Bogus purchases and accommodation entries: profit element addition restricted to 6% where sales were accepted and banking channels used.

Where alleged bogus purchases and accommodation entries were found on the purchase side, the ITAT Delhi sustained only a profit-element addition rather than the full amount. The assessee's cable trading sales were not found infirm, and the purchases and sales were routed through banking channels. On that factual matrix, the appellate authority treated the issue as purchase inflation affecting profitability and estimated suppressed profit at 6% of the disputed purchases. The Revenue's challenge to that restriction was rejected, and the 6% addition was upheld.

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Issues: Whether the addition made on account of alleged bogus purchases and accommodation entries was liable to be restricted to 6% of the disputed purchases.

Analysis: The assessee was engaged in trading of cables, and the Assessing Officer treated the purchase side as unreliable and made an addition under section 69C of the Income-tax Act, 1961 on account of alleged unexplained purchases. The appellate authority noticed that the sales were not found infirm and that the purchases and sales were routed through banking channels. On the factual matrix, the appellate authority treated the purchase inflation as having affected the profit element rather than warranting the entire addition, and estimated the suppressed profit at 6% of the disputed amount.

Conclusion: The restriction of the addition to 6% was upheld and the Revenue's challenge was rejected.

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