Bogus purchase additions confined to profit estimate where sales were accepted and trading activity was established.

Where sales are accepted and only the purchases are found to be accommodation entries, the income addition may be confined to a reasonable profit estimate rather than the full purchase amount. On the facts of a scrap trading business with regular trading activity, complete disallowance of the disputed purchases was not justified. The first appellate authority's estimate of 2% of the alleged bogus purchases as gross profit was held to be a reasonable approach on the material available, and the Revenue's challenge to that restricted addition failed.

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Issues: Whether the addition on account of alleged bogus purchases was rightly restricted to 2% of the purchase value instead of sustaining the entire disallowance made by the Assessing Officer.

Analysis: The assessee's sales were accepted and were not disturbed, while the purchases were treated as bogus on the basis of material indicating accommodation entries. In such circumstances, the complete disallowance of purchases was not considered justified, particularly when the assessee was engaged in scrap and the facts showed regular trading activity. The estimation made by the first appellate authority at 2% of the alleged bogus purchases as gross profit was found to be a reasonable approach on the material available.

Conclusion: The restriction of the addition to 2% of the alleged bogus purchases was upheld and the Revenue's challenge was rejected.

Final Conclusion: The appellate order sustaining only an estimated addition on the disputed purchases remained undisturbed, and the Revenue's appeal failed.

Ratio Decidendi: Where sales are accepted and only purchases are found to be from accommodation entries, the income addition may be confined to a reasonable profit estimation rather than the full purchase amount.

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