Bogus purchase additions limited to profit element; full purchase value cannot be taxed as income.

In bogus purchase cases involving an accommodation entry provider, the taxable addition is confined to the profit element embedded in the purchases rather than the full purchase value. The addition may be estimated by reference to the assessee's normal profit rate, with reasonable adjustment for the facts. Applying that settled approach, the entire purchase amount could not be treated as income, and only the embedded profit element was added to income. The matter was decided in favour of the assessee to that extent.

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Issues: Whether, in respect of bogus purchases from an accommodation entry provider, the entire purchase amount could be added to income or only the profit element embedded in such purchases was taxable.

Analysis: The reassessment was made on account of purchases from an entity found to be part of an accommodation entry group. The appellate record reflected a consistent line of authority that in cases of bogus purchases, the taxable addition is ordinarily confined to the profit element embedded in the purchases and not the full purchase value. Applying that approach, the addition was held to be capable of reasonable estimation by reference to the assessee's normal profit rate, with a modest upward adjustment.

Conclusion: The entire purchase value could not be added as income; only the profit element embedded in the impugned purchases was to be estimated, and the matter was decided in favour of the assessee to that extent.

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