Bogus purchase disallowance limited to profit element where bills, delivery challans and banking proof supported the transactions.

Third-party sales-tax information indicating that suppliers were hawala operators, together with non-service of section 133(6) notices, supported an inference of unverifiable purchases, but the assessee had produced purchase bills, delivery challans and banking proof. On those facts, the purchases could not be disallowed in full merely on departmental information; instead, only the profit element embedded in the purchases was brought to tax. Consistent with similar cases, the addition for bogus purchases was restricted to 12.5% of the impugned purchases.

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Issues: Whether the entire purchases treated as bogus on the basis of Sales-tax department information could be disallowed, or only the profit element embedded in such purchases could be brought to tax.

Analysis: The addition was founded on third-party information that the suppliers were hawala operators and on the failure of notices issued under section 133(6) to reach them. At the same time, the assessee had produced purchase bills, delivery challans and payment proof through banking channels. In these circumstances, the purchases could not be rejected in full merely on the basis of the departmental information, but the assessee's failure to furnish correct particulars of the suppliers justified an estimate of profit embedded in such purchases. Consistent with the view taken in similar cases, the appropriate course was to tax only the profit element and not the entire purchase value.

Conclusion: The addition on account of bogus purchases was restricted to 12.5% of the impugned purchases, and the assessee succeeded only to that extent.

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