KARNAVATI ROLLING MILLS PRIVATE LIMITED,AHMEDABAD vs. THE ITO, WARD-2(1)(1), AHMEDABAD

ITA 1714/AHD/2025Status: DisposedITAT Ahmedabad25 September 2026AY 2018-196 pages
AI SummaryPartly Allowed

What were the facts?

The assessee, Karnavati Rolling Mills Private Limited, filed an appeal against the order of the CIT(A), NFAC, Delhi, dated July 11, 2025, concerning Assessment Year 2018-19. The appeal challenges the validity of the notice under Section 148, the sanction under Section 151, the addition of Rs. 1,11,00,000/- as short-term capital gain, and the disallowance of set-off of accumulated unabsorbed depreciation. The assessee's business ceased and assets were taken over by the bank for loan recovery up to AY 2013-14. The bank subsequently sold the assets for Rs. 1.11 Crores. The AO treated the entire sale consideration as capital gains, while the assessee claimed the Written Down Value (WDV) of the block of assets as the cost of acquisition.

What did the Tribunal hold?

The Tribunal noted that Grounds 1 and 2 were not pressed by the assessee and were dismissed. Regarding Ground 3, the Tribunal disagreed with the lower authorities. It held that for computing capital gains, the cost of acquisition must be deducted. As per Section 50A r.w.s. 43(6), the WDV of the assets as on the date of transfer is taken as the cost of acquisition for a block of assets on which depreciation has been claimed. Since the assessee had not claimed depreciation after AY 2013-14, the WDV as declared in AY 2013-14 (Rs. 1.23 Crores) should be considered the cost of acquisition. The sale of assets for Rs. 1.11 Crores in a distress sale by the bank resulted in a loss, not capital gains. Therefore, Ground 3 was allowed. For Ground 4, since the claim for WDV was allowed, the separate claim for unabsorbed depreciation was rendered moot and thus dismissed. The appeal was partly allowed.

What were the issues?

1. Whether the notice issued under Section 148 of the Income-tax Act, 1961, is valid, considering the AO's 'reason to believe' was based on flawed and unverified SFT data, lacking a 'live link' and independent inquiry (Section 148). 2. Whether the sanction obtained under Section 151 was mechanical and without application of mind, and if the assessment order violated principles of natural justice due to delayed provision of documents (Section 151). 3. Whether the assessee is entitled to the Written Down Value (WDV) of its depreciable assets, amounting to Rs. 1,23,50,341/-, as the cost of acquisition for computing capital gains on their sale for Rs. 1.11 Crores, especially when the last return showing WDV was for AY 2013-14 (Section 50 r.w.s. 43(6)). 4. Whether the accumulated unabsorbed depreciation of Rs. 51,55,615/- can be set off, considering the provisions of Section 32(2) of the Act (Section 32(2) and Section 72). 5. Whether the notice issued under Section 148 dated March 30, 2022, is legally valid as it was issued by the jurisdictional AO instead of the AO, NFAC (Section 148). Assessee's Contentions: - Grounds 1 & 2 were not pressed. - For Ground 3, the WDV of depreciable assets (Rs. 1.23 Crores) should be the cost of acquisition as per Section 50 r.w.s. 43(6), as no depreciation was claimed after AY 2013-14. The sale was a distress sale resulting in a loss. - For Ground 4, unabsorbed depreciation of Rs. 51,55,615/- should be allowed as per Section 32(2). Revenue's Contentions: - Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 148,Section 250,Section 151,Section 50,Section 43(6),Section 50A,Section 72,Section 32(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD

Before: SHRI SANJAY GARG & SHRI GANGADHAR PANDA

For Appellant: Shri M K Patel, Advocate, Shri Arvind Kumar Namdeo, Sr. D.R
For Respondent: Shri Arvind Kumar Namdeo, Sr. D.R
Hearing: 23/09/2026Pronounced: 25/09/2026

Per Sanjay Garg, Judicial Member:

The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”), dated 11.07.2025 passed under Section 250 of the Income Tax Act, 1961 (hereinafter

ITA No.1714/Ahd/2025 [Karnavati Rolling Mills Private Limited vs. ITO] A.Y. 2018-19 - 2 –

referred to as the “Act”) and relates to Assessment Year (A.Y.) 2018-19. 2. The assessee

The order continues below.

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