Bogus purchases taxed only on profit element; housing project deduction allowed on substantial compliance with occupancy delay beyond assessee's control.

Where sales are accepted and the books of account are not rejected, alleged bogus purchases are brought to tax only to the extent of the embedded profit element, not the full purchase value, and the addition was restricted to 12.5% of the disputed purchases. For housing-project deduction under section 80IB(10), substantial compliance was sufficient because the project met the statutory size and commercial-use conditions, was completed within time on architect and fire-safety certifications, and the occupancy certificate delay was attributable to the local authority rather than the assessee; the deduction was therefore allowed.

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Issues: (i) Whether only the profit element embedded in allegedly bogus purchases could be brought to tax instead of the entire purchase amount. (ii) Whether deduction under section 80IB(10) of the Income-tax Act, 1961 was allowable where the housing project was substantially completed within time and the occupancy certificate was delayed or not issued by the local authority before the cutoff date.

Issue (i): Whether only the profit element embedded in allegedly bogus purchases could be brought to tax instead of the entire purchase amount.

Analysis: The assessee's sales were accepted and the books of account were not rejected. In such a situation, the purchases were treated as having been made from the grey market at a lower rate without genuine bills. The proper addition, therefore, was not the whole purchase value but only the embedded profit element.

Conclusion: The addition was rightly restricted to 12.5% of the disputed purchases. The issue was decided in favour of the assessee.

Issue (ii): Whether deduction under section 80IB(10) of the Income-tax Act, 1961 was allowable where the housing project was substantially completed within time and the occupancy certificate was delayed or not issued by the local authority before the cutoff date.

Analysis: The housing project had achieved the statutory conditions relating to plot size, unit size and commercial area, and the project was completed within the prescribed time on the basis of architect and fire-safety certifications. The assessee had applied to the municipal authority for occupancy permission within time, and possession had been handed over to flat purchasers. The delay in issuance of the local authority's certificate was not attributable to the assessee. The principle of substantial compliance applied, and the withdrawal of the claim in the revised return did not preclude the appellate claim.

Conclusion: Deduction under section 80IB(10) was correctly allowed. The issue was decided in favour of the assessee.

Final Conclusion: The revenue's appeals failed on both grounds, and the relief granted by the first appellate authority was sustained.

Ratio Decidendi: Where the books are accepted and sales are not disturbed, an addition for bogus purchases is confined to the profit element embedded in the purchases; and for housing-project deduction, substantial compliance with section 80IB(10) is sufficient where the assessee completes the project within time and the delay in issuance of the occupancy or completion certificate is not attributable to the assessee.

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