Company entitled to depreciation & expenses on sports car for key managerial personnel commute: ITAT

Case Details: Silver Spark Apparel Ltd. v. DCIT - [2023] 147 taxmann.com 500 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Aby T Varkey, Judicial Member & Gagan Goyal, Accountant Member
  • Madhur Agrawal, Adv. for the Appellant.
  • Chetan M. Kacha, Sr. DR for the Respondent.

Facts of the Case

Assessee, a private limited company, filed its return of income for the relevant assessment year. For the year, the assessee’s case was selected for scrutiny. During proceedings, the Assessing Officer (AO) noticed that assessee purchased a sports car and claimed deduction for depreciation and maintenance expenses for the same.

The AO contended that the sports car was used primarily for car racing activities. The requirement of such a car in the case of the assessee, being a unit engaged in manufacturing suits and trousers, cannot be considered wholly and exclusively necessary for the purpose of the business. He disallowed the deduction for depreciation and maintenance expenses.

Aggrieved by the order, the assessee preferred an appeal to CIT(A). CIT(A) upheld the additions and the matter then reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee was a private limited company and was to be considered a separate person and distinct assessable entity as per section 2(31) of the Act. A company is an inanimate person and there cannot be anything personal about such an entity. By virtue of its very nature, the company cannot have any “personal use”.

It cannot be stated the vehicle is used personally by the company, even though the vehicle is used by the directors for personal purposes. In addition, once the expenditure was in terms, as provided in sections 309 and 198 of the Companies Act, there could not be any ‘non-business’ purpose.

Therefore, the action of AO in disallowing depreciation and maintenance charges on the sports car owned and used by the assessee for the purpose of business was not justified.

List of Cases Reviewed

• • Sayaji Iron & Engg. Co. v. CIT [2002] 121 Taxman 43/253 ITR 749 (Guj.)(para 7) followed.

List of Cases Referred to

• • NIBR Bullion (P.) Ltd. v. DCIT [IT Appeal Nos. 5522 to 5524 (Mum.) of 2011, dated 17-7-2018] (para 6)
  • Sayaji Iron & Engg. Co. v. CIT [2002] 121 Taxman 43/253 ITR 749 (Guj.)(para 6)
  • Dinesh Mills Ltd. v. CIT [2022] 122 Taxman 384/254 ITR 673 (Guj.) (para 6).