Bogus purchase claims with accepted sales usually justify only profit-element addition, not full disallowance.

Where purchase bills are doubted as bogus but the sales are accepted, the addition should ordinarily be limited to the profit element embedded in the disputed purchases. Complete disallowance of the entire purchase value is not justified merely because the assessee fails to fully substantiate the source or produce suppliers, if the recorded sales remain undisturbed. Applying that settled approach, the tribunal restricted the addition to the estimate already made by the Assessing Officer instead of sustaining a 100 per cent disallowance.

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Issues: Whether the disallowance in respect of alleged bogus purchases could be sustained at 100 per cent and whether, in the absence of any dispute to sales, only the profit element embedded in such purchases was liable to be added.

Analysis: The purchases were found to be unsupported by complete evidentiary material and the suppliers were not produced, but the sales recorded by the assessee were not disturbed. In such a situation, the settled approach is that the entire purchase amount is not to be disallowed merely because the declared source is not proved to the full satisfaction of the revenue. Where sales are accepted, the assessee is taken to have procured goods from some source, and the addition is ordinarily confined to the profit element embedded in the disputed purchases. The enhancement to disallow the whole amount of purchases was therefore not justified.

Conclusion: The issue is decided in favour of the assessee, and the addition was restricted to the estimate made by the Assessing Officer instead of sustaining 100 per cent disallowance.

Ratio Decidendi: Where sales are accepted and only the genuineness of purchase bills is in doubt, the addition should ordinarily be confined to the profit element embedded in the disputed purchases and not extend to the entire purchase value.

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