Bogus purchase additions and reassessment: profit element estimation upheld, and reopening sustained without section 153C proceedings.

Where alleged bogus purchases were supported by accepted turnover, unchallenged sales, banking-channel payments and documentary material, and the books were not rejected under section 145(3), only the embedded profit element could be estimated; the addition was sustained at 3.5% of the disputed purchases. Reopening under sections 148A and 147 was also upheld because it was based on information, post-search enquiries and the supplier's statement, and the record did not show direct reliance on incriminating seized material requiring proceedings under section 153C instead. The assessee failed on both issues, and the connected appeals and cross-objections were dismissed.

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Issues: (i) Whether the addition on alleged bogus purchases was liable to be restricted to the estimated profit element at 3.5% instead of disallowing the entire purchase amount; (ii) Whether the reopening of assessment under sections 148A and 147 was invalid and whether section 153C was the proper course.

Issue (i): Whether the addition on alleged bogus purchases was liable to be restricted to the estimated profit element at 3.5% instead of disallowing the entire purchase amount.

Analysis: The disputed purchases were examined in the context of accepted turnover, unchallenged sales, banking-channel payments, documentary material supporting the transactions, and the fact that the books of account were not rejected under section 145(3) of the Income-tax Act, 1961. The estimation of only the profit element was also supported by the factual finding that the material was used in execution of civil construction and infrastructure projects and that the surrounding circumstances did not justify a full disallowance of the purchase value.

Conclusion: The restriction of the addition to 3.5% of the disputed purchases was upheld and the assessee did not succeed on this issue.

Issue (ii): Whether the reopening of assessment under sections 148A and 147 was invalid and whether section 153C was the proper course.

Analysis: The reopening was found to be based on information and post-search enquiries, along with the statement of the supplier, and the procedure under section 148A was held to have been followed. The record did not show that the reassessment was founded directly on incriminating material seized in a third-party search so as to require invocation of section 153C instead of section 147.

Conclusion: The challenge to reopening failed and the assessee did not succeed on this issue.

Final Conclusion: The additions restricted to estimated profit were sustained, the reassessment was upheld, and all connected appeals and cross-objections were dismissed.

Ratio Decidendi: In cases of alleged accommodation purchases, where sales are accepted, books are not rejected, and the surrounding material supports the transactions, only the embedded profit element may be estimated; a reassessment founded on post-search information and enquiries, rather than direct seized material, is not invalid for want of section 153C proceedings.

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