2019 (9) TMI 1128 - AT - Income Tax

Claim of depreciation, interest and maintenance expenses for the BMW car - car in the name of director - allowable business expenditure - HELD THAT - Assessee has not established that it is owner of the impugned Car and the car was used wholly and exclusively for the purposes of its business. Therefore, on the above facts and circumstances, we hold that the disallowances of depreciation, interest on the car loan and maintenance expenses of the BMW car, made for the assessment years 2013-14 2014-15 are justified and hence dismiss the corresponding grounds of appeal of the assessee. Proportionate disallowance of interest on the related party loans - We find that the facts and the figures associated with the issue have not been properly examined by the lower authorities - this issue is remitted back to the AO for a fresh examination. The assessee shall place all the material in support of its contention before the AO and shall comply with his requirements in accordance with the law. The AO shall after affording due opportunity to the assessee shall pass an appropriate order. The corresponding grounds of appeal are treated as allowed for statistical purpose.

Summary

Issues:
1. Claim of depreciation on BMW car for assessment years 2013-14 & 2014-15.
2. Disallowance of depreciation, interest, and maintenance expenses for the BMW car.
3. Disallowance of proportionate interest on loans to related parties.

Analysis:

Issue 1: Claim of depreciation on BMW car for assessment years 2013-14 & 2014-15:
The assessee, engaged in manufacturing and sale of Beedi, claimed depreciation on a BMW car purchased during the assessment years. The AO disallowed the claim as the car was registered in the Director's name, and the company failed to conclusively prove beneficial ownership. The AO also disallowed proportionate interest on loans to related parties due to lack of reasonable explanation from the assessee.

Issue 2: Disallowance of depreciation, interest, and maintenance expenses for the BMW car:
In the assessment for 2013-14 and 2014-15, the AO disallowed the depreciation, interest, and maintenance expenses for the BMW car, upholding that the car's ownership lay with the Director and was not necessary for the company's business. The CIT(A) affirmed these disallowances, stating that the car's use for business purposes was not adequately proven by the assessee.

Issue 3: Disallowance of proportionate interest on loans to related parties:
The AO disallowed proportionate interest on loans to related parties, citing lack of nexus between borrowed funds and interest-free advances. The CIT(A) upheld this disallowance. However, the Tribunal remitted this issue back to the AO for re-examination, directing the assessee to provide necessary material to support its contentions.

In conclusion, the Tribunal partly allowed the appeal for the assessment year 2013-14 and dismissed the appeal for 2014-15. The disallowances of depreciation, interest on the car loan, and maintenance expenses for the BMW car were deemed justified. The issue of proportionate interest on related party loans was remitted back to the AO for further examination.

This detailed analysis outlines the key issues addressed in the legal judgment by the Appellate Tribunal ITAT CHENNAI, providing a comprehensive overview of the case and the decisions made regarding the claimed depreciation, disallowed expenses, and interest on loans to related parties.