Bogus purchase additions confined to profit element where supporting records exist and sales are accepted.

Where alleged bogus purchases are supported by invoices, bank records, stock registers and delivery challans, and the sales are not disputed, the entire purchase value should not be disallowed merely on general Sales Tax information or non-production of suppliers. If the books are not rejected and no specific defect or case-specific enquiry discredits the documentation, the tax addition is confined to the profit element, if any, embedded in the disputed purchases. The Tribunal therefore treated the issue as one of differential gross profit on the purchases rather than full disallowance.

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Issues: Whether the addition made on account of alleged bogus purchases deserved full disallowance or was to be restricted to the profit element embedded in such purchases.

Analysis: The assessee had furnished invoices, bank statements, stock register, delivery challans and other corroborative material, and the sales were not doubted. The books of account were not rejected. The addition was based substantially on general information from the Sales Tax Department and non-production of the alleged suppliers, but no specific defect in the documentary evidence or case-specific enquiry discrediting the purchases was demonstrated. In these circumstances, the Tribunal held that the proper course was not to tax the entire purchase value. Relying on the principle that only the profit embedded in non-genuine purchases can be brought to tax, the Tribunal directed computation of the differential gross profit, if any, attributable to the disputed purchases.

Conclusion: The full addition was not sustained; the matter was confined to the profit element, if any, in the alleged bogus purchases, resulting in partial relief to the assessee.

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