Bogus purchase additions may be restricted to profit element where corresponding sales are accepted and full disallowance is unwarranted.

Where purchases were treated as non-genuine but the corresponding sales were accepted, the addition was confined to a reasonable profit element rather than the full purchase value. The assessee had not substantiated the purchases and had not complied with notices, so the Assessing Officer proceeded on best judgment basis using Sales Tax Department information. In appeal, the sales side was found undisputed and complete disallowance of purchases was held unwarranted; the addition was estimated at 15% of the impugned purchases. The Tribunal found no infirmity in that estimate and sustained it.

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Issues: Whether the addition on account of alleged bogus purchases was required to be sustained in full or could be restricted to a reasonable profit element where the corresponding sales were not doubted and the assessee had not substantiated the purchases.

Analysis: The assessee had failed to comply with notices and had not furnished supporting material before the Assessing Officer, who therefore proceeded on the basis of the information received from the Sales Tax Department and invoked best judgment assessment. In first appeal, it was found that the corresponding sales were not disputed and that complete disallowance of the purchases was not justified. The addition was therefore estimated at 15% of the impugned purchases as profit element, having regard to the gross profit shown and the nature of the material on record. The Tribunal found no reason to interfere with that estimate, noting that the Revenue had not shown any infirmity in the approach adopted and that the sales side had not been disturbed.

Conclusion: The restriction of the addition to 15% of the alleged bogus purchases was sustained and the Revenue's challenge failed.

Ratio Decidendi: Where purchases are treated as nongenuine but the corresponding sales are accepted, the addition is confined to a reasonable estimation of the profit element and not the entire purchase value.

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