Bogus purchase disallowance limited to profit element where sales and quantity tally remain intact, with tribunal estimate upheld.

Where alleged bogus purchases are not accompanied by disturbance of sales or quantity tally, the addition may be confined to a reasonable estimate of the profit element embedded in those purchases. The Tribunal accepted banking payments, trading results, declared profit rate and quantity records, and restricted the disallowance to 5% over and above the declared profit as a plausible estimate. The High Court found no perversity in that approach and declined interference under section 260A, thereby sustaining the estimated disallowance and rejecting the Revenue's appeal.

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Issues: Whether the Tribunal was justified in restricting the disallowance on alleged bogus purchases to 5% of the purchases and whether interference under section 260A was warranted.

Analysis: The assessee's purchases were treated as obtained from hawala parties, but the Tribunal found that the trading results, sales, quantity tally, banking payments and declared profit percentage showed that only the profit component embedded in the purchases required estimation. The Tribunal relied on its earlier decision and adopted 5% as a reasonable estimate over and above the declared profit, holding that the quantitative aspect of purchases was not in dispute and that the estimate would balance the equities. The High Court found this approach reasonable and declined to interfere in appeal.

Conclusion: The restriction of disallowance to 5% of the alleged bogus purchases was upheld.

Final Conclusion: The Revenue's appeal was rejected and the Tribunal's estimated disallowance was sustained.

Ratio Decidendi: In cases of alleged bogus purchases where sales and quantity tally are not disturbed, the addition may be confined to a reasonable estimate of the profit element embedded in such purchases, and an appellate court will not interfere with a Tribunal's plausible estimation absent perversity.

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