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Issues involved: Ground (b) of A.Y. 1983-84 challenges the deletion of addition on account of car expenses.
Summary: The Appellate Tribunal considered the issue of disallowance of car expenses for non-business use of vehicles. The Assessing Officer disallowed a portion of car expenses, but the CIT(A) deleted the disallowance, stating that the perquisite value could be assessed in the hands of the directors. Referring to legal precedents, including ITO v. Ashoka Betelnut Co. (P.) Ltd. and Daks Copy Services (P.) Ltd. v. ITO, it was highlighted that expenses on cars used for personal purposes of directors could not be disallowed. The Tribunal also cited the Madras High Court's decision in CIT v. Chitram & Co. (P.) Ltd. regarding depreciation rules for assets not exclusively used for business purposes. The Tribunal emphasized the separate legal entity of a company from its directors, citing the principle from Saloman v. Saloman & Co. that the corporate veil is only pierced in cases of illegality or fraud. It was noted that unless there are mala fides, the company's legal entity remains distinct. The Tribunal concluded that the use of cars by directors should not be characterized as non-business purpose of the company, and no disallowance under section 37(1) was justified. The value of personal use of cars could be considered as extra remuneration to the directors. Additionally, the Tribunal discussed the restriction on deductions for assets not exclusively used for business purposes under section 38(2), clarifying that running expenses like petrol are not subject to restriction, but only current repairs. Ultimately, the Tribunal upheld the CIT(A)'s decision regarding the disallowance of car expenses, rejecting the Revenue's appeal. The Tribunal did not find merit in the Revenue's appeal and confirmed the CIT(A)'s decision regarding the disallowance of car expenses.
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