Bogus purchases limited to profit element where sales and supporting records were accepted; full disallowance deleted.

Alleged bogus purchases from accommodation entry providers were not sustained in full where sales were accepted and the assessee produced purchase records, stock details, delivery challans and banking evidence. As the supplier genuineness was not conclusively established but actual purchases could not be rejected outright, the tribunal held that grey market purchases were possible and only the profit element embedded in the purchases was taxable. The addition was therefore restricted to 10% of the alleged bogus purchases and the balance disallowance was deleted, granting partial relief to the assessee.

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Issues: Whether the disallowance on account of alleged bogus purchases from accommodation entry providers should be sustained in full or restricted to the profit element embedded in such purchases.

Analysis: The purchases were traced to entities found to be non-genuine accommodation entry providers, but the corresponding sales were not disputed and the assessee had produced purchase and sales records, stock details, delivery challans and banking evidence. On the factual matrix, it was not possible to accept that no purchases were made at all, though the genuineness of the suppliers was not conclusively established. In such circumstances, the possibility of grey market purchases could not be ruled out and only the profit element embedded in the purchases was liable to taxation.

Conclusion: The addition was restricted to 10% of the alleged bogus purchases and the balance disallowance was deleted, thereby granting partial relief to the assessee.

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