In ITA No.301/PUN/2023- ITAT - Use of cars by Directors/Employees of company cannot be characterized as used for non-business purposes, rules ITAT (Pune)
Member R.S. Syal (Vice President) [16-05-2023]

Read Order: Pushpak Steel Industries Private Limited, v. ACIT

Chahat Varma

New Delhi, May 20, 2023: The Pune bench of the Income Tax Appellate Tribunal has ruled that a company is a separate legal entity, distinct from its directors or employees, therefore, 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. Consequently, the disallowance of expenses incurred on the vehicles was ordered to be deleted.

Briefly stated facts of the case were that Pushpak Steel Industries Private Limited (assessee) had two vehicles listed in its balance sheet, which were used by the directors for business purposes. The assessee claimed deductions for depreciation, interest, and maintenance expenses for these vehicles. However, since the assessee failed to provide logbooks as evidence, the Assessing Officer made a disallowance of 15% of the total expenses. The Commissioner of Income Tax (Appeals) upheld the disallowance.

The Tribunal placed reliance on the judgments of Gujarat High Court in Sayaji Iron and Engineering Company vs. CIT [LQ/GujHC/2001/493], wherein it has been 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. The High Court further held that such user of vehicles by the employees of the company cannot even be considered as ‘non-business user’.