Unexplained expenditure on fixed asset purchase cannot be disallowed in full when depreciation is the only claimed benefit.

Where machinery was acquired as a fixed asset and supported by invoice, bank payment details and photographs, the entire purchase cost could not be treated as unexplained expenditure merely because the supplier was suspected to be non-genuine. The assessee had not claimed the purchase price as a revenue deduction, only depreciation on the asset, so disallowing both the capital cost and depreciation was not sustainable. The addition under section 69C and the related depreciation disallowance were therefore deleted, with relief granted to the assessee in respect of the disputed machinery purchase.

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Issues: Whether the addition made as unexplained expenditure in respect of the purchase of a machinery from a suspected non-genuine supplier, and the corresponding disallowance of depreciation on the machinery, were sustainable.

Analysis: The machinery was treated as a fixed asset and not as a trading expenditure. The assessee had produced supporting material such as invoice, bank payment details and photographs of the machinery. The Court followed the principle that where the asset itself is accepted to have been acquired and the assessee has not claimed the purchase price as a revenue expenditure, the entire cost cannot be disallowed as unexplained expenditure merely because the supplier is doubtful. The only benefit claimed by the assessee from the asset was depreciation, and the Department could not justify disallowing both the capital cost and the depreciation simultaneously.

Conclusion: The addition under section 69C and the disallowance of depreciation were not sustainable, and the issue was decided in favour of the assessee.

Final Conclusion: The assessee was entitled to relief in respect of the disputed machinery purchase, and the additions made by the lower authorities were directed to be deleted.

Ratio Decidendi: When a purchase relates to a fixed asset and the assessee has not claimed the purchase price as a revenue deduction, the entire cost cannot be treated as unexplained expenditure merely on account of doubt about the supplier; only the actual benefit claimed may be adjusted according to law.

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