Documents signed by 3rd party cannot be held to be colorable devise without verification.
Recently, ITAT in one of the case has held that Documents signed by 3rd party cannot be held to be colorable devise without verification. With this, the case was remanded back to the AO for property examination and verification.
Let us have a Short Overview of the case:
A search was conducted under Section 132 on 22.09.2017 on the Gupta Group, including Ashok Gupta HUF. An affidavit dated 05.07.2017 was seized, stating that the assessee “has agreed to sale the land under consideration of Rs. 87,50,000/- out of which amount of Rs. 20,01,000/- was received through cheque”. However, the sale deed was never executed, and possession remained with the assessee.
The AO relied on the affidavit clause-“if the party no. 2 fails to get registered the document up to 27.12.2017 then the amount so received in advance shall be treated as forfeited” and held that “the amount of Rs. 20,01,000/- had not been given back… and the amount… has been forfeited”. Accordingly, the addition was made under Section 56(2)(ix).
The assessee, however, contended that the deal was cancelled because of encroachment by a dairy operator and that “entire advance receipt of Rs. 20,01,000/- was returned by account payee cheque” on 03.02.2020. Supporting documents were filed under Rule 46A, including affidavit of the buyer, bank statements, cheque copy, and a new sale deed to a third party for Rs. 1.41 crores.
The CIT(A) refused to admit the additional evidence, labeling them “colourable device, not bonafide and… created to avoid the payment of legitimate tax.” He dismissed the theory of encroachment as an afterthought and further observed that “Section 56(2)(ix)” applied as both conditions-advance forfeiture and non-transfer-were satisfied. The CIT(A) also referenced Section 56(2)(x) in the broader context of taxing unjustified receipts.
The Tribunal held that such documents “signed by third party cannot be directly held to be colorable devise” without verification. It remanded the matter back to the AO for “due verification of the facts” and directed that “correct income” be charged after providing a proper opportunity. The case was restored to determine the genuineness of the cancellation and repayment on merits.
In short, for Section 56(2)(ix) to apply, both forfeiture and failure to transfer must occur. Mere lapse of agreement date isn’t enough-actual forfeiture must be proved. And even account payee cheques aren’t sacrosanct unless they survive scrutiny.
The copy of the order is as under:
