Tribunal limits purchase disallowance to 8%, emphasizes taxing profit element, not entire amount.

The Tribunal partially allowed the appeal by the assessee, directing the Assessing Officer to limit the purchase disallowance to 8% on both disputed purchases. The Tribunal emphasized that only the profit element embedded in transactions should be taxed, not the entire amount, considering the low profit margin due to market competition and lack of verification of the profit element. The Assessing Officer's disallowance of all cash purchases below a certain amount as bogus purchases was overturned, with the Tribunal finding no rejection of books of account or dispute of the purchases.

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Issues:
1. Estimation of profit on bogus purchases
2. Assessment of cash purchases below a certain amount

Estimation of profit on bogus purchases:
The appeal by the assessee was against the order of the Commissioner of Income tax for assessment year 2014-15, challenging the estimation of profit at 25% on bogus purchases. The assessee argued that there was no rationale for any addition, especially since purchases were made in both cash and cheque. The Assessing Officer disallowed purchases totaling to Rs. 1.83 crores, stating that parties were not found at given addresses. The CIT(A) restricted the addition to 25% of the total purchases, citing the decision in Vijay Trading Co. case. The Tribunal found that the Assessing Officer did not reject the books of account or dispute the purchases, and the profit margin was low due to market competition. Considering the turnover and lack of verification of profit element in the transactions, the Tribunal directed the Assessing Officer to restrict the purchase disallowance to 8% on both disputed purchases.

Assessment of cash purchases below a certain amount:
The Assessing Officer disallowed all purchases below Rs. 20,000 paid in cash, totaling to Rs. 1.83 crores, as bogus purchases. The CIT(A) restricted the addition to 25% following the Vijay Trading Co. case. The Tribunal noted that the Assessing Officer did not reject the books of account or dispute the purchases. The Tribunal emphasized that only the profit element embedded in such transactions should be taxed, not the entire amount. As the assessee had shown a profit of 6.67%, the Tribunal directed the Assessing Officer to restrict the purchase disallowance to 8% on both disputed purchases.

In conclusion, the Tribunal partly allowed the appeal by the assessee, directing the Assessing Officer to restrict the purchase disallowance to 8% on both disputed purchases.

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