Bogus purchase additions must be limited to embedded profit where accepted sales and stock records establish actual goods movement.

Where sales are undisputed and authenticated stock records establish corresponding movement of goods, non-genuine suppliers alone do not justify treating the entire purchase value as income. The records, prepared from primary purchase and sale invoices, showed no variation between purchases and sales, and no disproportionate sales were identified. As tax applies to income or profit rather than gross purchase receipts, only the profit embedded in alleged bogus purchases may be assessed. The article states that the full addition was unsustainable and that profit at 1.15% of the purchase value was treated as income.

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Issues: Whether the entire value of purchases treated as bogus could be added as income where the corresponding sales were undisputed and stock records evidenced movement of goods.

Analysis: The additional stock records were admitted, as they were authenticated and prepared from primary purchase and sale invoices. The records showed no variation between purchases and sales. Since the sales were accepted and no disproportionate sales were identified, the goods sold could not be treated as representing nonexistent purchases merely because the stated suppliers were found to be non-genuine. Tax is chargeable on income or profit and not on gross purchase receipts; accordingly, only the profit embedded in such purchases was liable to be assessed.

Conclusion: The addition of the entire alleged bogus-purchase value was unsustainable. Only profit at 1.15% of that value, amounting to Rs. 2,56,437, was directed to be treated as income, in favour of the assessee.

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