learned CIT(A), by appellate order dated 28 November 2025, confirmed the disallowance of ₹99,706,661 towards short-term capital loss on the factory building, the disallowance of set-off of brought-forward business loss of ₹257,504, and the disallowance of expenditure of ₹665,390, and dismissed the appeal. 11. The assessee is now in appeal before us. In ground No. 2, the assessee contends that the learned Assessing Officer ignored the purchase of the building for ₹59,459,326 despite the cancellation deed, tax deduction at source under section 194-IA, Form No. 16B, and proof of payment made to Southern Auto Products. The assessee further submits that the learned Assessing Officer wrongly examined assessment years 2010–11 and 2011–12, which are irrelevant to the assessment for assessment year 2020–21. It is also submitted that the assessee’s earlier assessments had attained finality and the accepted written down value could not have been disturbed without valid reason. 12. The learned authorized representativefiled a 72-page paper book tracing the history of the asset from its original acquisition in 1975and explaining the construction activity carried out in financial year 2010–11. She reconciled the opening and closing WDV and showed the additions made during the relevant financial years. She also furnished the cancellation agreement, bank statements evidencing payment of compensation for the building, and proof of tax deduction at source. Regarding demolition, she produced photographs to show that the building had been demolished, giving rise to the claimed loss. She further referred to the fixed asset schedules from financial years 2010–11 to 2019–20 and details of major additions for assessment year 2011–12 to demonstrate that

ITA No. 2991/Bang/2025 Page 5 of 8 the declared assets, including land and building under the glass block, stood at ₹253,082,475. She also referred to the income-tax returns for assessment years 2019–20 and 2020–21. Her submission was that the learned Assessing Officer rejected the payment of ₹59,459,326 towards compensation for the building constructed by the tenant, despite supporting documents such as the agreement, bank statement, and TDS certificate. She argued that the assessee had been assessed for several decades and that the Assessing Officer had no basis to hold, in assessment year 2020–21, that the gross block shown in financial year 2010–11 was incorrect. Referring to section 50 of the Income-tax Act, she submitted that there is no dispute regarding the availability of short-term capital loss; the dispute is only about its quantum. The assessee claimed ₹99,762,929, whereas the Assessing Officer restricted it to ₹56,268. She submitted that the assessee maintained regular books and fixed asset schedules for all relevant years, which were rejected without basis, and that the learned CIT(A) failed to consider the assessee’s explanation and merely affirmed the Assessing Officer’s action. 13. The learned Departmental Representative, Shri Shivanand Kalakeri, strongly supported the orders of the lower authorities. He submitted that the mere existence of a cancellation deed was insufficient, particularly when the old block of assets had not been used for a long period. Therefore, according to him, the lower authorities were justified in refusing to allow the addition to the block of assets in respect of the building acquired fromthe tenant. 14. We have carefully considered the rival submissions and perused the orders of the lower authorities. The issue before us is whether the assessee’s capital loss is to be computed at ₹99,762,929, as claimed by the assessee, or restricted to ₹56,268, as determined by the learned Assessing Officer. 15. The record shows that the written down value of the relevant block of assets, as reflected in the assessee’s books and income-tax records as on 1 April 2018, stood at ₹40,303,603. During financial year 2018–19, the assessee acquired the building constructed by Southern Auto Products on the leased plot to facilitate sale of the entire land as an open plot. Under the cancellation agreement dated 16 April 2018, the assessee paid ₹59,459,326 towards the cost of that building.

ITA No. 2991/Bang/2025 Page 6 of 8 After this addition, the total written down value at the end of the year stood at ₹99,762,929.The payment of ₹59,459,326 towards the cost of the building is supported by the cancellation agreement, bank statements, ledger accounts, TDS certificate, and other related documents. The assessee also refunded the earlier lease deposit of ₹3.30 crore to Southern Auto Products and deducted tax at source on the payment made for the building. The amount was added to the block of assets on 3 October 2018, resulting in a closing written down value of ₹99,762,929 as on 31 March 2019. The assessee also produced photographs before the learned Assessing Officer showing the building as it existed when possession of the leased plot was taken back from Southern Auto Products.In these circumstances, the learned Assessing Officer was not justified in denying credit for the payment made to Southern Auto Products. 16. The remaining dispute concerns the learned Assessing Officer’s substitution of the brought-forward written down value by referring to assessment year 2010–11 and adopting ₹181,544 as the WDV of the building. The assessee, however, has shown that the opening WDV at the beginning of assessment year 2011–12 was ₹253,052,473 and has supported this figure by filing the opening WDV, additions and closing WDV of the factory building from 1 April 2009 to 31 March 2019. The learned Assessing Officer appears to have confused the absence of further additions to the building after 2010 with the continued existence of the block of assets. Except for the subsequent acquisition of the building from Southern Auto Products for ₹59,459,326, the assessee consistently carried forward the same block in its books and returns, which were placed before the lower authorities. No contrary material has been brought on record to dislodge these regularly maintained accounts and accepted returns. We therefore fail to see how the Assessing Officer could, in assessment year 2020–21, disturb the block of assets accepted in earlier years and reduce the WDV to ₹56,268 merely on an estimate or assumption relating to assessment year 2010–11. 17. As regards the increase in the block of assets, which was on account of revaluation of land in F Y 2010-11. We are not concerned with the same in AY 2020-21. Even otherwise the revaluation dated 16 April 2010 and 31 December 2010 are pertaining to land and not the factory building . The statement of fixed

ITA No. 2991/Bang/2025 Page 7 of 8 assets shows that fixed assets comprises of land, factory building, plant and machinery, electrical installations, and other assets. The only addition relevant to the present year is ₹59,459,326, representing the cost of the building acquired from Southern Auto Products. The other increase relates to revaluation of land in F Y 2010-11 and not to any fresh acquisition in assessment year 2020–21. It is therefore clear that the disputed building was already part of the assessee’s block in financial year 2010–11, and the addition in the year under appeal is confined to the amount paid for the building taken over from Southern Auto Products. In these facts, there was no basis for restricting the capital loss claimed by the assessee from ₹99,762,929 to ₹56,268. 18. We find no reason to deny the assessee the benefit of the factory building acquired from Southern Auto Products or to disturb the brought-forward written down value based on an alleged mismatch relating to earlier years. The restriction of the capital loss to ₹56,268 is therefore unsustainable. We direct the learned Assessing Officer to allow the capital loss of ₹99,762,929 as claimed by the assessee. Ground Nos. 2 to 7 of the assessee’s appeal are allowed. 19. All other grounds raised by the assessee are either general, supportive, or consequential in nature. Since no specific arguments were advanced on these grounds, they are dismissed as not pressed. 20. In the result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 29th June 2026.

Sd/- Sd/- (KESHAV DUBEY) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE-PRESIDENT

Bangalore, Dated, the 29th June 2026. *TNTS*

ITA No. 2991/Bang/2025 Page 8 of 8 Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. CIT(A) By order

Assistant Registrar, ITAT, Bangalore