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2023 (4) TMI 553 - AT - Income TaxDisallowance of depreciation and expenses on Sports Car - personal v/s business expenditure - As per CIT appellant's sports vehicle has been used for the purpose of business and eligible for claim of depreciation as well as of the expenditure incurred on maintenance and upkeep of the vehicle - HELD THAT - We are of the opinion that the action of AO in disallowing 50% of depreciation and maintenance charges on the sports car owned and used by the assessee for the purpose of business is not justified. AO is failed to establish, on the given facts that sports car being owned by the assessee has any personal use or being not used fully for the purposes of business. The assessee, which was a private limited company, was a distinct assessable entity as per the definition of 'person' under section 2(31) of the Act. Therefore, it could not be stated that when the vehicles were used by the directors 'even if they were personally used by the directors', the vehicles were personally used by the company, because a limited company by its very nature cannot have any 'personal use'. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view was supported by the provision of section 40(c) and section 40A (5) of the Act. Once the expenditure in question was in terms as provided in sections 309 and 198 of the Companies Act, there could not be any 'non-business' purpose insofar as the assessee-company was concerned. Decided in favour of assessee.
Issues Involved:
1. Disallowance of depreciation on a luxury sports car. 2. Disallowance of expenses incurred on the luxury sports car. Issue 1: Disallowance of Depreciation on Luxury Sports Car The assessee filed its return of income declaring a total income of Rs. 24,24,21,580/-. During scrutiny, the Assessing Officer (AO) disallowed the depreciation claimed on a luxury sports car (Nissan Skyline) amounting to Rs. 5,90,596/-. The AO reasoned that the car was not used exclusively for business purposes, as required under Section 38(2) of the Income Tax Act. The AO argued that the car was likely used for personal purposes or racing activities, which are not necessary for the assessee's business of manufacturing suits and trousers. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the AO did not provide categorical reasoning and relied on assumptions without evidence. The CIT(A) found that the car was used for commuting key managerial personnel and for advertising purposes, thus eligible for depreciation. The Appellate Tribunal considered the CIT(A)'s findings and relevant judicial precedents, including the cases of Sayaji Iron & Engineering Co. v. CIT and NIBR Bullion P Ltd v. DCIT. These cases established that a company, being a distinct legal entity, cannot have personal use of its assets. Consequently, the Tribunal concluded that the AO's disallowance was unjustified and directed the deletion of the disallowed depreciation amount. Issue 2: Disallowance of Expenses Incurred on Luxury Sports Car Along with the depreciation, the AO also disallowed 50% of the expenses incurred on the luxury sports car, amounting to Rs. 3,45,918/-. The AO's reasoning was similar, asserting that the car was not used exclusively for business purposes. The assessee argued before the CIT(A) that the expenses were legitimate business expenditures. The CIT(A) agreed, noting that the car was used for business-related commuting and advertising. The Tribunal upheld this view, referencing the same judicial precedents that supported the allowance of business expenses for company-owned vehicles. The Tribunal concluded that the AO failed to establish that the car was used for personal purposes. As such, the expenses incurred on the car were deemed legitimate business expenditures. Conclusion The Tribunal allowed the appeals for both assessment years, directing the AO to delete the disallowed amounts of Rs. 5,90,596/- for depreciation and Rs. 3,45,918/- for expenses. The Tribunal's decision was based on the findings that the car was used for business purposes and the judicial precedents that a company cannot have personal use of its assets. Judgment Summary - The appeals for both assessment years (2013-14 and 2014-15) were allowed. - The AO was directed to delete the disallowed depreciation and expenses. - The Tribunal's decision was based on the business use of the car and relevant judicial precedents.
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