2022 (10) TMI 594 - AT - Income Tax

Deduction of expenditure from income taxable under the head From Other Sources - Car Lease rental income - CIT(A) restricted the expenses to the extent of income so earned - HELD THAT - Section 57(iii) of the Act is in line with section 37 (1) of the Act which in general (subject to its Explanation) makes available deduction of any expenditure, not being expenditure of the nature described in sections 30 to 37 of the Act and not being in the nature of capital expenditure or personal expenses of the assessee, expended wholly and exclusively for the purposes of the business or profession while computing the income chargeable under the head 'profit and gains of business or profession'. Thus, as per the mandate of section 57 (iii) of the Act, it is necessary that the primary motive of incurring such expenditure should be directly relatable to the earning of income falling under the head 'income from other sources'. In the present case it is beyond doubt that depreciation, interest on loan, repairs and maintenance expenses as well as insurance expenses were directly relatable to the earning of lease rental which was shown by the assessee under 'income from other sources'. A plain reading of section 57 (iii) of the Act would lead one to the conclusion that it does not say that the expenditure shall be deductible only if any net positive income is made or earned. Therefore, there can even be a negative income/loss u/s. 57(iii) of the Act. Therefore, by this reasoning also, CIT(A) was incorrect in directing that the amount of deduction should be restricted to the income earned. Accordingly, on an overall view of the facts of the case and in view of our discussion in the preceding paragraphs, we are of the considered view that the Ld. CIT(A) was legally wrong in restricting the disallowance to the quantum of lease rental earned. While allowing the appeal of the assessee, we direct the AO to allow the impugned expenditure claimed in full. Appeal of the assessee stands allowed.

Summary

Issues:
1. Disallowance of expenses related to car lease by the Assessing Officer.
2. Addition on account of payment made by employer company towards credit card bill.
3. Appeal challenging the order of the Ld. CIT(A) by the assessee.

Issue 1: Disallowance of expenses related to car lease by the Assessing Officer:
The assessee, a salaried employee, had given his car on lease to the employer company and received lease rent. The Assessing Officer disallowed the claimed expenses related to the lease, amounting to Rs. 8,41,020, on the grounds that the asset was not used for business purposes and there was no agreement with the employer company. The Ld. CIT(A) partly upheld the disallowance, restricting it to the lease rent earned by the assessee. The Tribunal noted that the AO's observations were refuted by the assessee, providing evidence of an agreement and vehicle details. The Tribunal held that depreciation, interest, repairs, and maintenance expenses were allowable deductions under 'income from other sources'. The Ld. CIT(A) erred in restricting the disallowance to the lease rental earned, and the Tribunal directed the AO to allow the claimed expenditure in full.

Issue 2: Addition on account of payment made by employer company towards credit card bill:
The AO made an addition of Rs. 6,10,443 on the payment made by the employer company towards the credit card bill of the assessee, considering it as a perquisite. The Ld. CIT(A) deleted this addition, providing relief to the assessee. No further challenge or discussion on this issue was presented in the Tribunal's judgment.

Issue 3: Appeal challenging the order of the Ld. CIT(A) by the assessee:
The assessee approached the Tribunal challenging the order of the Ld. CIT(A) regarding the disallowance of car lease expenses. The Tribunal noted the repeated adjournment requests by the assessee's representative, indicating a lack of interest in pursuing the appeal. Despite the absence of the assessee or their representative, the Tribunal proceeded to hear the appeal ex parte. The Ld. Sr. DR supported the Ld. CIT(A)'s decision to restrict the disallowance to the lease rental earned. The Tribunal, after considering the facts and legal provisions, allowed the appeal of the assessee, directing the AO to allow the claimed expenditure in full.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the Ld. CIT(A)'s decision to restrict the disallowance of car lease expenses to the lease rental earned. The Tribunal emphasized the legal provisions allowing deductions for expenses incurred in earning income from other sources, even if the assessee was not in the business of leasing cars. The judgment highlighted the importance of considering all relevant factors and evidence in determining the allowability of expenses under the Income Tax Act.