Depreciation on leased assets upheld where contemporaneous documents proved genuine lease transactions despite witness issues.

Depreciation on leased assets cannot be disallowed merely on suspicion or for want of one witness when contemporaneous documents establish genuineness of the transaction. In the LPG cylinder lease, invoices, ledger entries, lease records, and related default action supported the arrangement, while the manufacturer's denial was not decisive and the Revenue's witness statement carried little weight without effective cross-examination. In the Airjet Spindle Assembly and Positar Disc lease, correspondence, insurance, account entries, security arrangements, and default follow-up likewise supported the claim. The Revenue failed to prove the leases were bogus, so the depreciation claims were upheld.

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Issues: (i) Whether depreciation claimed on leased LPG cylinders was liable to be disallowed as a sham or colourable device; (ii) Whether depreciation claimed on leased Airjet Spindle Assembly and Positar Disc was liable to be disallowed for want of proof of purchase and lease.

Issue (i): Whether depreciation claimed on leased LPG cylinders was liable to be disallowed as a sham or colourable device.

Analysis: The documentary record showed that the parallel marketeer had authorised the manufacturer to sell the cylinders and raise invoices in the assessee's name, and that lease arrangements and related records supported the transaction. The denial by the manufacturer was not treated as decisive in the face of the invoice, ledger entries, resolution, lease agreement, and consequential action taken on default. The statement relied upon by the Revenue was also found to have little evidentiary value because the assessee had not been given effective cross-examination of the witness.

Conclusion: The disallowance of depreciation on LPG cylinders was not justified and the assessee succeeded on this issue.

Issue (ii): Whether depreciation claimed on leased Airjet Spindle Assembly and Positar Disc was liable to be disallowed for want of proof of purchase and lease.

Analysis: The assessee produced material showing the transaction, including correspondence acknowledging the sale, lease documents, insurance in the assessee's name, account entries, security arrangements, and follow-up action for default. The inability of the Revenue to secure the director's presence was not enough to negate the transaction when the surrounding evidence established genuineness. The Assessing Officer's inference of non-existence of the seller was therefore not supported by the record.

Conclusion: The disallowance of depreciation on the Airjet Spindle Assembly and Positar Disc was not sustainable and the assessee succeeded on this issue.

Final Conclusion: The Revenue failed to establish that the lease transactions were bogus, and the order allowing the assessee's depreciation claims was upheld.

Ratio Decidendi: A depreciation claim on leased assets cannot be disallowed merely on suspicion or non-production of a witness when contemporaneous documentary evidence otherwise establishes the genuineness of the transaction and ownership or lease arrangements.

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