Bogus purchase additions cannot stand in full where cash payment issues justify only a section 40A(3) disallowance.

Purchase invoices, sales tax registration details, audited accounts, VAT returns and stock records supported the assessee's purchases, and the books were not rejected or the sales and closing stock disturbed. Although the supplier was not traceable and the payments were made in cash, those facts did not justify treating the purchases as wholly bogus. The proper consequence was limited to the statutory disallowance attached to cash expenditure, so the addition for bogus purchases was not sustained in full and was restricted to section 40A(3).

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Issues: Whether the addition made on account of alleged bogus purchases could be sustained in full, or whether the disallowance should be restricted to the consequence of cash payments under section 40A(3).

Analysis: The assessee produced purchase invoices, sales tax registration particulars, audited accounts, VAT return material and stock details, while the Assessing Officer had not rejected the books of account or disturbed the sales and closing stock figures. At the same time, the supplier was not traceable at the given address, no satisfactory third-party evidence was produced to establish its existence, and the payments were found to have been made in cash. In these circumstances, the purchase could not be treated as fully bogus, but the mode of payment attracted the statutory restriction on cash expenditure.

Conclusion: The addition for bogus purchases was not sustainable in full, and the disallowance was confined to the extent warranted under section 40A(3).

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