Bogus purchase additions: Tribunal restricts estimated profit element to 6% where stock and sales were correlated.

Where purchases were doubted as accommodation entries, the ITAT noted that the Assessing Officer made no independent enquiry, while the disputed goods had entered stock and sales were supported by quantitative details. As the assessee still failed to prove the purchases from declared sources with confirmations or affidavits, an addition was justified. The Tribunal held, however, that departmental profit-rate guidance for normal transactions could not be applied mechanically to unproved purchases, and it estimated the embedded profit in the disputed purchases at 6%. The disallowance was accordingly restricted to 6% of the disputed purchases.

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Issues: Whether the disallowance on alleged bogus purchases was to be sustained and, if so, at what percentage of the purchases the addition should be made.

Analysis: The purchases were doubted on the basis of material gathered in a search and survey of the accommodation-entry group, but no independent enquiry was conducted by the Assessing Officer. The goods corresponding to the disputed purchases were found to have entered the assessee's stock and the sales were correlated through quantitative details, yet the assessee did not produce conclusive evidence such as confirmations or affidavits from the suppliers. Since the purchases from declared sources were not proved, an addition was warranted. However, the standard profit rates referred to in departmental guidance and circulars were framed for normal transactions and could not be applied mechanically to unproved purchases. In the circumstances, the proper estimate of profit embedded in the disputed purchases was taken at 6%.

Conclusion: The addition on alleged bogus purchases was restricted to 6% of the disputed purchases.

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