Bogus purchase additions limited to profit element where sales are accepted; ITAT restricts disallowance to a reasonable estimate.

In alleged bogus purchase cases involving accommodation entry providers, where sales are not doubted, only the profit element embedded in the disputed purchases is to be brought to tax on a reasonable estimation basis. Applying that settled approach, the ITAT Surat restricted the addition to 6% of the impugned purchases instead of sustaining the disallowance in full or at the higher level adopted by the first appellate authority. The assessee obtained partial relief, and the Revenue's challenge failed.

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Issues: (i) Whether, in a case of alleged bogus purchases from accommodation entry providers, the addition was to be sustained in full, restricted to the percentage adopted by the first appellate authority, or further modified.

Analysis: The disputed purchases were found to be from concerns linked to an accommodation entry group. The sales were not rejected, and the matter was treated as one involving estimation of the income element embedded in the purchases rather than taxing the entire purchase value. Relying on the settled approach in similar cases, the Tribunal held that the appropriate addition should reflect only the profit element to avoid taxing the whole turnover of the impugned purchases.

Conclusion: The addition was restricted to 6% of the bogus purchases, and the relief was granted partly in favour of the assessee.

Final Conclusion: The disallowance was reduced from the figure sustained by the first appellate authority to 6% of the impugned purchases, with the assessee obtaining partial relief and the Revenue's challenge failing.

Ratio Decidendi: In cases of bogus purchases where sales are not doubted, only the profit element embedded in the disputed purchases can be brought to tax on a reasonable estimation basis.

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