Bogus purchase reversals need book verification; unsupported labour charges can justify a reasonable partial disallowance.

Alleged bogus purchases required fresh verification because the assessee claimed the disputed amount had been reversed and was not debited as expenditure; if that factual position is confirmed from the books and supplier records, no disallowance can survive. The labour charge claim was upheld as partly disallowed because the assessee produced only ledger extracts and cash vouchers, without muster rolls, attendance records, wage sheets, identity proof, bank evidence, or other independent corroboration. On that material, the 50% restriction was treated as a reasonable estimate. The matter therefore resulted in partial relief only on the purchase issue, while the labour charge disallowance was sustained.

---

---

Issues: (i) Whether the addition made towards alleged bogus purchases was sustainable or required fresh verification on the footing that the disputed amount had been reversed and was not claimed as a deduction; (ii) Whether the disallowance of 50% of labour charges was justified for want of reliable supporting evidence.

Issue (i): Whether the addition made towards alleged bogus purchases was sustainable or required fresh verification on the footing that the disputed amount had been reversed and was not claimed as a deduction?

Analysis: The assessee claimed that a substantial part of the purchase entries had been reversed after non-supply of goods and that the amount was not debited as expenditure in the profit and loss account. The authorities below had not examined this factual assertion from the correct perspective. At the same time, the surrounding conduct of the assessee created doubt regarding the genuineness of the transactions. The Tribunal held that if the amount was in fact not claimed as a deduction, no disallowance could survive, but the factual position required verification from the books and supporting records. The matter therefore called for a fresh examination by the Assessing Officer of the purchase entries, reversals, and confirmations of the suppliers.

Conclusion: The addition on account of alleged bogus purchases was set aside for fresh verification, with directions to determine whether the disputed amount had actually been claimed as a deduction. This issue was partly in favour of the assessee.

Issue (ii): Whether the disallowance of 50% of labour charges was justified for want of reliable supporting evidence?

Analysis: The assessee produced only ledger extracts and cash vouchers, but no muster rolls, attendance records, wage sheets, identity proof of labourers, bank records, or other independent corroboration. In the absence of credible material to establish the genuineness of a substantial cash expenditure, the Tribunal found the claim unverifiable. The estimate made by the Assessing Officer, restricting the disallowance to 50% instead of rejecting the entire claim, was considered reasonable and supported by the record.

Conclusion: The disallowance of labour charges was upheld. This issue was against the assessee.

Final Conclusion: The appeal succeeded only to the extent that the purchase addition was remitted for reconsideration, while the labour charge disallowance was sustained. The matter was thus disposed of with partial relief to the assessee.

---