Profit element in accommodation purchases limited to an estimated percentage, not full disallowance; apply an 8% estimate.

Where purchases were alleged to be accommodation entries but corresponding sales were accepted as genuine, the Tribunal applied the principle that only the profit element embedded in such purchases is taxable rather than treating entire purchases as bogus; the assessee's failure to produce confirming parties affected evidentiary weight but did not justify 100% enhancement. The Tribunal therefore directed the Assessing Officer to estimate the taxable profit element and restricted disallowance to an 8% profit estimate for computation of income, balancing the trader nature of the business and totality of facts.

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Issues: Whether the purchases treated as non-genuine can be entirely disallowed by enhancing purchases to 100% and, if not, what is the appropriate method and extent of estimating the disallowance/profit element from such purchases.

Analysis: The Tribunal examined the authorities below and relevant principles applicable where purchases are alleged to be accommodation entries but sales from those purchases have been accepted as genuine. The Tribunal referred to precedents recognising that where purchased goods are sold as finished goods, the entire purchase amount need not be taxed; only the profit element embedded in such purchases is taxable. The assessee failed to produce confirming parties making full verification impossible; however, acceptance of sales as genuine prevents treating the entire purchases as bogus. Considering the nature of the assessee's business as a trader in ferrous and non-ferrous metals and the totality of facts, the Tribunal determined that a reasonable estimate of the profit element should be made rather than a 100% disallowance.

Conclusion: The appeal is partly allowed and the Assessing Officer is directed to estimate the profit element embedded in the disputed purchases at 8% and restrict the disallowance to that 8% for computation of income.

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