Unsigned Draft Agreement has No Evidentiary Value Without Independent Inquiry by AO: ITAT Deletes ₹13 Lakh Addition [Read Order]

The Chandigarh Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that an unsigned and unregistered agreement to sell has no evidentiary value unless corroborated through an independent inquiry by the Assessing Officer (AO).

A search was conducted at premises of assessee-petitioner, Balwant Singh under Section 132 during which an unsigned agreement to sell a plot at Divine Enclave, Bathinda, was found. Based solely on this document, the AO made an addition of ₹13,00,000/- as unexplained investment, later upheld by the CIT(A).

The assessee contended that the alleged agreement was neither signed by him nor registered, and no sale deed was executed pursuant to it. Records showed that the property continued to remain in the seller’s name, as confirmed by electricity bills and ownership documents.

The assessee further argued that the AO failed to examine the seller or allow cross-examination, and no independent inquiry was conducted to verify the alleged transaction.

The bench of Rajpal Yadav and Krinwant Sahay observed that an unsigned, unexecuted document cannot, by itself, establish ownership or investment. It said that the AO did not produce corroborative evidence of payment or transfer of property and ignored the fact that ownership remained with the seller.

It referred to cases including CIT v. Akme Projects Ltd. (Delhi HC) and Krishan Kumar Jhamb v. ITO (P&H HC) and held that no addition can be made merely on the basis of an unsigned draft agreement. Since the seized document was legally unenforceable and unsupported by inquiry or evidence, the addition was unsustainable in law.

It was observed that “it is well settled that no addition can be made merely on the basis of an unsigned or draft agreement to sell, especially where no investigation has been conducted by the department. In the present case, the agreement to sell relied upon by the AO does not bear the signature of the appellant, and therefore its authenticity remains unsubstantiated. It is also undisputed that the property continues to be registered in the name of the seller, which further undermines the contention of any transfer. In view of the above facts and legal position, the addition made by the AO and sustained by the Ld. CIT(A) is without basis and is accordingly directed to be deleted, being unsustainable in law.”

Accordingly, the Tribunal allowed the assessee’s appeal, set aside the orders of the lower authorities, and directed deletion of the ₹13 lakh addition.

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