Glittering Apartments Private Limited Vs CIT (Appeal) (ITAT, Mumbai)
Emaar Rights Lost Their Business Shine: ITAT Treats ₹7.46-Crore Loss as Capital, Reopens Cost Working
Summary: In Glittering Apartments Private Limited v. Commissioner of Income Tax(Appeal), CIT(A) – 48, Mumbai, the Mumbai Bench of the Income Tax Appellate Tribunal considered the assessee’s appeal for AY 2018-19 concerning the tax treatment of a loss arising from transfer of allotment rights in 18 units of an Emaar MGF project.
The assessee was engaged in the business of purchase, sale and letting of immovable properties. During FY 2010-11, it booked 18 under-construction units with Emaar MGF Land Ltd. Payments were made in instalments and other expenditure, including interest, was incurred. As possession had not been taken and the purchase documents had not been registered, the assessee reflected the amounts under “Short term loans and advances” rather than inventory or stock-in-trade.
Before possession and execution of the conveyance documents, the assessee transferred the allotment rights to third-party buyers on an “as is where is” basis. The assessee stated that the total cost incurred was ₹25,34,82,377 and that consideration of ₹17,89,06,842 was received, resulting in a loss of ₹7,45,75,535. The assessee claimed the loss as a business loss under Section 37 of the Act.
The Assessing Officer noted that the 18 units had never been reflected as stock-in-trade, that the sale consideration had not been routed through the Profit & Loss Account and that only the resulting loss had been claimed under “Other Expenses”. The AO therefore rejected the business-loss claim under Section 37. The AO alternatively treated the allotment rights as capital assets and computed indexed long-term capital loss of ₹1,38,35,317, which was allowed to be carried forward.
The assessment had been made under Section 143(3) of the Income-tax Act, 1961. The CIT(A) upheld the treatment of the allotment rights as capital assets and also rejected the assessee’s contention concerning the cost and interest component.
Before the Tribunal, the assessee contended that it was a real-estate dealer, that bulk booking of 18 units during construction demonstrated a resale motive and that accounting classification under “Short term loans and advances” could not determine the true character of the transaction. It alternatively contended that the entire cost of ₹25,34,82,377, rather than ₹13,06,55,639, ought to be considered for computing the indexed capital loss.
The Tribunal held that the assessee’s claim of business loss was marked by contradictions and inconsistencies. Although accounting entries are not conclusive for determining the true nature of a transaction, the assessee had never disclosed the 18 units in closing stock despite claiming to be engaged in the business of real estate. The payments were instead reflected as “Short term loans and advances”, while the resultant loss was claimed as a business expense under “Other Expenses”. The Tribunal found the explanation for this treatment lacking in logic and upheld the AO’s treatment of the allotment rights as capital assets. The resulting long-term capital loss and its carry-forward were therefore sustained.
The Tribunal, however, found contrary positions between the AO and the assessee concerning the interest component and computation of capital loss. In fairness, it considered it appropriate to remand that limited issue to the AO for fresh examination, with adequate opportunity to the assessee to produce evidence supporting its claim.
The grounds alleging lack of adequate opportunity before the lower authorities were rejected. The appeal was consequently partly allowed.
FULL TEXT OF THE JUDGMENT/ORDER OF INCOME-TAX APPELLATE TRIBUNAL, MUMBAI
The present appeal emanating from the appellate order dated 03.07.2025 is preferred by the assessee against the order passed by the Learned Commissioner of Income-tax, Appeal, CIT(A)-48, Mumbai [hereinafter referred to as “CIT(A)”] pertaining to the assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 12.04.2021 for the Assessment Year [A.Y.] 2018-19.
2. The grounds of appeal are as under:
1. For that the Ld. CIT(A) ought to have held vide impugned appellate order dated 03.07.2025 that the relevant order of assessment dated 12.04.2021 passed under section 143(3) of the Income-tax Act, 1961 (Act) for the Assessment Year 2018-19 by the Ld. Assistant Commissioner of Income-tax, Central Circle-2(3), Mumbai (AO) is bad in law, facts and procedure.
2. i) For that the Ld. CIT(A) erred in not correcting the actual amount of loss of Rs. 7,45,75,535/-on transfer of allotment right in respect of 18 units of EMAAR MFG Land Ltd. and arbitrarily confirming the action of the Ld. AO who erroneously took the said amount of loss at Rs. 7,45,75,635/- and consequently, enhancing the income of the assessee by an excess amount of Rs. 100/-solely due to the above mistake.
ii) For that in view of the undisputed facts of the case that the assessee was engaged in the business of purchase and sale of properties and has suffered loss of Rs. 7,45,75,535/- during the year under consideration on transfer of its right to purchase and receive possession of the 18 units of properties which was acquired with the intention to re-sale during the course of its business and accordingly claimed as business loss in the return of income, the Ld. CIT(A) has erred in arbitrarily confirming the action of the Ld. AO in not allowing deduction for the said loss in computing business income of the assessee.
iii) For that the Ld. CIT(A) was not justified both in law and on facts in arbitrarily upholding the said disallowance made by the Ld. AO without bringing on any material on record to show that the said 18 units were booked by the assessee not for its business of dealing in properties but to hold the same as investment.
iv) For that the Ld. CIT(A) ought to have held that the Ld. AO has grossly erred in not being able to appreciate that the amount paid as advance for booking of 18 units, i.e., for “purchase of business stock”, pending receiving of the possession of the said units, has to be reflected by the assessee in its Balance Sheet only as advance for purchase of stock under the head “Short Term Loans & Advances” and till the possession of stock is received by the assessee the same cannot be included in “stock-in-trade”.
v) For that on the facts and circumstances of the case, the Ld. CIT(A) ought to have allowed deduction for loss of Rs. 7,45,75,535/- suffered by the assessee during the course of its business of purchase and sale of properties in computing income under the head “Profits and Gains of Business or Profession”.
ALTERNATIVELY:
3. i) For that without prejudice to the above grounds of appeal, the Ld. CIT(A) was not justified in confirming the arbitrary action of the Ld. AO of ignoring a substantial portion of the cost of acquisition while computing the amount of “Capital Gain”, without citing any reason whatsoever, in the related order of assessment.
ii) For that the Ld. CIT(A) has after finding as under, ought to have held that such unreasoned and non-speaking order of assessment is untenable and bad in law and has erred in still confirming the arbitrary action of the Ld. AO:-
“Paragraph 5.6 of the assessment order, while rejecting the assessee’s submission primarily on the stock-in-trade argument, does not explicitly state that the (allegedly submitted) evidence for interest was examined and found deficient for capital gains computation purposes.”
iii) For that the Ld. CIT(A) was not justified in confirming the impugned erroneous action of the Ld. AO by ignoring and not considering the submissions of the assessee and materials furnished by the assessee in its entirety and in its proper perspective.
iv) For that the Ld. CIT(A) was not justified in not directing the Ld. AO to compute the correct amount of “Capital Gains” as per the provisions of law.
4. For that the impugned order having been passed by the Ld. CIT(A) in gross violation of the principles of natural justice and without allowing reasonable opportunity of hearing to the assessee, the impugned order is bad in law and untenable.
5. For that the Ld. CIT(A) ought to have held that the order of assessment was passed by the Ld. AO in gross violation of the principles of natural justice, the said order of assessment is bad in law and is liable to be quashed.
3. Ground no.1 is general and does not require any separate adjudication.
4. In respect of ground no.2 and 3 which are interlinked, briefly stated facts of the case are that the assessee company is engaged in the business of purchase, sale and letting of leased buildings and declared loss from business. During assessment proceedings, it was seen by the AO from the financials of the assessee that in the relevant year, it had claimed deduction of Rs.7,45,75,635/-,being „Loss on transfer of allotment letter‟ under the head Other Expenses. It was further noticed from the details that the assessee had shown the sale consideration of Rs.17,89,06,842/- in respect of the said flats sold which was not offered under any head of income. Besides,it did not show the purchase of flats in the Closing stock of previous year. Further, the assessee had not routed the sale of these 18 units amounting to Rs.17,89,06,842/- through the P&L account. Although, it was seen that as per entry at 10(a) of Form 3CD, the assessee‟s nature of business or profession was shown as “Real estate and renting services” and purchase sale and letting of leased property, it had not shown purchase of 18 units of flats in EMAR MGP Gurgaon as stock-in-trade and instead, shown the same as “Short term loans and advances” on the Asset side of its Balance Sheet. Since the asseseee had treated the purchase of flats as investment in its books of accounts under the head Short term loans and advances, the assessee, was asked to explain as to why the loss of Rs. 7,45,75,635/- claimed on loss on transfer of allotment letter should not be disallowed, as the same was not an allowable expenditure u/s.37 of the Act.
4.1 It was explained that in respect of the 18 units in EMAAR MGF Land Ltd.it had submitted evidences for the followings – i) Buyers‟ Agreement dated 17.01.2011 executed with EMAAR MGF Land Ltd. for booking of 18 units and payment to be made on percentage of completion of construction. ii) Letter from builder for offer of possession and settlement of final dues dt 06.07.2017 informing that now occupancy certificate has been received and possession can be taken after payment of the dues. iii) Agreement to sale dated 17.04.2017, balance amount directly paid bybuyer to builder, Bank account statement of buyers and Form 26 AS of buyers. iv) Nomination letters for transfer of allotment in name of buyers. v) Details of instalments paid for purchase and other expenses incurred. vi) Evidence of instalment received by builder. vii) Details of sale made. viii) Receipt for payment received. ix) Form 26AS showing amount paid and TDS deducted by buyer. These documents showed that the company had booked 18 units in EMAAR MGF Land Ltd. which were under construction. Payments were being made in instalment and other expenses were also incurred. As neither possession was taken nor documents for purchase were registered, the amount of expenditure incurred was shown as short term loans and advances and not as inventory/ stock in trade. The builder offered possession vide letter dated 06.07.2017 on receipt of occupancy certificate subject to payment of the balance dues. The company had on 17.04.2017 entered into an agreement with buyers to sell the said 18 units to them on as is where is basis. The buyers paid the agreed amount to the company and got the allotment letter nominated in their name and after payment of balance dues to builder took possession of the units and executed the documentation in their favour. As the 18 units were not fully constructed and possession not taken and documents registered, the amount paid was included as short term loans and advances and not inventory/stock in trade and the net loss on sale thereof has been charged to profit & loss account. The loss had been incurred in business transaction and hence should be allowed and not added back to the Income.
4.2 The above submission of the assessee was considered. However, it was pointed out by the AO that it was in the business of property dealing and despite this, the assessee had never reflected that 18 flats purchased in EMAR Mfg-Digital Green, as stock-in-trade during any previous years. During the year, it was claiming loss on transfer of allotment letter i.e. loss on transfer of assets, which was never part of assessee‟s stock in trade. In view of the above, the claim was not as per the provisions of the Act and hence, the loss of Rs. 7,45,75,635/- claimed by the assessee was disallowed u/s 37 of the Act and added back to the income.
4.3 Further, the AO observed that the assessee in its books of accounts had shown purchase of 18 flats in EMAR Mfg-Digital Green, on the asset side of its Balance Sheet under the head “Short term loan and advance”. Since these flats were never treated as stock in trade in its books of accounts and were part of assessee‟s assets as per its own claim, in view of the charging section to tax, the sale consideration on transfer of these assets was capital gain. Therefore, treating the purchase of flats as investment, the assessee was asked to explain why the sale consideration of investments made in 18 flats of EMAR MGF – Digital Green should not be treated as Long Term Capital Gain and taxed accordingly. In response to the said notice, it submitted that the amount paid as advance and shown in books as „Short term loans and advances‟ could not be taken as investment and the amount paid as advance can be for investment, inventory, expenses or on any other account for the purpose of business. The transactions being business transactions, provisions of long term capital gains were not applicable. The submission of the assessee was not found acceptable by the AO holding that it was evident from the books of account that these 18 flats in EMAR MGF-Digital Green were treated as assets under the sub head “short term loan and advance”. The assesee in response to further query contended that the properties purchased by it were held as stock in trade and profit/ loss on sale of the property should be treated as business income/ loss. So the amount of loss incurred on 18 units booked and sold before possession is obtained, should also be treated as business loss and not Capital Loss. However, the AO noted that as the assessee had failed to furnish any supporting documentary evidence to prove that the flats purchased in EMAR Mfg-Digital Green were its stock-in-trade to consider the profit/ loss on sale of the property as business income/ loss, the claim of the assessee was rejected and capital gain with indexation, on sale of the flats, was worked out as Long term capital loss (-) 1,38,35,317/- which was allowed to be carried forward for adjustment towards long term capital gains in subsequent years.
5. Aggrieved, the assessee filed further appeal contesting the action of the AO by reiterating the same contentions as made before the AO. Before the ld.CIT(A),the assessee explained that the company was in the business of purchase and sale of properties. The properties purchased were reconstructed or renovated before sale depending on the condition of the properties. The purchase cost and other expenditure incurred on reconstruction or renovation were included in closing stock in the balance sheet. On sale of the property the resultant profit/loss was treated as business profit/loss by it since the start of business and was being assessed as business profit/loss. In no year, the profit/loss had been treated as capital gain by the company nor assessed as capital gain by the department. In the financial year 2010-11, the appellant company booked 18 Units with EMAAR MGF Land Ltd. As the units were under construction neither possession was handed over nor documents for purchase were registered. The payments were made in instalment and the amount paid towards instalment and interest and other expenses incurred thereon were shown as short term loans and advances in the balance sheet as the purchase was not complete as part consideration has only been paid, possession has not been handed over and conveyance deed was not executed. The assessee only had allotment letters against which instalments had been paid as and when due. The appellant was facing cash crunch and therefore before full payment was made, possession was taken and conveyance deed was executed, the it decided to dispose of the allotment letters resulting in a loss of Rs.7,45,75,535/-,being Sale value of allotment letters received by the appellant company 17,89,06,842/- and cost incurred by the assessee company till the date of transfer 25,34,82,377/-.Loss incurred by the company was Rs 7,45,75,535/- on transfer of allotment letter which was included under „Other expenses‟ and claimed as business loss. The cost incurred and amount received towards sale of allotment letters were not included in purchase and/or sales as the purchase was not complete as neither possession was handed over nor documents confirming title were executed. Ownership of any property was considered as transferred only on execution of conveyance deed or pending execution of conveyance deed on handing over of the possession on completion. After execution of conveyance deed and/ or handing over of possession the transaction was not revocable but allotment letter was revocable by either party. So purchase was not complete till execution of conveyance deed or handing over possession. On the date of disposal of the units, the assessee company had allotment letters in hand and no physical possession of the property and therefore title documents were also pending to be executed due to which purchase/sales was not booked in the accounts and the net amount of loss incurred was included by the it as loss in its profit & loss account. The inclusion of the amount in Short term loans and advances in the Balance sheet was an evidence that the amount was intended to be included in purchase on completion of purchase. If the purchase was meant to be for fixed assets or investment on which Capital gain provisions are applicable then it would have been included as capital advances under the heading long term loans and advances in the Balance sheet. It was also an evidence that the assessee company was to consider it as business income and not capital gain. As the assessee was dealing in property and its income was regularly returned and assessed as business income the loss on transfer of allotment letter should be allowed at business loss u/s 37 of the Act.
5.1 In respect of cost taken at Rs.13,06,55,639/- instead of 25,34,82,377/- incurred the company for capital gain calculation, it was submitted that the AO treated the loss claimed by the assessee as business loss to be capital loss and allowed indexation of cost of acquisition. The total cost of acquisition was Rs.25,34,82,377/- but indexation had been allowed on Rs.13,06,55,639/-. All details and evidence of acquisition cost were provided to the AO. Necessary directions may be given for allowing indexation of all expenditure incurred to arrive at long term capital loss available to the assessee company in case the loss is not treated as a business loss.
6. The ld.CIT(A) after due consideration of the relevant facts of the case, concurred with the treatment given to the loss claimed as business loss and also agreed that the AO was justified in treating the said assets capital assets and working out the capital loss after allowing the assessee the benefit of indexation of the cost. The assessee‟s claim that the AO did not consider the interest expenses while working out the capital loss claiming that necessary details were furnished before the AO,the ld.CIT(A) observed that the onus was on it to substantiate with cogent evidences which it failed. The AO had specifically mentioned that such details were not furnished before him. The ld.CIT(A),accordingly dismissed both the contentions of the assessee.
7. Before us, the ld.AR has reiterated the same contentions as made before the authorities below. It was submitted that the business of purchase, sale and letting of immovable properties. This fact has also been recorded by the Assessing Officer in the assessment order. During the relevant previous year, the assessee had booked 18 units in a project developed by Emaar MGF Land Ltd., Gurgaon. The booking was made during the construction stage and payments were made in instalments. Subsequently, before possession of the said units could be taken, the assessee entered into agreements with third-party buyers and transferred the allotment rights on an “as is where is” basis. The total cost incurred by the assessee in respect of these units amounted to ₹25,34,82,377/- whereas the total consideration received on transfer of allotment rights was ₹17,89,06,842/-, resulting in a loss of ₹7,45,75,635. It is relevant to note that the transactions were duly supported by buyer agreements, Allotment letters, Bank statements and Form 26AS reflecting receipt and TDS. Thus, the genuineness of the transaction was not in dispute.
7.1 The AO had disallowed the loss primarily on the grounds that the flats were not shown as stock-in-trade in the books, payments were reflected under “Short Term Loans and Advances”, transactions were not routed through the Profit & Loss Account and the assessee failed to substantiate that the flats were part of inventory. It was contended that the transaction is in the Nature of Business Activity as assessee is a real estate dealer. The following facts clearly establish the business nature of the transaction. It made bulk acquisition of 18 units, during construction phase and there was no intention to hold property. Besides, the entire case of the Assessing Officer rests on the accounting classification of the transaction. It is a settled principle that entries in the books of account are not determinative of taxability as held by the various courts of law. The mere fact that the amounts were shown under “Short Term Loans and Advances” could not alter the real character of the transaction. Besides, the assessee never intended to hold the property. The units were sold immediately upon opportunity. The activity was consistent with business operations. The AO had not examined the business intent, commercial conduct and nature of transaction. The conclusion had been drawn solely on the basis of balance sheet classification, which is legally unsustainable. The loss incurred by the assessee was real and arises from genuine transactions. The AO accepted the transaction as genuine. However, simultaneously disallowed the business loss. This leads to a contradictory position where the same transaction was treated differently for different purposes, which is not permissible.
7.2 On careful consideration of the factual matrix of the case, we are of the considered opinion that the claim of the business loss on sale of certain flats is full of contradictions and inconsistencies in the stand of the assessee as evident from the fact that the said claim was not in tune with accounting entries. It is an admitted fact that the assessee never disclosed the said assets in the Closing stock and the reason stated thereof are bereft of any logic. Once the assessee itself has admitted that it was in the business of real estate, the flats in question were to be disclosed in the stock which has been inexplicably taken to the Balance sheet as „Short term loans and advances‟. Inspite of such inconsistent accounting entries, it chose to claim the resultant loss on sale thereof as business expenses under the head „Other Expenses‟. It is a settled law that the way in which the entries are made by an assessee in the books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. Furthermore, the entries in the books of account are not sacrosanct or conclusive proof of the fact so evident from the entries in the books of account. The AO is within his power to make enquiry about the entries in the books of account and onus is on the assessee to prove these. Therefore, seen in the light of relevant facts of the case, we are of the considered view that the AO is fully justified in disallowing the loss claimed on the basis of details reasons adduced in the assessment order which do not need to be reproduced. He has rightly treated the same as Capital asset and was fair enough to allow indexation thereon and the resultant Long term capital loss was also allowed to be carried forward. We find no infirmity in the action of the AO which was also upheld by the ld.CIT(A). Accordingly, the ground no.1 is dismissed.
7.2 In so far as ground no.3 relating to the working of the capital loss is concerned, we find that there are contrary stands taken by the AO and the assessee in so far as the claim of interest is concerned. In all fairness, we consider it appropriate to remand the issue back to the file of the AO setting aside the order of the lower authorities to reconsider the said working after allowing adequate opportunity of hearing to the assessee in this regard for placing any evidence to buttress its claim. Accordingly, the ground is allowed for statistical purposes.
8. Ground no.4 and 5 regarding the contention of lack of adequate opportunities allowed by the lower authorities, we find no merits therein as evident from the detailed discussion in the orders passed by the authorities below. Therefore, the grounds are dismissed.
9. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 31/08/2026.
