Broken period interest and leased-asset depreciation allowed; adverse search material required cross-examination before disallowance.

Broken period interest paid on purchase of securities was treated as allowable revenue expenditure, following the assessee's own prior-year decision, and the disallowance was deleted. Depreciation on leased assets was also allowed on the settled principle that a genuine lessor may be regarded as owner for section 32 purposes when the assets are used in business. However, where the Rajendra Steels disallowance rested solely on a search statement, the Tribunal required cross-examination of the adverse material and remitted that limited issue for reconsideration.

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Issues: (i) whether broken period interest paid on purchase of securities was allowable as revenue expenditure; (ii) whether depreciation on leased assets was allowable, including the effect of the statement recorded in the Rajendra Steels transaction without cross-examination.

Issue (i): whether broken period interest paid on purchase of securities was allowable as revenue expenditure

Analysis: The Tribunal noted that the identical question had already been decided in the assessee's own case for the immediately preceding assessment year. Following that co-ordinate bench decision, it accepted the claim that the amount paid towards broken period interest formed allowable expenditure and directed deletion of the disallowance.

Conclusion: Broken period interest was held allowable and the disallowance was deleted in favour of the assessee.

Issue (ii): whether depreciation on leased assets was allowable, including the effect of the statement recorded in the Rajendra Steels transaction without cross-examination

Analysis: The Tribunal applied the settled principle that depreciation under section 32 depends on ownership and use in the course of business, and followed the existing judicial view that a lessor can be treated as owner for depreciation purposes where the lease transaction is genuine. It therefore allowed depreciation on the leased assets generally. As regards the Rajendra Steels transaction, the disallowance rested solely on a statement recorded during search, and no opportunity of cross-examination had been afforded. The Tribunal held that when adverse material is relied upon as the basis of disallowance, the assessee must be allowed to test that material by cross-examination.

Conclusion: Depreciation on leased assets was allowed in general, while the Rajendra Steels matter was restored for cross-examination and reconsideration, in part favour of the assessee.

Final Conclusion: The appeals succeeded substantially on the core claims, with relief granted on broken period interest and most of the depreciation claim, while the limited Rajendra Steels issue was remitted for fresh adjudication.

Ratio Decidendi: A lessor is entitled to depreciation where ownership and business use are established, and adverse material forming the sole basis of disallowance cannot be acted upon without affording cross-examination to the assessee.

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