YERRAGUDI VENKATA SIVA REDDY,ANANTAPUR vs. ACIT., CIRCLE-1, KURNOOL

Demolition was part of the sale transaction, not independent The Learned officers have failed to appreciate that the demolition of the structure was carried out solely at the express request and insistence of the purchaser, as a pre-condition to the sale. This fact is corroborated by an affidavit from the purchaser, duly placed before the learned CIT(A), clearly stating that the buyer was only interested in acquiring vacant land and had made demolition an integral part of the bargain.

Since the demolition was not an independent event but inextricably linked to the transfer of the capital asset, the cost of the demolished structure bears a direct and proximate connection with the transfer consideration and is fully deductible under Section 48.

3. Extinguishment of rights amounts to transfer under Section 2(47)(ii) The learned CIT(A) has overlooked that the demolition resulted in the extinguishment of the assessee's ownership rights in the building - an event squarely falling within the ambit of "transfer" as defined in Section 2(47)(ii).

"Section 2(47)(ii) in The Income Tax Act, 1961 The "transfer", in relation to a capital asset, includes, the extinguishment of any rights therein"

This interpretation has been affirmed by the Hon'ble Supreme Court in CIT v. Vania Silk Mills (P) Ltd. (191 ITR 647) and by the ITAT Ahmedabad in Shri Kiritkumar Kantilal Shroff v. DCIT, where

4 ITA.No.1294/Hyd./2025 it was held that demolition and conversion of the building into scrap is a form of transfer attracting the computation provisions of Section 48.

As held in Kirit Kumar Kantilal Shroff (supra), when demolition is part of the sale process, "the sale consideration of land and building (scrap) has to be clubbed together" for the purpose of capital gains computation.

The quantum of consideration derived from the scrap/malba of the demolished structure whether substantial, nominal, or even nil is irrelevant for determining the allowability of its cost. It is respectfully submitted that the material is the occurrence of a transfer (extinguishment of rights) in the building, which indisputably took place, thereby entitling the assessee to the benefit of indexed cost under Section 48.

5 ITA.No.1294/Hyd./2025 in the course of assessment proceedings. It does not curtail the powers of appellate authorities.

As held by the Hon'ble Bombay High Court in CIT v. Pruthvi Brokers & Shareholders (P) Ltd. (2012) 349 ITR 336), the appellate authorities have plenary powers to admit and allow fresh claims even if they were not made in the original return, especially when the facts are already on record and no fresh evidence is required.

7. Contradiction in CIT(A) findings The Learned CIT(A) himself records in para 5.5 of the appellate order that there exists "a direct nexus of building and consideration of scrap" and that both are "intimately connected. Such a finding supports the assessee's claim for allowance of the indexed cost of the demolished structure, yet the CIT(A) has inexplicably proceeded to uphold the disallowance inconsistent and legally untenable conclusion.

PRAYER In view of the above facts and settled legal principles, it is most respectfully prayed that the Hon'ble Tribunal may be pleased to:

 Delete the disallowance of Rs.11,24,472/- towards indexed cost of acquisition of the demolished structure.

 Direct re-computation of Long-Term Capital Gains by allowing the said cost under Section 48.

 Pass such other order(s) as may be deemed fit in the interest of justice.”

6 ITA.No.1294/Hyd./2025 4. The solitary issue raised by the assessee in this appeal is regarding the disallowance of claim of Rs.11,24,472/- towards the indexed cost of demolition of the structure on the land against the capital gain arising from transfer of the land during the year. The assessee is an individual and deriving income from real estate. The assessee filed his return of income for the year under consideration on 02.11.2017 admitting total income of Rs.55,31,010/-. The scrutiny assessment was completed u/sec.143(3) on 20.12.2019 on a total income of Rs.3,98,02,128/- after making an addition of Rs.3,42,71,118/- to the returned income. The assessment order dated 20.12.2019 was subsequently revised by the Pr. CIT u/sec.263 of the Income Tax Act [in short "the Act"], 1961 vide Order dated 24.03.2022 and thereafter, the Assessing Officer has passed the Order dated 16.06.2025 in pursuance to the revision order u/sec.263 of the Act whereby the claim of cost of acquisition/demolition of the structure to the tune of Rs.11,24,472/- was disallowed.

7 ITA.No.1294/Hyd./2025 5. The assessee challenged the action of the Assessing Officer before the learned CIT(A) but could not succeed. Though the assessee has filed the present appeal however, despite various opportunities and initial adjournment taken by the assessee, the assessee stopped appearing before the Tribunal. The assessee has raised this issue and contended that he purchased the property in question in the year 2012 and the same was sold vide sale deed dated 17.02.2017 for a consideration of Rs.2 crores. The assessee claimed indexed cost of acquisition of the property of Rs.1,83,20,863/- and declared long-term capital gains of Rs.16,69,137/- to tax. The assessee has claimed that there was a cement shed on the said property in a dilapidated condition which was demolished by the assessee before the execution of the sale deed as per the request of the buyer. The demolition of the said cement shed is also confirmed by the buyer and therefore, the cost of demolition of the said cement shed is an allowable deduction u/sec.48 of the Act.

8 ITA.No.1294/Hyd./2025 6. We have heard the learned DR and carefully perused the Orders of the authorities below including the contentions of the assessee. Initially the Assessing Officer did not take up this issue while passing the scrutiny assessment. However, the Pr. CIT revised the assessment order u/sec.263 vide Order dated 24.03.2022. The assessee did not challenge the said revision order passed by the Pr. CIT u/sec.263 of the Act and consequently, the Assessing Officer has passed the Order dated 16.06.2025 whereby this claim of cost of acquisition being cost of demolition amounting to Rs.11,24,472/- was disallowed. On further appeal, the learned CIT(A) has considered this issue in para nos.5.5 to 5.7 as under:

“5.5. But in the instant case, the appellant has stated that the he demolished the said building on demand of buyer and to enhance sale value of land. Hence, it is clear the appellant would have received some income from scrap by demolishing the building which the appellant did not consider in calculating the indexed cost of acquisition. Further, the appellant has submitted that he had incurred expenditure of around Rs.1 lakh after deducting proceeds of scrap which is also allowable expenditure and not claimed inadvertently in the return of income. This claim of appellant cannot be considered in the view of decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (2006) 204 CTR (SC)

9 ITA.No.1294/Hyd./2025 182: (2006) 284 ITR 323 (SC), wherein the Supreme Court has held that the assessee can make a claim for deduction, which has not been claimed in the return, only by filing a revised return within the time allowed. In this case, the appellant did not raise such claim in return of income or revised return of income. Moreover, the appellant has not submitted any documentary proof of expenditure of Rs.1 lac being made on demolishing the building.

5.6. Further, for once, if the appellant had sold the said property without demolishing the building, then: (i) The property would have been sold at lower price than the current price as the appellant has himself admitted that the demolition was made to enhance the value of property. (ii) The buyer would have incurred income from sale of scrap after demolishing the building. (iii) In such scenario, the appellant would have been eligible for getting benefits of indexation of both the capital assets (land + building).

5.7. In actual, only land was sold to the buyer and indexation was computed without considering the income through sale of building scrap. In such circumstances, benefit of indexation in respect of structure of 2000 sq feet cannot be given to the appellant. The appellant's claim regarding expenditure of Rs. 1 Lac after deducting proceeds of scrap is nothing but an afterthought to justify his claim. In view of the above discussion, it is held that the AO has rightly disallowed the excess claim of indexed cost of acquisition of Rs.11,24,472/- and the same is hereby confirmed.

10 ITA.No.1294/Hyd./2025 ground and not given the finding of fact whether there was a structure on the land which was demolished by the assessee as per the request of the buyer or for the purpose of getting the better value of the land. In case, the assessee has actually incurred some expenditure for demolition of the structure which is for the better value of the land in question, then the said expenditure would be considered as cost of improvement of the property. In other words, if the buyer desired to buy the plain land without any structure, then it is also to be considered as the expenditure incurred for the transfer of the property u/sec.48 of the Act. Since the assessee has not given any account for the actual expenditure incurred by the assessee before us, therefore, this issue cannot be decided conclusively. Accordingly, in the facts and circumstances of the case and in the interest of justice the matter is remanded to the record of the Assessing Officer for conducting a proper enquiry and ascertaining the facts of structure being existed on the land and demolished by the assessee for the purpose of transfer of the land and then allow the expenditure actually incurred by the assessee substantiated by the documentary

11 ITA.No.1294/Hyd./2025 evidences against the capital gain. Needless to say, the assessee be given an opportunity of hearing before passing the fresh order.

Order pronounced in the open Court on 20.02.2026.