2026 (3) TMI 127 - AT - Income Tax

Subsequent binding precedent requires remand where fixed profit percentage disallowance was applied; rehearing and fresh adjudication ordered.

Where purchases were alleged to be from non genuine parties and the appellate authority restricted disallowance to an 8% profit element based on earlier ... Estimation of profit element in non-genuine purchases - CIT(A) restricting the addition made by the Assessing Officer in respect of bogus purchases from 25% to 8% - primary onus of proving the genuineness of the source and the transaction - Revenue’s primary contention is that the legal landscape has shifted significantly following the recent decision in Pr. CIT v. Kanak Impex (India) Ltd [2025 (3) TMI 230 - BOMBAY HIGH COURT] HELD THAT: - The Tribunal found that the CIT(A) had followed an earlier ITAT direction in the assessee's own case for A.Y. 2011-12 which restricted disallowance to the profit element (estimated at 8%), but did not independently examine whether the facts of A.Y. 2009-10 matched that earlier year or whether later judicial developments (notably the Bombay High Court decision in Pr. CIT v. Kanak Impex (India) Ltd and the line of authority cited by the Revenue) changed the applicable legal position. Tribunal observed that subsequent authority critiques the routine practice of estimating a fixed profit rate when the assessee fails to discharge the onus of proving genuineness. Because the CIT(A)'s restriction to 8% was made solely by following the earlier ITAT direction without assessing factual identity or the impact of later binding precedents, the appellate order lacked independent reasoning on the determinative question. For these reasons the impugned order was set aside and the matter remitted to the CIT(A) to re-adjudicate after affording the assessee an opportunity of hearing, to examine the issue afresh in light of applicable binding precedents and to record a reasoned finding. [Paras 4, 5, 6] Final Conclusion: The Revenue's appeal is allowed for statistical purposes; the CIT(A)'s order restricting the addition to 8% is set aside and the issue is remitted to the CIT(A) for fresh, reasoned consideration in light of binding precedents after affording the assessee an opportunity of hearing. Issues: Whether the learned Commissioner of Income-tax (Appeals) erred in restricting the addition on account of bogus purchases to 8% of total purchases instead of sustaining the Assessing Officer's 25% addition, and whether the matter requires fresh adjudication in light of subsequent judicial decisions.Analysis: The appeal raises the legal question of whether, when sales are not disputed but purchases are alleged to be from non-genuine parties, the disallowance should be confined to the profit element embedded in such purchases or whether later binding judicial developments require a different approach. Relevant legal framework includes provisions addressing undisclosed income and unexplained transactions under the Income-tax Act, 1961 (notably Section 68 and Section 69C) and the statutory context under the Maharashtra Value Added Tax Act, 2002 (Section 74(1A)). The impugned appellate order followed an earlier Tribunal direction in the assessee's own case for a later year and restricted disallowance to 8% as estimated profit element. Subsequent higher court authority has questioned routine fixation of a fixed profit percentage where the assessee fails to discharge the onus of proving genuineness, thereby potentially altering the applicable legal position. The appropriate course where later binding precedent may change legal conclusions is to set aside the order and remit the matter for fresh consideration applying current binding authorities and recording reasoned findings after affording the assessee an opportunity of hearing.Conclusion: The appellate order restricting the addition to 8% is set aside and the matter is remitted to the learned CIT(A) for fresh adjudication in accordance with law after affording the assessee an opportunity of hearing.Ratio Decidendi: Where subsequent binding authority affects the legal position relied upon by an appellate authority, the proper remedy is to set aside the impugned order and remit the matter for fresh adjudication so that the issue can be decided afresh in light of applicable binding precedents and on the basis of recorded findings of fact.