Bogus purchase additions restricted to profit element after applying past net profit trend and adjusting the purchase profit rate.

Bogus purchase additions were restricted by estimating only the profit element embedded in the corresponding sales, rather than sustaining a full disallowance. The first appellate authority relied on the assessee's past net profit trend and enhanced the net profit rate on the impugned purchases to 2.5% from 1.89%, after noting that tax had already been suffered on the related sales. On scrutiny of the record, no infirmity was found in that approach, and the restriction of the addition was upheld.

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Issues: Whether the restriction of the addition on account of bogus purchases by estimating the net profit rate at 2.5% was justified.

Analysis: The assessment had treated the purchases as bogus and made a full addition, but the first appellate authority found that the assessee had already suffered tax on the profit element embedded in the corresponding sales. The appellate authority therefore estimated the profit element by considering the past net profit trend and enhanced the net profit rate on the impugned purchases to 2.5% from 1.89%. On scrutiny of the record, no infirmity was found in that approach.

Conclusion: The restriction of the addition was upheld and the Revenue's challenge failed.

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