Bogus purchases taxed only to the profit element where sales were accepted and turnover was supported.

Bogus purchases were treated as non-genuine on Sales Tax material and lack of proof of delivery and transport, but the corresponding sales were not disputed and the stock and turnover position indicated real business activity. On that basis, the entire purchase value was not added as income; only the profit element embedded in the impugned purchases was taxable. The 12.5% estimation of disallowance was found consistent with the approach used in similar matters, and the Revenue's challenge was rejected.

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Issues: Whether the addition made on account of alleged bogus purchases was required to be restricted to the profit element and whether the Revenue's challenge to the CIT(A)'s estimation of the disallowance at 12.5% of such purchases was sustainable.

Analysis: The purchases were treated as non-genuine on the basis of the material gathered from the Sales Tax authorities and the failure to produce convincing evidence of actual delivery and transport of goods. At the same time, the sales were not disputed and the surrounding stock and sales position supported the view that the transactions had resulted in actual business turnover. In such circumstances, the entire purchase value was not to be added as income; only the profit element embedded in the impugned purchases could be brought to tax. The CIT(A)'s estimate of 12.5% was consistent with the approach adopted in similar matters.

Conclusion: The Revenue's challenge was rejected and the estimate of addition limited to the profit element was upheld.

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