2019 (8) TMI 1072 - SC - Income Tax

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 ... Recall of order on account of tax effect threshold - disallowance based on third party information - lack of independent verification - opportunity of cross-examination - deletion of addition for want of verification - concurrent findings of fact - perverse findingRecall of order on account of tax effect threshold - concurrent findings of fact - Whether the earlier order declining recall should be revisited solely because the tax effect exceeds Rs. 1 crore. - HELD THAT: - The Court noted that ordinarily an earlier order would have been recalled because the tax effect in the case exceeds the Rs. 1 crore benchmark. However, the Court examined the merits as recorded by the lower fora and found that the CIT(A), the ITAT and the High Court had affirmed the factual conclusions regarding the assessment. The High Court treated the findings as concurrent factual findings and held that no substantial question of law arose. Because those concurrent findings were not shown to be perverse, the Court declined to recall its earlier order despite the tax-effect threshold.Declined to recall the earlier order solely on the ground that the tax effect exceeds Rs. 1 crore; review petition dismissed on this ground.Disallowance based on third party information - lack of independent verification - opportunity of cross-examination - deletion of addition for want of verification - Whether the disallowance made on the basis of third party information without further verification and without furnishing statements to the assessee was sustainable. - HELD THAT: - The Court recorded the CIT(A)'s finding that the entire disallowance rested on third party information collected by the Investigation Wing which had not been independently verified by the AO, and that the appellant was not furnished copies of such statements nor given an opportunity to cross-examine. The CIT(A) accepted the assessee's documentary substantiation of purchases and directed deletion of the addition. The ITAT upheld that reasoning and dismissed the revenue's appeal. The High Court affirmed these concurrent factual conclusions as not perverse. Having regard to the absence of independent verification and denial of opportunity to the assessee, the Court found no infirmity in the deletion of the addition.The deletion of the addition was upheld; the disallowance based solely on unverified third party information was held unsustainable.Final Conclusion: Review petitions dismissed. Although the tax effect exceeds Rs. 1 crore, the Court declined to recall its earlier order because the CIT(A), ITAT and High Court reached concurrent factual conclusions-that the addition was based on unverified third party information and the assessee was denied opportunity to test that material-which were not shown to be perverse, and therefore the deletion of the addition stands. 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.