Profit element only in bogus purchases; 26AS receipt mismatch requires factual verification before any addition.

Where sales are not disputed and purchase evidence is otherwise available, only the profit element embedded in unverifiable or grey-market purchases can be added, so the disallowance was restricted to 10% of the bogus purchases. Where contract receipts in Form 26AS did not match the assessee's books, a mere assertion of error was insufficient and the mismatch had to be verified on facts; the matter was remanded to the Assessing Officer for fresh examination with an opportunity of hearing. The operative principle applied was that additions must rest on verified facts, and unverifiable purchase claims justify only a limited profit-based disallowance, not full rejection of the purchases.

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Issues: (i) Whether the disallowance on account of bogus purchases was to be sustained in full or restricted to a lower percentage; (ii) Whether the addition arising from mismatch between contract receipts reflected in the 26AS statement and the assessee's accounts required verification.

Issue (i): Whether the disallowance on account of bogus purchases was to be sustained in full or restricted to a lower percentage.

Analysis: The assessee had furnished purchase documentation and the sales were not disputed. In such circumstances, full disallowance was not justified. The purchases were found to be of a grey-market nature, so only the profit element embedded in such purchases was liable to be brought to tax. Considering the line of decisions restricting such additions, the appropriate disallowance was limited to 10% of the bogus purchases.

Conclusion: The issue was decided in favour of the assessee to the extent that the disallowance was restricted to 10% of the bogus purchases.

Issue (ii): Whether the addition arising from mismatch between contract receipts reflected in the 26AS statement and the assessee's accounts required verification.

Analysis: The assessee claimed that the mismatch was erroneous, but no supporting evidence was produced. A bare assertion of mistake was insufficient, and the factual position required examination by the Assessing Officer. The matter was therefore sent back for verification with adequate opportunity of hearing.

Conclusion: The issue was remanded to the Assessing Officer for fresh verification.

Final Conclusion: The assessment was not sustained in its entirety, and the additions were reduced on the bogus-purchase issue while the 26AS-mismatch issue was sent back for reconsideration.

Ratio Decidendi: Where sales are not doubted, only the profit element embedded in unverifiable or bogus purchases can be added, and a factual mismatch in receipts must be verified before sustaining an addition.

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