Bogus purchase disallowance limited to profit element where sales were accepted and suppliers were unverifiable.

Unverifiable purchases supported a partial disallowance because the alleged suppliers were not produced and notices remained unserved, yet the corresponding sales were not doubted. The appellate authority treated the purchases as not wholly non-existent and held that only the profit element embedded in such purchases could be taxed. Applying the factual matrix and case law on bogus or hawala purchases, it restricted the addition to 12.5% of the purchase value, and the Revenue's challenge failed.

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Issues: Whether the addition on account of alleged bogus purchases was required to be restricted to 12.5% of the purchase value instead of sustaining a higher disallowance.

Analysis: The purchases were found to be unverifiable because the alleged suppliers were not produced and notices issued to them remained unserved, but the corresponding sales were not doubted. The appellate authority recorded that the purchases could not be treated as wholly non-existent and that the appropriate course was to tax only the profit element embedded in such purchases. The rate of 12.5% was applied on the basis of the facts and the line of judicial authorities dealing with purchases routed through bogus or hawala suppliers.

Conclusion: The restriction of the addition to 12.5% of the alleged bogus purchases was justified and the Revenue's challenge failed.

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