Bogus purchase additions fail where primary evidence is unrebutted and revenue relies only on third-party material.

Primary evidence supported the assessee's purchases, including invoices, banking records, loan documents, insurance papers, work orders and completion certificates, while the revenue relied only on third-party information. The assessee also showed that the assets were used in business and that the related sales or project execution were not disputed. In these circumstances, and where no independent verification was made from suppliers or recipient authorities and no defect was identified in the documents produced, the purchases could not be treated as bogus. The consequential invocation of section 115BBE was therefore not sustainable, and the additions were deleted.

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Issues: Whether the additions made on account of alleged bogus purchases and the consequential invocation of section 115BBE of the Income-tax Act, 1961 were sustainable where the assessee produced invoices, banking records, loan documents, insurance records, work orders and completion certificates, and the sales or execution of work were not doubted.

Analysis: The assessee had furnished material showing that the disputed acquisitions were capital assets used in its business and that the payments were supported by banking channels, loan documentation and insurance coverage after physical verification. For the later assessment year, the assessee also produced work orders, installation particulars and completion certificates showing that the goods were used in execution of government projects. The additions were made only on the basis of third-party investigation material, without any independent verification from the suppliers or the recipient authorities and without pointing out defects in the documents produced by the assessee. The surrounding facts, including the absence of any dispute regarding the underlying sales or project execution, negatived the inference that the transactions were sham purchases.

Conclusion: The additions on account of alleged bogus purchases were unsustainable and were deleted, with the consequence that the assessee succeeded on the disputed issues.

Ratio Decidendi: Where an assessee substantiates purchases by primary evidence and the revenue fails to conduct independent inquiry or rebut the evidence, the purchases cannot be treated as bogus merely on the basis of third-party information or suspicion, particularly when the corresponding business transactions are otherwise supported by record.

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