Bogus purchase disallowance can extend to the full invoice value when actual receipt and consumption are not proved.

Where alleged hawala or bogus purchases are not supported by proof of actual receipt, movement, or consumption of goods, the entire amount represented by fictitious invoices may be disallowed and the addition need not be confined to gross profit. The article notes that the assessee could not substantiate the existence of suppliers or produce stock records, delivery documents, weighment slips, octroi receipts, or goods received notes, and declared sales alone were insufficient to offset the evidentiary failure. The gross profit restriction was rejected on these facts, and the full disallowance of the impugned purchases was upheld.

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Issues: Whether the disallowance made on account of alleged hawala/bogus purchases should be restricted to a gross profit rate or sustained at 100% in the absence of proof of actual purchase, movement and consumption of goods.

Analysis: The assessee, a civil contractor, failed to establish the existence of the alleged suppliers or the physical movement and consumption of material through stock records, delivery documents, weighment slips, octroi receipts, goods received notes or similar evidence. The sales declared were not found to be independently sufficient to dilute the effect of the proved fictitious purchases. The view limiting addition to gross profit was distinguished on facts, and the principle applied was that where purchases are found to be bogus and unsupported by evidence of actual receipt or consumption, the entire amount debited on the basis of fictitious invoices can be disallowed.

Conclusion: The restriction to gross profit was rejected and the full disallowance of the alleged bogus purchases was upheld, in favour of the Revenue.

Final Conclusion: The assessment was restored and the Revenue's appeal succeeded because the impugned purchases were treated as wholly unverifiable and fictitious.

Ratio Decidendi: Where alleged purchases are not proved by cogent evidence of actual receipt and consumption of goods, the full amount represented by bogus invoices may be disallowed and the addition need not be confined to the profit element alone.

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