True cost of depreciable assets may be examined beyond purchase papers where valuation appears inflated or unsupported.

For depreciation, the original cost of an asset is a question of fact, and tax authorities may look beyond purchase documents and balance-sheet figures where the stated price appears fictitious, inflated, or unsupported by reliable vouchers or particulars. Documentary recitals are only prima facie evidence, so surrounding circumstances may justify ascertainment of the true cost. On the facts, control by the vendor, unreliable books, missing vouchers, and inability to link expenditure items to acquisition or erection supported scrutiny of the real cost. However, a reduction of the machinery cost merely because vouchers were absent was not justified where the machinery existed in the assessee's possession.

---

---

Issues: Whether the Income-tax Officer was competent to go behind the purchase documents and balance-sheet figures to determine the true cost of the assets for depreciation purposes, and whether the assessee was entitled to retain the full book value claimed for depreciation.

Analysis: The determination of the original cost of an asset is a question of fact, and documentary recitals of price are only prima facie evidence. Where the surrounding circumstances show that the stated price is fictitious, inflated, or unsupported by reliable vouchers or particulars, the income-tax authorities are entitled to disregard the stated figure and ascertain the real cost. On the facts, the vendor's control over the assessee, the unreliable state of the vendor's books, the missing vouchers, and the inability to correlate several expenditure items with the acquisition or erection of the assets justified the authorities in examining the true cost. At the same time, the reduction of the item of Rs. 1,08,891 for machinery solely on the footing of missing vouchers was not justified, because the item represented existing machinery in the assessee's possession and absence of vouchers did not by itself prove inflation or non-existence.

Conclusion: The Income-tax Officer was competent to determine the true cost of the assets for depreciation and to reject inflated or unsupported items, but the particular reduction of Rs. 1,08,891 from the machinery cost was not warranted.

Final Conclusion: The reference was answered in favour of the revenue on the main legal question, with a limited correction in the computation of depreciable cost.

Ratio Decidendi: For depreciation, the original cost of an asset to the assessee is a question of fact, and the revenue may disregard the stated purchase price and ascertain the true cost where the circumstances show a fictitious or inflated valuation.

---