Documentary proof, asset use and fund nexus determine section 68 additions, depreciation claims and interest disallowance.

Documentary evidence including purchase bills, contract notes, demat entries, balance-sheet disclosures and bank receipts can establish the genuineness of share-sale transactions, and an addition under section 68 is not sustainable where adverse third-party material is not confronted to the assessee and no opportunity of rebuttal is given. Depreciation on plant and machinery is allowable when the assets are shown to have been put to use during the year, supported by acquisition records, prior capitalization disclosures and business activity. Interest on borrowed funds is not disallowable where the balance sheet shows substantial own funds and no direct nexus is proved between borrowings and investments.

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Issues: (i) whether the addition of share-sale receipts as unexplained cash credit under section 68 was justified in view of the materials produced by the assessee and the stock exchange information; (ii) whether depreciation on plant and machinery was allowable for the year in which the assets were claimed to have been put to use; and (iii) whether interest on borrowed funds was disallowable for want of nexus with investments.

Issue (i): whether the addition of share-sale receipts as unexplained cash credit under section 68 was justified in view of the materials produced by the assessee and the stock exchange information.

Analysis: The assessee supported the share transactions with purchase bills, contract notes, demat account entries, balance-sheet disclosures, sale contract notes, and bank entries showing receipt of sale proceeds. The adverse material from the stock exchange was not confronted to the assessee before use in assessment, and no fair opportunity of rebuttal or cross-examination was afforded. The evidentiary chain from purchase to demat credit to sale and banking records was accepted as sufficient, while the exchange discrepancy was treated as insufficient by itself to displace the contemporaneous records.

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

Issue (ii): whether depreciation on plant and machinery was allowable for the year in which the assets were claimed to have been put to use.

Analysis: The assessee produced bills for acquisition of plant and machinery, earlier balance-sheet disclosures showing capitalization of the assets, and evidence of increased job-work receipts in the relevant year. On this material, the assets were found to have been used for business during the year, which satisfied the requirement for allowance of depreciation.

Conclusion: Depreciation was allowable and the disallowance was correctly deleted.

Issue (iii): whether interest on borrowed funds was disallowable for want of nexus with investments.

Analysis: The balance sheet showed substantial own funds compared with borrowings, and no direct nexus was established between the borrowed funds and the investments in question. On the available material, the interest was treated as business expenditure and not as expenditure identifiable with the investments.

Conclusion: The interest disallowance was not justified and was correctly deleted.

Final Conclusion: The Revenue failed to show any infirmity in the appellate reliefs granted on all three issues, and the additions/disallowances were left undisturbed in favour of the assessee.

Ratio Decidendi: Documentary evidence such as contract notes, demat records, balance-sheet entries, and bank receipts can establish the genuineness of share transactions and, where adverse third-party material is not confronted, an addition under section 68 cannot be sustained merely on discrepancy in exchange records; depreciation and interest claims must be tested on actual use of assets and the presence or absence of a direct nexus with borrowed funds.

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