Section 68, market value under 80-IA, and depreciation rules hinge on substance, confrontation, and ready-for-use evidence.

Section 68 additions based on third-party material not confronted to the assessee cannot be sustained, and section 80-IA(8) market value is the price reflecting an open-market transaction rather than a regulated supply rate. Aircraft-trip expenditure is allowable under section 37(1) only to the extent it is linked to business purpose, with non-business travel disallowed and relief-related travel treated as potentially business-connected. Depreciation is allowable on hydraulic excavators where the asset is ready for use or put to passive use, and depreciation on turbines follows the assessee's accepted method where the issue has already been decided in its favour for an earlier year.

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Issues: (i) Whether the addition made under section 68 on account of variation in deposits received from public depositors was sustainable when the material gathered by the Assessing Officer was not confronted to the assessee; (ii) Whether, for the purpose of section 80-IA(8), the price charged by the State Electricity Board or the rate charged by the assessee from industrial consumers represented the market value of electricity transferred for captive consumption; (iii) Whether expenditure on aircraft trips, including trips claimed for business promotion and relief work, was allowable under section 37(1); (iv) Whether depreciation on hydraulic excavators was allowable when the machinery was ready for use and supported by evidence of use or readiness for use; (v) Whether depreciation on turbines was to be allowed on the written down value basis or on the straight line method.

Issue (i): Whether the addition made under section 68 on account of variation in deposits received from public depositors was sustainable when the material gathered by the Assessing Officer was not confronted to the assessee.

Analysis: The addition was based on inquiries and material collected at the back of the assessee. The finding of the first appellate authority that the result of those inquiries was never confronted was not effectively disputed. Material not put to the assessee for rebuttal cannot form the sole basis of an addition.

Conclusion: The addition under section 68 was not sustainable and was rightly deleted.

Issue (ii): Whether, for the purpose of section 80-IA(8), the price charged by the State Electricity Board or the rate charged by the assessee from industrial consumers represented the market value of electricity transferred for captive consumption.

Analysis: Market value under section 80-IA(8) means the price that the goods would ordinarily fetch in the open market. The price fixed under a statutory and regulated supply arrangement with the Board was not a price arrived at in a free competitive market between a willing buyer and willing seller. By contrast, the rate at which industrial consumers procured power from the Board reflected the open-market value more closely. The transfer price recorded by the assessee for captive consumption was therefore in line with market value.

Conclusion: The assessee's transfer price was accepted and the deduction under section 80-IA was directed to be allowed as claimed.

Issue (iii): Whether expenditure on aircraft trips, including trips claimed for business promotion and relief work, was allowable under section 37(1).

Analysis: Some trips lacked any stated business purpose and disallowance to that extent was justified. For the remaining trips, the stated purposes were business-related. Trips undertaken for earthquake relief were treated as expenditure incurred in discharge of social obligation and were held allowable on the reasoning that such expenditure can satisfy the test of business incidence where it is connected with the assessee's commercial environment and obligations.

Conclusion: The disallowance was reduced and the matter was remitted for recomputation in accordance with the above findings.

Issue (iv): Whether depreciation on hydraulic excavators was allowable when the machinery was ready for use and supported by evidence of use or readiness for use.

Analysis: An excavator is a machine ready to be put to use like a vehicle, and depreciation can be allowed where the asset is kept ready for use or has been put to passive use. The assessee's records showed delivery and entry into premises within the relevant year, supporting the claim.

Conclusion: Depreciation on the hydraulic excavators was allowable.

Issue (v): Whether depreciation on turbines was to be allowed on the written down value basis or on the straight line method.

Analysis: The point was covered by the assessee's own case for the earlier assessment year, which had accepted the assessee's method of depreciation.

Conclusion: The assessee's method was accepted and depreciation was to be allowed accordingly.

Final Conclusion: The Revenue's appeal failed, while the assessee obtained substantial relief on the main depreciation and deduction issues, with only a limited disallowance on aircraft expenditure surviving for recomputation.

Ratio Decidendi: Where statutory deductions or depreciation claims turn on market value, business use, or availability for use, the controlling test is the substance of the transaction and the legal standard expressly applied by the statute, not a regulated or compelled price fixed outside an open competitive market.

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