Profit element on alleged bogus purchases restricted to 4% where sales were accepted as genuine.

Where sales are accepted as genuine, purchases cannot be treated as wholly non-genuine for addition purposes. In a trading business, if purchase confirmations remain unproved, only the profit element embedded in such purchases may be brought to tax. On the facts, the embedded profit was estimated at 4%, and the disallowance was directed to be recomputed accordingly, granting relief to the assessee to that extent.

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Issues: Whether the addition on account of alleged non-genuine purchases should be restricted to the profit element embedded in such purchases and, if so, at what rate.

Analysis: The sales were accepted as genuine, and therefore the entire purchases could not be treated as non-genuine for addition purposes. The purchases were nevertheless not fully proved by confirmations from the parties, so an estimation of the profit element was warranted. Considering the nature of the assessee's trading business and the overall facts, the embedded profit was found to be reasonably estimable at 4%.

Conclusion: The addition was restricted to 4% of the alleged non-genuine purchases and the disallowance was directed to be recomputed accordingly, in favour of the assessee to that extent.

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