2016 (11) TMI 358 - AT - Income Tax

Allowability of expenses on motor car maintenance car insurance and interest paid on car loan - cars were registered in the name of the directors - Held that - It is a case of a company which is a separate legal juristic person. There cannot be any disallowance on account of alleged personal user. It was shown that complete details and evidences were submitted in this regard. Nothing has been brought on record by either of the authorities to show any discrepancies in the details and evidences with regard to running and maintenance of motor car car insurance and payment of interest on car loan furnished by the assessee company. Under these circumstances we find the action of the lower authorities as unjustified in making the disallowances on surmises and conjectures. Therefore the AO is directed to fully allow the motor car expenses car insurance and interest paid on car loan as claimed by the assessee - Decided in favour of assessee Depreciation on motor cars - diallowance of claim as the said cars were registered in the name of the director and not in the name of the assessee company - Held that - As noted that in this case car was purchased by the assessee company in preceding year i.e. A.Y. 2009-10 wherein depreciation was claimed by the assessee and allowed by the AO. Thus the said car had entered into block of assets in A.Y. 2009-10. Once an asset is entered into the block of asset and is brought forward as part of opening WDV there arises no question for not allowing depreciation on the opening amount of WDV of the car so long as continues to be used for the business of the assessee. It is further noted that in this case the AO has himself allowed motor car expenses on the same car @50%. Thus AO himself has accepted the user of the car for the purpose of business of the assessee company. Under these circumstances contradictory decision could not have been taken for the purpose of allowing depreciation. Thus taking into account the aforesaid legal position and peculiar facts and circumstances of this case we find that depreciation is allowable on the car and therefore the same is directed to be allowed - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of motor car expenses, car insurance, and interest paid on car loan.
2. Disallowance of depreciation on motor cars registered in the name of directors.

Issue-wise Detailed Analysis:

1. Disallowance of Motor Car Expenses, Car Insurance, and Interest Paid on Car Loan:

The appellant contested the disallowance of 50% of motor car expenses, 100% of car insurance, and interest paid on car loan by the Assessing Officer (AO). The Commissioner of Income-tax (Appeals) [CIT(A)] reduced the disallowance on car insurance and interest to 50%, aligning it with the disallowance on motor car expenses. The appellant argued that the motor cars were used exclusively for business purposes, and full expenses should be allowed since the cars were owned by the company despite being registered in the directors' names.

The Tribunal noted that the CIT(A) did not provide proper reasoning for sustaining the 50% disallowance. It was observed that the company, being a separate legal entity, should not face disallowance for alleged personal use. The Tribunal found the lower authorities' actions unjustified as no evidence suggested non-business use of the motor cars. Thus, the Tribunal directed the AO to fully allow the motor car expenses, car insurance, and interest paid on the car loan as claimed by the appellant.

2. Disallowance of Depreciation on Motor Cars Registered in the Name of Directors:

The appellant contested the disallowance of depreciation on motor cars on the grounds that the cars were registered in the directors' names, not the company's. The AO and CIT(A) upheld the disallowance, arguing that the company was not the legal owner of the cars.

The Tribunal examined the appellant's submissions and evidence, noting that the cars were purchased with company funds and listed in the company's balance sheet. The Tribunal referenced several judgments, including Mysore Minerals (1999) 106 Taxman 166 (SC) and Aravali Finlease Ltd 341 ITR 383 (Guj), which supported the proposition that depreciation is allowable if the company is the de-facto owner, even if the asset is registered in a director's name.

Additionally, the Tribunal highlighted that the cars were purchased in the previous assessment year (2009-10), and depreciation was allowed by the AO for that year. Since the cars were part of the block of assets and used for business purposes, the Tribunal found no grounds for disallowing depreciation in the current assessment year. The Tribunal also noted that the AO had allowed motor car expenses, indicating acceptance of the cars' business use. Consequently, the Tribunal directed the AO to allow the depreciation on the cars.

Conclusion:

The Tribunal allowed the appeal, directing the AO to fully allow the motor car expenses, car insurance, interest paid on the car loan, and depreciation on the motor cars. The Tribunal emphasized the importance of proper reasoning and evidence in making disallowances and recognized the company's de-facto ownership and business use of the motor cars.