2023 (6) TMI 263 - AT - Income Tax

Disallowance of car expenses - Expenses incurred by a Private Limited company towards personal use by the two Directors - HELD THAT - As decided in DCIT vs. Haryana Oxygen Ltd. 1999 (12) TMI 107 - ITAT DELHI-D the use of cars by directors-employees of a company cannot be characterized as user for non-business purpose and, hence, no part of such car expenses can be disallowed. As in Sayaji Iron and Engineering Company 2001 (7) TMI 70 - GUJARAT HIGH COURT has held that once the directors of the assessee company are entitled to use the vehicles of the company for personal use as per the terms and conditions of their appointment, it cannot be said that there was a personal use of cars. Also further held that such user of vehicles by the employees of the company cannot even be considered as non-business user . There are innumerable judgments on this point holding that there can be no disallowance of depreciation or other expenses on maintenance of the vehicles used by the directors/employees by treating it as personal user or non-business user of the company. We fail to see any rationale in disallowing the expenses incurred on cars as for personal use, when admittedly these have been provided to director-employees. A company is a separate legal entity distinct from its directors or employees. As such, there can be no question of treating the use of vehicles by the directors/employees as a personal use by the company - Therefore, order for the deletion of disallowance of expenses incurred on vehicles. Assessee appeal allowed.

Summary

Issues:
The judgment involves the confirmation of disallowance of car expenses incurred by a Private Limited company for personal use by the two Directors.

Confirmation of Disallowance of Car Expenses:
The appeal arose from an order passed by the CIT(A) regarding the disallowance of car expenses incurred by the assessee for personal use by the Directors. The AO had made a disallowance of Rs.1,51,350/- due to the absence of log books. The CIT(A) affirmed the disallowance, leading the assessee to approach the Tribunal. The Tribunal considered that the company provided vehicles to its employees, including the Directors, for business purposes. Citing precedents, the Tribunal held that the use of cars by directors-employees cannot be characterized as non-business use. Various judgments supported the position that expenses on vehicles used by directors/employees should not be disallowed as personal use, as the company is a separate legal entity distinct from its directors or employees. Consequently, the Tribunal ordered the deletion of the disallowance of expenses incurred on vehicles.

Result:
The appeal was allowed, and the disallowance of expenses incurred on vehicles was deleted. The order was pronounced in the Open Court on 16th May 2023.