ITAT ought to remanded whole matter of bogus purchases instead of profit determination

ITAT on presumption of bogus purchases ought to have remanded case to AO to reconsider the whole matter instead of determining appropriate percentage of profit

In a recent judgment, Orissa High Court has held that when ITAT ordered a remand on the question whether there were “bogus purchases” or otherwise, it ought to have allowed the AO to reconsider the whole matter instead of determining appropriate percentage of profit.

ABCAUS Case Law Citation:
5127 (2026) (04) abacus.in HC

In the instant case, the controversy before the High Court was as to whether the Tribunal could have made a presumption of “bogus purchase” and then remanded the case to the Assessing Authority (AO) to apply the appropriate percentage of profit?

The appellant assesse argued that, when the books of account had not been rejected by the Assessing Officer, or by any other Authority, the Tribunal obtained no jurisdiction to hold that, even in the case of “bogus purchase”, the profit element should be added to the taxable income and therefore, remanding the matter to the Assessing Officer, to apply the appropriate “percentage of profit”.

It was argued that the direction of the Tribunal created an untenable situation where, even when the books of account had not been disturbed, “bogus purchase” was presumed; and then the “percentage of profit” had been ordered to be included in the taxable income.

The appellant contended that the order of the Tribunal was erroneous; but agreed that if this Court was to make a full remand of the matter to the Assessing Officer, including on the question of the books of account, the assessee would have no objection.

On the other hand the Revenue submitted that this was not a case where the books of account had been accepted by the Assessing Officer, but where they found that there were several documents and details ― including purchase invoices and such others ― which had been kept secret and not disclosed.

It was contended that, in such circumstances, all that the Tribunal could have done was to direct the profits of such purchases to be added to the taxable income; and that, this was all what it has done. However, the revenue acceded to the alternative suggestion that this Court order a full remand to the Assessing Officer, so that he can enter a fresh assessment, adverting to all relevant aspects, including all the books of account.

The High Court observed that there was no dispute that the books of account of the appellant had not been rejected or set aside. In spite of it, the Tribunal observed that, even in the case of “bogus purchases” – making it appear that there is a presumption of such – “the profit element embedded therein should be added to the taxable income.

The High Court opined that the course adopted by the Tribunal was not correct because, when a remand was ordered, including on the question whether there were “bogus purchases” or otherwise, it should have been left to the Assessing Officer to assess and evaluate it, based on all relevant and germane inputs, including the accounts, documents and other relevant aspects as are necessary.

The High Court held that instead of a limited remand, the Tribunal ought to have allowed the AO to reconsider the whole matter, adverting to the books of account of the appellant also.

Accordingly, the High Court allowed the appeal and set aside the order to the extent to which it had remanded the matter to the AO for the purpose of applying the “appropriate percentage of profit”. It was ordered that the remit shall be construed to be a full remand on every aspect ― including qua the books of account, allegations of bogus purchase, appropriate percentage of profit etc.

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