Bogus purchase bills in search statements: only the embedded profit element, not the full purchase value, is taxable.

A statement recorded during search under section 132(4) is evidentiary and binds the assessee on the factual admission that purchase bills were non-genuine, but the tax consequence of that admission must still be tested independently under law. Where the record shows that the goods were actually purchased and consumed in business, the entire purchase value cannot be added merely because the bills were bogus. In such cases, only the profit element embedded in the disputed purchases is assessable. On the facts stated, the addition was restricted to 10% of the disputed purchase amounts and the balance was deleted.

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Issues: (i) Whether a statement recorded during search under section 132(4) of the Income-tax Act, 1961, admitting non-genuine purchase bills, binds the assessee as to the factual admission and the legal consequence of taxation of the full surrendered amount. (ii) Whether, on the facts, the addition was to be sustained for the entire amount of the disputed purchases or only for the profit element embedded in such purchases, and at what rate.

Issue (i): Whether a statement recorded during search under section 132(4) of the Income-tax Act, 1961, admitting non-genuine purchase bills, binds the assessee as to the factual admission and the legal consequence of taxation of the full surrendered amount.

Analysis: A statement recorded during search has evidentiary value and binds the assessee on the factual admission made therein. However, the legal consequence flowing from that factual admission is not conclusive and has to be tested independently under law. Where the statement combines factual admission with a legal surrender for tax, the factual part may be relied upon, but the question whether the whole amount is taxable must still be examined on legal principles. The assessee, therefore, could not resile from the admission that the purchase bills were not proper, but was entitled to contend that the entire surrendered amount was not automatically taxable.

Conclusion: The factual admission regarding bogus or improper purchase bills was binding, but the surrender of the entire amount for taxation was not conclusive and had to be determined in accordance with law.

Issue (ii): Whether, on the facts, the addition was to be sustained for the entire amount of the disputed purchases or only for the profit element embedded in such purchases, and at what rate.

Analysis: The assessee was engaged in manufacture where steel was a raw material, and the record showed that purchases corresponding to the disputed quantities had in substance been made and consumed. Even if the bills were not genuine, the entire purchase amount could not be added where sales were accepted and the materials had been used in the business. The proper course was to bring to tax only the excess cost or profit element embedded in such purchases. On the facts, the embedded profit was estimated at 10% of the bill amount, following the approach supported by the surrounding material and the comparable judicial principle relied upon.

Conclusion: Only 10% of the disputed purchase amounts was sustained as addition, and the balance was deleted.

Final Conclusion: The assessee obtained partial relief, because the additions were restricted to the estimated profit element in the disputed purchases and the remaining additions were deleted or reduced accordingly.

Ratio Decidendi: A search statement admitting bogus purchase bills is evidentiary as to the factual admission, but the tax consequence is not conclusive; where purchases are found to have been made in substance, only the profit element embedded in such purchases can be assessed to tax.

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