ITAT Mumbai Rules Loss on Emaar Allotment Rights is Capital Loss; Capital Loss Working Remanded to AO

Background and Appeal Context

The decision in Glittering Apartments Private Limited Vs CIT (Appeal), ITA No. 5913/MUM/2025, dated 31/08/2026, concerns the tax characterization of a loss arising from the transfer of allotment rights in 18 units of an Emaar MGF Land Ltd. project. The matter was heard by the Income Tax Appellate Tribunal, Mumbai Bench, for Assessment Year 2018-19, against an assessment completed under Section 143(3) of the Income Tax Act, 1961.

The assessee, a company engaged in purchase, sale and letting of immovable properties, challenged the order of the CIT(A)-48, Mumbai, who had confirmed the Assessing Officer’s (AO) treatment of the loss as capital in nature and not allowable as a business loss under Section 37. The assessee also disputed the AO’s working of the long-term capital loss, particularly the exclusion/partial exclusion of certain cost and interest components from the indexed cost of acquisition.

Core Facts of the Case

Nature of Business and Transaction

  • As per Form 3CD, the assessee’s business was described as “Real estate and renting services” and involved purchase, sale and leasing of properties.
  • During Financial Year 2010-11, the assessee booked 18 units in a project of Emaar MGF Land Ltd. (Emaar MGF – Digital Green, Gurgaon) at the under-construction stage.
  • Payments towards these units were made in instalments over a period, and certain interest and related expenses were also incurred.

Accounting Treatment in the Books

  • The assessee did not reflect these 18 units as stock-in-trade in any year.
  • Instead, the cumulative payments and expenses relating to these units were shown on the asset side of the Balance Sheet under “Short term loans and advances”, not under inventory or closing stock.
  • The eventual sale consideration from the transfer of allotment rights was not routed through the Profit & Loss Account as sales.
  • Only the net loss was debited to the Profit & Loss Account under “Other Expenses” with the description “Loss on transfer of allotment letter”.

Transfer of Allotment Rights

  • Before taking possession or executing conveyance deeds, the assessee entered into agreements with third-party buyers and transferred the allotment rights on an “as is where is” basis.

  • The assessee’s working was as follows:

    • Total cost incurred: ₹25,34,82,377
    • Total consideration received: ₹17,89,06,842
    • Resulting loss claimed: ₹7,45,75,535 (though AO initially captured the figure as ₹7,45,75,635, creating a minor difference of ₹100).

  • The assessee claimed the above loss as business loss under Section 37, contending it arose in the normal course of its real estate business.

Assessment Proceedings Before AO

The AO noted the following key aspects:

  • The 18 units were never reflected as closing stock or stock-in-trade in preceding or current years.
  • The assessee treated the payments as “Short term loans and advances”, indicating, in the AO’s view, an investment-type treatment rather than trading stock.
  • The sale consideration of ₹17,89,06,842 from transfer of allotment rights was not shown as income under any head; only the net loss was booked as an expense.
  • The AO disallowed the claim of ₹7,45,75,635 as business loss on the ground that the expenditure did not meet the conditions of Section 37 and that the underlying asset was not part of business stock.

Alternative Capital Gains Treatment by AO

After denying the business loss claim, the AO proceeded on an alternative footing:

  • The AO treated the allotment rights in the 18 units as capital assets.
  • Relying on the assessee’s own accounting treatment under “Short term loans and advances” (asset side), the AO held that the rights constituted an investment.
  • On this basis, the AO computed indexed long-term capital loss of (-) ₹1,38,35,317, which was allowed to be carried forward under the capital gains provisions.

In computing this capital loss, the AO considered only a portion of the total claimed cost (₹13,06,55,639 instead of ₹25,34,82,377), apparently excluding or reducing certain interest or other expenditure components. The AO also recorded that the assessee did not furnish adequate supporting details for such interest and cost items, despite opportunities.

Proceedings Before CIT(A)

Assessee’s Arguments Before CIT(A)

The assessee advanced, in substance, the following contentions before the CIT(A):

  1. Business characterization of transaction

    • The company had always conducted business in purchase, improvement/reconstruction, and sale of properties.
    • Profits and losses from such activities were consistently treated and assessed as business income/loss in earlier years; no part had ever been treated as capital gains.
    • The 18 units in Emaar MGF Land Ltd. were booked with a clear intention to resell as part of business, not to hold as an investment.