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“colourable device”

Judicial DoctrinesMcDowellMcDowell721 judgments

The decision most relied on for colourable device is Sumati Dayal v. CIT (214 ITR 801), cited in 1,967 judgments on BharatTax.

Leading authorities on colourable device

Sumati Dayal v. CIT
214 ITR 801 · 1995 · Supreme Court
1,967
citing judgments

The Revenue is entitled to look behind the apparent form of a transaction to discover its true nature, applying the test of human probabilities and surrounding circumstances. If transactions defy logic or are unnatural, they can be treated as bogus, even if supported by some documentation, especially in cases of cash credits or unexplained investments.

McDowell & Co. Ltd. v. CTO
154 ITR 148 · 1985 · Supreme Court
741
citing judgments

The Supreme Court held that while legitimate tax planning is permissible, transactions structured as a "colourable device" or "subterfuge" solely to avoid tax are impermissible. It mandates a judicial shift to look beyond the form to the substance of a transaction, allowing the lifting of the corporate veil in tax evasion arrangements.

Union of India v. Azadi Bachao Andolan
263 ITR 706 · 2003 · Supreme Court
691
citing judgments

A citizen is free to carry on business within the law, and mere tax planning without a motive to evade taxes through colorable devices is not frowned upon. The liability to taxation, for the purpose of tax treaty application, is a legal situation, not the fiscal fact of actual payment.

Sanjay Bimalchand Jain v. PCIT-1, Nagpur
89 Taxmann.com 196 · 2018 · High Court
251
citing judgments

The exemption for long-term capital gains on share transactions is unavailable if the assessee fails to discharge the onus of proving the genuineness of gains arising from dubious share transactions designed to convert unaccounted income into tax-exempt capital gains. Courts will uphold an assessment based on the Revenue's evidence of price rigging or penny stock manipulation if the assessee cannot provide cogent evidence for the abnormal rise in share value.

CIT v. Jamnadevi Agarwal
328 ITR 656 · 2010 · High Court
230
citing judgments

When faced with allegations of bogus long-term capital gains from penny stocks, the Assessing Officer must discharge the onus of proving that the assessee's transactions were not genuine. The assessee can rely on the principle of preponderance of probability, and the Revenue must present substantial evidence to establish that the transactions were a colourable device or that the assessee was an entry operator.

Vodafone International Holdings BV v. Union of India
6 SCC 613 · 2012 · Supreme Court
216
citing judgments

Tax planning is legitimate only if it is within the framework of law. Colourable devices cannot be part of tax planning, and it is wrong to encourage avoiding tax through dubious methods.

CIT v. George Williamson (Assam) Ltd.
284 ITR 619 · 2006 · High Court
111
citing judgments

An assessee may manage tax affairs to attract lower tax as permitted by law, and a genuine sale and leaseback transaction that provides substantial benefit is not a colourable device for tax avoidance.

CIT v. Smt. Jasvinder Kaur
357 ITR 638 · 2013 · Reported
91
citing judgments

The benefit of Section 10(38) for long-term capital gains is not available when transactions in penny stocks are found to be part of a scheme involving price manipulation or accommodation entries, indicating the gains are not genuine and lack actual investment.

Judgments citing colourable device

M/S. Barbeque Nation Hospitality Ltd, Bengaluru vs. Deputy Commissioner of Income-Tax Officer, Central Circle-2(2), Bengaluru

ITA 23/BANG/2024[2015-16]Status: DisposedITAT Bangalore31 Oct 2025AY 2015-16

Bench: Shri. Laxmi Prasad Sahu & Shri. Keshav Dubey

Section 153ASection 234ASection 250

classified as goodwill. 20. In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting ... under: 20. In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting

M/S. Barbeque Nation Hospitality Ltd, Bengaluru vs. Deputy Commissioner of Income-Tax, Central Circle-2(2), Bengaluru

In the result, appeals filed by the assessee are partly allowed

ITA 22/BANG/2024[2014-15]Status: DisposedITAT Bangalore31 Oct 2025AY 2014-15

Bench: Shri. Laxmi Prasad Sahu & Shri. Keshav Dubey

For Appellant: Shri. A. Shankar, Sr. AdvocateFor Respondent: Shri. K. M. Mahesh, CIT(DR)(ITAT), Bangalore
Section 153ASection 234ASection 250

classified as goodwill. 20. In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting

M/S. Barbeque Nation Hospitality Ltd, Bengaluru vs. Deputy Commissioner of Income-Tax, Circle-2(2), Bengaluru

In the result, appeals filed by the assessee are partly allowed

ITA 21/BANG/2024[2013-14]Status: DisposedITAT Bangalore31 Oct 2025AY 2013-14

Bench: Shri. Laxmi Prasad Sahu & Shri. Keshav Dubey

For Appellant: Shri. A. Shankar, Sr. AdvocateFor Respondent: Shri. K. M. Mahesh, CIT(DR)(ITAT), Bangalore
Section 153ASection 234ASection 250

classified as goodwill. 20. In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting

Deputy Commissioner of Income Tax, Central Circle-2, Jodhpur vs. Kalawati Devi, Pali

In the result, appeal of the Revenue is dismissed

ITA 291/JODH/2023[2013-14]Status: DisposedITAT Jodhpur30 Oct 2025AY 2013-14

Bench: SHRI. LALIET KUMAR (Judicial Member), DR. MITHA LAL MEENA (Accountant Member)

For Appellant: Shri Amit Kothari, C.AFor Respondent: Smt. Runi Pal-CIT-DR
Section 10(38)Section 132Section 139(1)Section 143(3)Section 153A

basis, was itself sufficient to show that the transaction was not genuine. He contended that the assessee’s claim of exempt LTCG was a colourable device. The DR placed heavy reliance on the decision of the Hon’ble Supreme Court in Sumati Dayal v. CIT (214 ITR 801) to argue

Deputy Commissioner of Income Tax, Central Circle-2, Jodhpur vs. Vinesh Kumar Balar, Pali

In the result, appeal of the Revenue is dismissed

ITA 289/JODH/2023[2013-14]Status: DisposedITAT Jodhpur30 Oct 2025AY 2013-14

Bench: SHRI. LALIET KUMAR (Judicial Member), DR. MITHA LAL MEENA (Accountant Member)

For Appellant: Shri Amit Kothari, C.AFor Respondent: Smt. Runi Pal-CIT-DR
Section 10(38)Section 132Section 139(1)Section 143(3)Section 153A

basis, was itself sufficient to show that the transaction was not genuine. He contended that the assessee’s claim of exempt LTCG was a colourable device. The DR placed heavy reliance on the decision of the Hon’ble Supreme Court in Sumati Dayal v. CIT (214 ITR 801) to argue

Deputy Commissioner of Income Tax, Central Circle-2, Jodhpur vs. Sohanraj Balar, Pali

In the result, appeal of the Revenue is dismissed

ITA 288/JODH/2023[2013-14]Status: DisposedITAT Jodhpur30 Oct 2025AY 2013-14

Bench: SHRI. LALIET KUMAR (Judicial Member), DR. MITHA LAL MEENA (Accountant Member)

For Appellant: Shri Amit Kothari, C.AFor Respondent: Smt. Runi Pal-CIT-DR
Section 10(38)Section 132Section 139(1)Section 143(3)Section 153A

basis, was itself sufficient to show that the transaction was not genuine. He contended that the assessee’s claim of exempt LTCG was a colourable device. The DR placed heavy reliance on the decision of the Hon’ble Supreme Court in Sumati Dayal v. CIT (214 ITR 801) to argue

Deputy Commissioner of Income Tax, Central Circle-2, Jodhpur vs. Praveen Balar, Pali

In the result, appeal of the Revenue is dismissed

ITA 287/JODH/2023[2011-12]Status: DisposedITAT Jodhpur30 Oct 2025AY 2011-12

Bench: SHRI. LALIET KUMAR (Judicial Member), DR. MITHA LAL MEENA (Accountant Member)

For Appellant: Shri Amit Kothari, C.AFor Respondent: Smt. Runi Pal-CIT-DR
Section 10(38)Section 132Section 139(1)Section 143(3)Section 153A

basis, was itself sufficient to show that the transaction was not genuine. He contended that the assessee’s claim of exempt LTCG was a colourable device. The DR placed heavy reliance on the decision of the Hon’ble Supreme Court in Sumati Dayal v. CIT (214 ITR 801) to argue

Excellence Finance Pvt Ltd, Mumbai vs. DCIT Central Circle 6(4), Mumbai

In the result, all the aforesaid appeals of the assessee are

ITA 208/MUM/2025[2016-17]Status: DisposedITAT Mumbai28 Oct 2025AY 2016-17

Bench: Shri Narender Kumar Choudhry & Shri Prabhash Shankar

For Appellant: Shri Snehal Shah, ARFor Respondent: Shri Himanshu Joshi, (Sr. DR)
Section 143(2)Section 147Section 148Section 68

pointed out any mistake/wrongdoing in such transaction. A genuine transaction, in absence of any cogent contrary evidence, could not be considered as a colourable device to evade taxes, merely on the basis of general observations, devoid of any specific factual finding which is relevant to the impugned transaction. On similar

Excellence Finance Pvt Ltd, Mumbai vs. DCIT, Central Circle 6(4), Mumbai

In the result, all the aforesaid appeals of the assessee are

ITA 207/MUM/2025[2015-16]Status: DisposedITAT Mumbai28 Oct 2025AY 2015-16

Bench: Shri Narender Kumar Choudhry & Shri Prabhash Shankar

For Appellant: Shri Snehal Shah, ARFor Respondent: Shri Himanshu Joshi, (Sr. DR)
Section 143(2)Section 147Section 148Section 68

pointed out any mistake/wrongdoing in such transaction. A genuine transaction, in absence of any cogent contrary evidence, could not be considered as a colourable device to evade taxes, merely on the basis of general observations, devoid of any specific factual finding which is relevant to the impugned transaction. On similar

Excellence Finance Pvt Ltd, Mumbai vs. DCIT, Central Circle 6(4), Mumbai

In the result, all the aforesaid appeals of the assessee are

ITA 206/MUM/2025[2014-15]Status: DisposedITAT Mumbai28 Oct 2025AY 2014-15

Bench: Shri Narender Kumar Choudhry & Shri Prabhash Shankar

For Appellant: Shri Snehal Shah, ARFor Respondent: Shri Himanshu Joshi, (Sr. DR)
Section 143(2)Section 147Section 148Section 68

pointed out any mistake/wrongdoing in such transaction. A genuine transaction, in absence of any cogent contrary evidence, could not be considered as a colourable device to evade taxes, merely on the basis of general observations, devoid of any specific factual finding which is relevant to the impugned transaction. On similar

Netflix Entertainment Services India LLP, Mumbai vs. Deputy Commissioner of Income Tax- Circle 23(1), Mumbai

In the result, appeal of the assessee is partly

ITA 6857/MUM/2024[2021-22]Status: DisposedITAT Mumbai17 Oct 2025AY 2021-22
Section 143(3)Section 144C(5)Section 234ASection 270ASection 40

held that recharacterisation of a transaction is impermissible unless the arrangement is shown to be a sham or colourable device. Neither circumstance exists here. The agreements between Netflix India and its AEs are genuine, executed, and approved by regulatory authorities. 131. The Assessee's TNMM analysis, on the other hand

Alka Khandaka, Jaipur vs. Income Tax Officer Ward 1(2), Jaipur

In the result, the appeal of the assessee is partly allowed

ITA 1014/JPR/2025[2017-2018]Status: DisposedITAT Jaipur16 Oct 2025AY 2017-2018

Bench: DR. S. SEETHALAKSHMI (Judicial Member)

For Appellant: Sh. Sauravh Harsh, AdvFor Respondent: Mrs. Anita Rinesh, JCIT
Section 131Section 142(1)Section 143(2)Section 143(3)Section 44ASection 68

must not forget the timeless wisdom espoused by the apex court in Mc Dowell & Co. Ltd. Vs The Commercial Tax Officer 1986 AIR 649: "Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment ... despite the high-value jewellery sales. Stock movement and purchases did not support such abnormal sales. The so-called sales were therefore only a colourable device to accommodate unexplained cash. Double Taxation Argument Misplaced The assessee relied on various judicial pronouncements where sales were accepted as genuine. These are distinguishable

Tekchand Punjabi, Raigarh vs. ITO, Ward-1, Raigarh

The appeal of the assessee is allowed

ITA 569/RPR/2025[2016-17]Status: DisposedITAT Raipur15 Oct 2025AY 2016-17

Bench: Shri Partha Sarathi Chaudhuryआयकर अपील सं./Ita No.569/Rpr/2025 िनधा"रण वष" /Assessment Year: 2016-17 Tekchand Punjabi, C/O Shankar Lal Tekchand, Subhash Chowk, Raigarh, 496001, Chhattisgarh. Pan: Aeqpp2267N .......अपीलाथ" / Appellant बनाम / V/S.

For Appellant: Mr. G.S. Agrawal, CAFor Respondent: Dr. Priyanka Patel, Sr.DR
Section 69A

practice of issuing bearer cheque in the name of Mr. Prem Shankar never done by the assessee previously, therefore, it is not correct and colourable device that was adopted by the assessee trying to explain the cash deposit. In this regard, Ld. CIT(A)/NFAC while upholding the findings ... Raigarh Vs. ITO, Ward-1, Raigarh withdrawal of Rs.5,00,000/- through bearer cheque issued in the name of Mr. Prem Shankar is a colourable device and therefore, the amount is added in the hands of the assessee. Before the Ld. CIT(A)/NFAC the assessee had also filed

Assistant Commissioner of Income Tax-16(1), Mumbai vs. Viacom18 Media Private Limited, Mumbai

ITA 5658/MUM/2024[2013-14]Status: DisposedITAT Mumbai15 Oct 2025AY 2013-14

Bench: Shri Narender Kumar Choudhry & Ms. Padmavathy S

For Respondent: Shri Nimesh Vora, Ld. Adv
Section 115JSection 143(1)Section 143(2)Section 143(3)Section 250

further by relying on certain judgments as mentioned in para 5.2 held that it is evident that the Assessee company resorted to colourable device in the name of `non-compete fee' when there was no case for competing. Without prejudice to the above, the method adopted for valuation ... compete fee cannot be treated as intangible assets qualified for depreciation. The Assessee's claim of substantial depreciation is nothing short of a colourable device in the name of `non-compete fee' when there was no case for competing. 7.5 The AO thus, on the aforesaid reasons, rejected the submissions

ACIT (Cir.) - 6(1)(2), Mumbai vs. Bhandar Power Ltd., Mumbai

In the result, appeal of the Revenue is dismissed

ITA 1908/MUM/2018[2013-14]Status: DisposedITAT Mumbai13 Oct 2025AY 2013-14

Bench: Shri Amit Shukla & Shri Girish Agrawalassessment Year: 2013-14 Assistant Commissioner Of Bhandar Power Ltd. Income Tax, 14Th Floor, Essar House, Circle 6(1)(2), 11, K. K. Marg, Mahalaxmi, Vs. Mumbai Mumbai - 400034 (Pan: Aaacb6693B) (Appellant) (Respondent) Present For: Assessee : Shri Vijay Mehta, Fca & Shri Tarang Mehta, Advocate Revenue : Shri Satyaprakash R. Singh, Cit Dr Date Of Hearing : 29.07.2025 Date Of Pronouncement : 13.10.2025 O R D E R Per Girish Agrawal: This Appeal Filed By The Revenue Is Against The Order Of Ld. Cit(A), Delhi, Vide Order Dated 25.01.2018 Passed Against The Assessment Order By Ito 6(1)(4), Mumbai, U/S. 143(3) Of The Income-Tax Act, 1961 (Hereinafter Referred To As The “Act”), Dated 20.12.2016, For Assessment Year 2013-14. 2. Grounds Taken By The Revenue Are Reproduced As Under: 1. On The Facts & In The Circumstances Of The Case & In Law, The Cit(A) Is Not Justified In Deleting The Disallowance Of Deduction U/S 80Ia Of The Income Tax Act Of Rs. 203,13,43,740/-Without Considering The Fact That The Provisions Of Section 801A(10) Is Clearly Attracted In This Case Hence The Assessee Is Not Eligible For Claiming Deduction U/S 801A Of The Income Tax Act.

For Appellant: Shri Vijay Mehta, FCA and Shri Tarang Mehta, AdvocateFor Respondent: Shri Satyaprakash R. Singh, CIT DR
Section 143(3)Section 801ASection 801A(10)Section 80I

following three premise: 11 Bhandar Power Ltd. AY 2013-14 i) PPA entered by the assessee with its related parties is nothing but a colourable device as it results into tax free income in the hands of the assessee and at the same time buyers claim deduction of expenditure towards ... payment of minimum charges to the minimum quantity, which are determined based on fixed cost and profit of the assessee, is nothing but a colourable device. ii) Income received by the assessee from related parties on account of committed/minimum charges is not “derived from” eligible undertaking and therefore, not eligible

Globus Housing, Bhopal vs. Assessment Unit, NFAC, Delhi

The appeal of the assessee is allowed and the “impugned

ITA 872/IND/2024[2014-15]Status: DisposedITAT Indore10 Oct 2025AY 2014-15

Bench: Shri Bhagirath Mal Biyani & Shri Paresh M Joshi

Section 142(1)Section 147Section 148Section 250Section 253Section 68

this case wherein it has been held that tax planning may be legitimate provided it is within the framework of the law and any colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment

Pramila Agarwal, Jaipur vs. The Income Tax Officer Ward-2(5), Jaipur

In the result, the appeal of the assessee is allowed

ITA 531/JPR/2025[2011-12]Status: DisposedITAT Jaipur10 Oct 2025AY 2011-12
For Appellant: Shri Tarun Mittal, C.AFor Respondent: Shri Gorav Avasthi, JCIT
Section 10(38)Section 147Section 148Section 68

after interalia observing that the financial transaction effected by the assessee were sham ones and that the entire edifice was only a colourable device used to evade tax is most arbitrary, unjust and untenable in fact and in law and liable to be cancelled. 4.3 That the addition of Rs.1

Bakeri Projects Private Limited, Ahmedabad vs. The Dy.CIT, Circle-1(1)(1), Ahmedabad

In the result, the appeals of the assessee on this ground are allowed

ITA 785/AHD/2023[2016-17]Status: DisposedITAT Ahmedabad10 Oct 2025AY 2016-17

Bench: Dr. Brr Kumar & Ms. Suchitra Kambleassessment Year 2016-17

For Appellant: Shri S.N. Soparkar, A.RFor Respondent: Shri R.P. Rastogi, CIT-D.R
Section 143(2)Section 271(1)(c)Section 274Section 32Section 32(1)Section 32(1)(ii)Section 43(1)Section 43(6)

785/Ahd/2023 Bakeri Projects Pvt. Ltd., A.Y. 2016-17 3. The Learned CIT(A) and AO have erred in holding that amalgamation is a colourable device through which goodwill has been created by entities of the same group, leading to consequent tax evasion, as no reasons are thereafter discussed for forming ... section 32(1) of the Act. The conclusion of the Assessing Officer as well as CIT(A) that amalgamation is a colourable device through which goodwill has been created by entity of the same group leading to consequent tax evasion is not justified as it is based only

Harendra Pratapray Doshi (HUF), Mumbai vs. ITO Ward 41(2)(2), Mumbai

In the result, the appeal of the assessee is allowed

ITA 3788/MUM/2025[2012-13]Status: DisposedITAT Mumbai08 Oct 2025AY 2012-13

Bench: Shri Anikesh Banerjee & Shri Prabhash Shankar

For Appellant: Shri Bhadresh Doshi, CAFor Respondent: Shri Hemanshu Joshi, (Sr. DR)
Section 143(2)Section 143(3)Section 147Section 292B

above derivative transaction in Futures and Options by the assessee on the recognized stock exchange was a genuine financial transaction or it was a colourable device solely aimed at claiming substantial tax benefit in the hands of the assessee. On careful perusal of evidence brought on records, we find that ... documentary evidences furnished. Further, the AO has not made any independent enquiry/verification during the assessment proceedings with regard to allegation of impugned transaction being colourable device to avoid the tax. It is not disputed that all the transactions in derivatives segment had taken place on the platform of recognized Stock

Sanjay Jayantilal Shah, Ahmedabad vs. The ITO, Ward-2(1)(1), Ahmedabad

In the result, the appeal of the assessee is allowed for statistical purposes

ITA 79/AHD/2025[2014-15]Status: DisposedITAT Ahmedabad07 Oct 2025AY 2014-15

Bench: S/Shri Sanjay Garg & Makarand V.Mahadeokarasstt.Year : 2014-2015 Sanjay Jayantilal Shah Ito, Ward-2(1)(1) 202/A, Shivalik 10 Vs. Vejalpur Opp: Sbi Zonal Office Ahmedabad. Ambawadi, Ahmedabad 380 015 Pan : Aktps 8891 A (Applicant) (Responent) : Assessee By Shri S.N. Divatia & Shri Samir Vora, Ars. : Shri Kalpesh Rupavatia, Sr.Dr Revenue By सुनवाई क" तारीख/Date Of Hearing : 30/09/2025 घोषणा क" तारीख /Date Of Pronouncement: 07/10/2025 आदेश/O R D E R आदेश आदेश आदेश Per Makarand V.Mahadeokar, Am: This Appeal By The Assessee Is Directed Against The Order Dated 29.11.2024 Passed By The Commissioner Of Income Tax (Appeals), National Faceless Appeal Centre (Nfac), Delhi, [Hereinafter Referred To As "Cit(A)"], For The Assessment Year 2014–15, Arising Out Of The Assessment Order Dated 31.03.2022 Passed U/S 147 Read With Section 144B Of The Income-Tax Act, 1961 (Hereinafter Referred To As "The Act") By The National Faceless Assessment Centre, Delhi [Hereinafter Referred To As "Assessing Officer Or Ao"].

Section 10(38)Section 144BSection 147Section 148Section 234ASection 271(1)(c)Section 68Section 69C

Gain. The Assessing Officer noted that the assessee had claimed the aforesaid gain as exempt, whereas in fact the transaction was nothing but a colourable device adopted to launder unaccounted money into the books of account. 2.3 In the course of the assessment, the Assessing Officer called upon the assessee