Unverifiable purchases: disallowance confined to profit element where corresponding sales are accepted, with 5% upheld.

Where purchases are found unverifiable but the corresponding sales are accepted, the addition is confined to the profit element embedded in the disputed purchases rather than the full purchase value. On the facts, the Tribunal accepted that the assessee's sales stood verified and that the first appellate authority's estimate of disallowance at 5% was consistent with the record, making the Assessing Officer's 15% ad hoc addition excessive. The Revenue's challenge was therefore rejected and the restricted disallowance was upheld.

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Issues: Whether the disallowance of alleged bogus purchases was required to be sustained at 15% or restricted to 5% where the corresponding sales were accepted and the purchases were found unverifiable.

Analysis: The assessee's purchases from the concerned supplier were not fully verifiable, and the Assessing Officer estimated the addition at 15% of such purchases. The first appellate authority found that the sales corresponding to those purchases had been accepted and that an ad hoc disallowance at the rate applied by the Assessing Officer was excessive in the facts of the case. The Tribunal noted that the dispute concerned only the extent of disallowance, that the corresponding sales stood accepted, and that the rate adopted by the first appellate authority was consistent with the factual matrix.

Conclusion: The restriction of the disallowance to 5% was upheld and the Revenue's challenge to the same was rejected.

Final Conclusion: The appeal failed as no interference was called for with the first appellate authority's estimation of the disallowance at 5% of the impugned purchases.

Ratio Decidendi: Where sales corresponding to disputed purchases are accepted, the addition in respect of unverifiable purchases may be confined to the profit element and not the entire purchase amount, with the extent of disallowance determined on the facts of the case.

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