Bogus purchases: tax treatment depends on genuineness-either add embedded profit margin or treat full amount as income.
The article distinguishes Bogus Purchases-entirely fictitious bills procured from bill providers and used to inflate purchases-from Untested Purchases-genuine acquisitions from the grey market supported by vouchers. It explains that tax authorities, using GST and other information, may either add the full amount where purchases are found nonexistent or confine adjustments to the embedded profit element or an enhanced gross profit rate where sales and books are otherwise accepted. Judicial trends favour independent inquiry, documentary corroboration and opportunity for cross examination before sustaining broad additions. (AI Summary)