Unverifiable purchase claims attract only embedded profit addition where sales are accepted and business turnover remains consistent.

Purchases claimed from accommodation-entry suppliers were found unverifiable because notices under section 133(6) were returned unserved and the assessee did not produce the parties or evidence of actual delivery. However, the sales were accepted and the trading results were consistent with the preceding year, indicating that goods were used in the business and corresponding turnover was recorded. In these circumstances, the document states that the entire purchase addition was unsustainable and only the profit element embedded in the unverifiable purchases could be taxed, with disallowance restricted to 6% of the impugned purchases and the balance deleted.

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Issues: Whether the entire addition made on account of alleged bogus purchases from accommodation-entry suppliers was sustainable, or whether only the profit element embedded in such purchases could be brought to tax.

Analysis: The assessee's purchase claims were doubted because the suppliers were reported to be accommodation-bill providers, notices issued to them under section 133(6) were returned unserved, and the assessee failed to produce the parties or furnish clinching evidence of actual delivery. These facts justified rejection of the claim that the purchases were fully genuine. At the same time, the sales were not rejected and the trading results were found to be in line with the preceding year, indicating that the goods had in fact been used in the business and corresponding sales were recorded. On that footing, the purchases were treated as having been sourced from the open or grey market, warranting estimation only of the embedded profit rather than disallowance of the entire purchase value.

Conclusion: The full addition was held unsustainable, and the disallowance was restricted to 6% of the impugned purchases, thereby granting partial relief to the assessee.

Final Conclusion: The assessment was sustained only to the extent of estimated profit on unverifiable purchases, and the balance addition was deleted.

Ratio Decidendi: Where purchases are found unverifiable but the corresponding sales are accepted, the proper course is to tax only the profit element embedded in such purchases and not the entire purchase amount.

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