Tax disallowance based on third-party information: review petition dismissed after factual findings and tax effect assessment upheld

Review petition against a tax assessment was dismissed after finding the tax effect exceeded the monetary threshold, despite initial reliance on that threshold for recall. The dispute concerned a large disallowance founded solely on third-party information collected by the investigation wing; the assessing officer did not provide adversarial cross-examination. The appellate authorities (CIT(A) and ITAT) found the assessee had discharged the initial burden by producing documentation, and the High Court affirmed those concurrent factual findings as not perverse, concluding no substantial question of law arose. Consequently the review petitions were dismissed.

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Issues:
Tax effect threshold for review petition.

Analysis:
The Supreme Court, comprising Hon'ble Mr. Justice Rohinton Fali Nariman and Hon'ble Ms. Justice Indu Malhotra, considered a review petition where the tax effect exceeded Rs. 1 crore, specifically amounting to Rs. 6,59,27,298. Initially, the Court would have recalled its previous order based on the tax effect being less than Rs. 1 crore. However, upon examining the judgments of the CIT, ITAT, and the High Court, it was noted that a substantial disallowance of Rs. 19,39,60,866 was solely based on third-party information without further scrutiny. The CIT (Appeals) allowed the appeal of the assessee, emphasizing the lack of independent verification by the AO and denial of cross-examination opportunity to the appellant. The ITAT and the High Court upheld this decision based on factual findings, deeming the disallowance deletion as acceptable and dismissing the revenue's appeal.

In light of the above, the Supreme Court found that the disallowance was primarily founded on third-party information without adequate verification, leading to the deletion of the disallowance amounting to Rs. 19,39,60,866. The judgments of the lower courts were upheld based on the absence of perversity in their factual findings. Consequently, the Review Petitions were dismissed by the Supreme Court.

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