Bogus purchase additions limited to profit element where grey-market sourcing and accommodation bills were evidenced

ITAT Mumbai applied the settled bogus purchase approach by treating only the profit element as taxable where purchases were recorded in the books but sourced from the open or grey market through accommodation bills. On that factual basis, the appellate estimate of addition at 12.5% of the alleged bogus purchases was sustained because it reflected the embedded profit rather than the entire purchase value. The Revenue's challenge failed, and the restricted addition was upheld.

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Issues: Whether the addition on account of alleged bogus purchases was to be restricted to 12.5% of the purchases.

Analysis: The purchases were found to have been recorded in the books, but the material indicated procurement from the open or grey market with bills obtained from accommodation providers to regularise the transactions. The appellate finding estimating only the profit element at 12.5% was supported by the cited judicial approach adopted in similar bogus purchase cases.

Conclusion: The restriction of the addition to 12.5% of the alleged bogus purchases was upheld, and the Revenue's challenge failed.

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