Bogus purchase additions limited to profit element where sales were accepted and purchases were book entries through banking channels.

Where sales corresponding to the disputed purchases were accepted, no stock shortage was found, and the purchases were recorded in the books and paid through banking channels, the entire amount of alleged bogus purchases could not be added merely because the suppliers were suspected accommodation entities. The proper tax treatment was limited to the profit element embedded in the purchases. On the facts, the parties accepted 8% of the alleged purchase value as a reasonable estimate, and the addition was restricted accordingly.

---

---

Issues: Whether the entire addition made on account of alleged bogus purchases was sustainable, or only the profit element embedded in such purchases was liable to be brought to tax.

Analysis: The assessee was a trader and had disclosed corresponding sales against the purchases in question. The sales were not doubted, no stock shortage was found, and the purchases were recorded in the books and made through banking channels. In such circumstances, the entire purchase amount could not be added merely because the suppliers were suspected to be accommodation entities. The appropriate course was to tax only the profit element embedded in the impugned purchases. On the facts, both sides accepted that an estimate of 8% of the alleged purchases would be reasonable.

Conclusion: The addition was restricted to 8% of the alleged bogus purchase amount, and the assessee succeeded partly.

---