Bogus purchase additions reduced through gross profit estimation, with verification required for accounting treatment of disputed purchases.

In a dispute over alleged bogus purchases, the tribunal applied a gross profit estimation approach and reduced the disallowance from 12.5% to 5% having regard to the assessee's ferrous articles and comparable decisions in similar trade. The Assessing Officer was directed to verify whether the disputed purchases had already been reflected in the profit and loss account and, if so, to recompute income accordingly; otherwise, the addition as sustained by the appellate authority would continue. The relief was therefore limited to the extent of the 5% estimate, subject to verification of the accounting treatment.

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Issues: Whether the addition on account of alleged bogus purchases was liable to be restricted from 12.5% to 5% by estimating gross profit on the disputed purchases.

Analysis: The appeal concerned addition made on alleged bogus purchases. In view of the facts that the assessee was engaged in the ferrous articles business and comparable tribunal decisions in similar trade had upheld a lower addition, the addition was restricted by estimating gross profit at 5% instead of 12.5%. The Assessing Officer was directed to verify whether the purchases had already been reflected in the profit and loss account, and if so, to recompute income accordingly; otherwise, the addition as sustained by the appellate authority would remain.

Conclusion: The addition was directed to be reduced to 5% of the alleged bogus purchases, subject to verification, and the assessee succeeded to that extent.

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