The whole disallowance rests on an Investigation Wing report. Is that enough?
No. A disallowance cannot rest on third-party information alone that has not been independently verified, especially where cross-examination was denied and the assessee had already produced bills, transport records, bank payments and the sellers' registrations and returns.
Decided by the Supreme Court (R.F. Nariman J and Indu Malhotra J) on 2019-08-21, reported as (2019) 418 ITR 315 (SC); [2019] 110 taxmann.com 64 (SC); [2019] 266 Taxman 461 (SC); Review Petition (C) Diary No. 22394 of 2019 in Civil Appeal Nos. 9604-9605 of 2018. It bears on section 37(1) of the Income Tax Act 1961, in Evidence & Burden of Proof and Cash Credits & Unexplained Money matters.
It sets out, in effect, the evidence pack that discharges the initial burden on purchases — bills, transport, banking, the seller's registration and return. That list is worth building before the assessment, not after.
Binding on every court and authority in India.
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The Assessing Officer disallowed purchases of Rs 19,39,60,866 said to have been made from M/s Padmesh Realtors Pvt. Ltd. The Commissioner (Appeals) deleted the disallowance, finding that it rested entirely on third-party information gathered by the Investigation Wing which the Assessing Officer had not independently verified, that copies of the statements had not been given to the assessee so that no cross-examination was possible, and that the assessee had prima facie discharged its initial burden through purchase bills, transportation bills, confirmed copies of accounts, payment by cheque, and the sellers' VAT registration and income-tax returns. The Tribunal dismissed the Revenue's appeal on 16 May 2014 on the same reasoning, and the High Court affirmed on 5 July 2017 as concurrent findings of fact not shown to be perverse, holding that no substantial question of law arose. The Revenue's appeals to the Supreme Court were dismissed by order dated 17 September 2018 on the sole ground that the tax effect was below Rs 1 crore. The Revenue then sought review, pointing out that the tax effect was in fact Rs 6,59,27,298.
The review petitions were dismissed. The Court accepted that the tax effect was Rs 6,59,27,298, above the Rs 1 crore threshold, and said that it would ordinarily have recalled its order of 17 September 2018, which had been passed only on the footing that the tax effect was below that figure (para 2). It declined to do so because, on going through the orders of the Commissioner (Appeals), the Tribunal and the High Court, it found that on merits the disallowance of Rs 19,39,60,866 was based solely on third-party information which had not been subjected to any further scrutiny (para 3). The Tribunal had relied on the same reasoning and the High Court had affirmed the concurrent factual findings as not perverse, so no substantial question of law arose (para 4). In those circumstances the review was dismissed (para 5).
The Court's reasoning occupies three sentences. It would ordinarily recall an order passed only because the tax effect appeared to be below the Rs 1 crore threshold, once shown that the threshold was in fact exceeded (para 2). But recall would serve no purpose here, because the Court had read the orders of the Commissioner (Appeals), the Tribunal and the High Court and found that on merits the disallowance rested solely on third-party information that had not been subjected to any further scrutiny (para 3). The Commissioner (Appeals)'s reasons — reproduced in the order — were that the information came from the Investigation Wing and was never independently verified, that the statements were not given to the assessee so cross-examination was denied, and that the assessee had prima facie discharged its initial burden with purchase and transportation bills, confirmed accounts, payment by cheque and the sellers' VAT registrations and returns. The Tribunal adopted that reasoning and the High Court treated the findings as concurrent findings of fact not shown to be perverse (para 4).
on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny.
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Handle my notice → Ask a CA on WhatsAppNo. A disallowance cannot rest on third-party information alone that has not been independently verified, especially where cross-examination was denied and the assessee had already produced bills, transport records, bank payments and the sellers' registrations and returns. This was decided by the Supreme Court (R.F. Nariman J and Indu Malhotra J) and bears on section 37(1) of the Income Tax Act 1961. It is reported as (2019) 418 ITR 315 (SC); [2019] 110 taxmann.com 64 (SC); [2019] 266 Taxman 461 (SC); Review Petition (C) Diary No. 22394 of 2019 in Civil Appeal Nos. 9604-9605 of 2018. It sets out, in effect, the evidence pack that discharges the initial burden on purchases — bills, transport, banking, the seller's registration and return. That list is worth building before the assessment, not after. If it applies to you, the first step is this: Assemble the full pack for each disputed supplier: bill, transport document, ledger confirmation, bank payment, their registration and return.
The Assessing Officer disallowed purchases of Rs 19,39,60,866 said to have been made from M/s Padmesh Realtors Pvt. Ltd. The Commissioner (Appeals) deleted the disallowance, finding that it rested entirely on third-party information gathered by the Investigation Wing which the Assessing Officer had not independently verified, that copies of the statements had not been given to the assessee so that no cross-examination was possible, and that the assessee had prima facie discharged its initial burden through purchase bills, transportation bills, confirmed copies of accounts, payment by cheque, and the sellers' VAT registration and income-tax returns. The Tribunal dismissed the Revenue's appeal on 16 May 2014 on the same reasoning, and the High Court affirmed on 5 July 2017 as concurrent findings of fact not shown to be perverse, holding that no substantial question of law arose. The Revenue's appeals to the Supreme Court were dismissed by order dated 17 September 2018 on the sole ground that the tax effect was below Rs 1 crore. The Revenue then sought review, pointing out that the tax effect was in fact Rs 6,59,27,298. The matter was decided on 2019-08-21 by the Supreme Court (R.F. Nariman J and Indu Malhotra J). On those facts the Supreme Court held as follows. The review petitions were dismissed. The Court accepted that the tax effect was Rs 6,59,27,298, above the Rs 1 crore threshold, and said that it would ordinarily have recalled its order of 17 September 2018, which had been passed only on the footing that the tax effect was below that figure (para 2). It declined to do so because, on going through the orders of the Commissioner (Appeals), the Tribunal and the High Court, it found that on merits the disallowance of Rs 19,39,60,866 was based solely on third-party information which had not been subjected to any further scrutiny (para 3). The Tribunal had relied on the same reasoning and the High Court had affirmed the concurrent factual findings as not perverse, so no substantial question of law arose (para 4). In those circumstances the review was dismissed (para 5).
The Court's reasoning occupies three sentences. It would ordinarily recall an order passed only because the tax effect appeared to be below the Rs 1 crore threshold, once shown that the threshold was in fact exceeded (para 2). But recall would serve no purpose here, because the Court had read the orders of the Commissioner (Appeals), the Tribunal and the High Court and found that on merits the disallowance rested solely on third-party information that had not been subjected to any further scrutiny (para 3). The Commissioner (Appeals)'s reasons — reproduced in the order — were that the information came from the Investigation Wing and was never independently verified, that the statements were not given to the assessee so cross-examination was denied, and that the assessee had prima facie discharged its initial burden with purchase and transportation bills, confirmed accounts, payment by cheque and the sellers' VAT registrations and returns. The Tribunal adopted that reasoning and the High Court treated the findings as concurrent findings of fact not shown to be perverse (para 4). In the words reproduced by the source cited on this page: "on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny."
It was decided by the Supreme Court on 2019-08-21 and is reported as (2019) 418 ITR 315 (SC); [2019] 110 taxmann.com 64 (SC); [2019] 266 Taxman 461 (SC); Review Petition (C) Diary No. 22394 of 2019 in Civil Appeal Nos. 9604-9605 of 2018. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 37(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The review petitions were dismissed. The Court accepted that the tax effect was Rs 6,59,27,298, above the Rs 1 crore threshold, and said that it would ordinarily have recalled its order of 17 September 2018, which had been passed only on the footing that the tax effect was below that figure (para 2). It declined to do so because, on going through the orders of the Commissioner (Appeals), the Tribunal and the High Court, it found that on merits the disallowance of Rs 19,39,60,866 was based solely on third-party information which had not been subjected to any further scrutiny (para 3). The Tribunal had relied on the same reasoning and the High Court had affirmed the concurrent factual findings as not perverse, so no substantial question of law arose (para 4). In those circumstances the review was dismissed (para 5). It arises in Evidence & Burden of Proof and Cash Credits & Unexplained Money matters, on section 37(1) of the Income Tax Act 1961, and was decided by R.F. Nariman J and Indu Malhotra J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Ask for the third-party material relied on and for cross-examination, in writing. Point out what independent verification the officer did — if the answer is none, that is the ground.
Still good law. The order of 21 August 2019 dismissing the review petitions affirms the Court's own earlier order of 17 September 2018 in Civil Appeal Nos. 9604-9605 of 2018, which had disposed of the Revenue's appeals against the Delhi High Court. Nothing doubting or distinguishing it was found. Its weight, however, comes from what it declined to disturb rather than from any reasoning of its own: the substantive findings are those of the Commissioner (Appeals), adopted by the Tribunal and treated by the High Court as concurrent findings of fact. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is an order on a review petition, three paragraphs long, and it does two things. It records that the Court's earlier order dismissing the Revenue's appeals had been passed only because the tax effect was thought to be below Rs 1 crore, and that the true tax effect was Rs 6,59,27,298 — so that the appeals had never been decided on merits. And it declines to recall that order because, on reading the orders below, the disallowance was found to rest solely on unverified third-party information. Cite it for that, not as a reasoned pronouncement on the law of unproved purchases: the reasoning it endorses is the Commissioner (Appeals)'s, sustained as a concurrent finding of fact. The proposition that documentation of this kind discharges the initial burden therefore travels only as far as the facts of a given case. The order records the High Court judgment as dated 5 July 2017; the Delhi High Court decision in the same matter appears in the reports at [2017] 80 taxmann.com 180 dated 24 March 2017, and the two dates were not reconciled. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The review petitions were dismissed. The Court accepted that the tax effect was Rs 6,59,27,298, above the Rs 1 crore threshold, and said that it would ordinarily have recalled its order of 17 September 2018, which had been passed only on the footing that the tax effect was below that figure (para 2). It declined to do so because, on going through the orders of the Commissioner (Appeals), the Tribunal and the High Court, it found that on merits the disallowance of Rs 19,39,60,866 was based solely on third-party information which had not been subjected to any further scrutiny (para 3). The Tribunal had relied on the same reasoning and the High Court had affirmed the concurrent factual findings as not perverse, so no substantial question of law arose (para 4). In those circumstances the review was dismissed (para 5).
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