Addition under section 69C limited to the embedded profit element where supplier confirmations and bank payments establish genuineness.

Addition under section 69C was confined to the embedded profit element where the taxpayer produced supplier confirmations, responded to section 133(6) notices, paid through account payee banking channels and participated in reassessment proceedings; sales declared were undisputed. Applying evidentiary scrutiny, the factual matrix and source verification made treating entire purchases as unexplained inappropriate, so the assessing officer's full disallowance was reduced and the addition limited to 7% of disputed purchases with the balance deleted.

---

---

Issues: Whether the addition under section 69C of the Income-tax Act, 1961 on account of alleged bogus purchases should be restricted to the profit element (7% gross profit) or the entire purchases should be treated as unexplained and disallowed.

Analysis: The reassessment was initiated under section 147/148 of the Income-tax Act, 1961 on information that the taxpayer was a beneficiary of accommodation-entry transactions. The assessing officer treated the entire purchases as non-genuine and made additions under section 69C. Documents and confirmations from the supplier were produced and notices under section 133(6) were responded to; payments were through account-payee banking channels and the taxpayer participated in the reassessment proceedings. The assessing officer did not dispute sales declared by the taxpayer. The adjudicative authorities examined the factual matrix distinguishing cases where suppliers did not respond or the taxpayer failed to appear. In the present facts, party verification and source of payment were on record, and the calculation of additional gross profit margin was available for disputed purchases. Weighing the evidentiary position and the absence of dispute on sales, a reasonable disallowance limited to the embedded profit element was found appropriate.

Conclusion: The addition under section 69C is restricted to 7% of the disputed purchases (the profit element) and the balance addition is to be deleted; appeals filed by both parties are dismissed accordingly.

---