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July 11, 2022

ITAT restricts disallowance of Car expenses to 15% for personal use

by CA Shivam Jaiswal in Income Tax

ITAT restricts disallowance of Car expenses to 15% for personal use

Facts and Issue of the case

The only issue raised through various grounds is against the confirmation of disallowance at 30% of depreciation on motor car; conveyance expenses; and interest on car loan.

The facts of the case are that the assessee is engaged in the business. He claimed depreciation on motor car amounting to Rs.8,65,503/-; interest on motor car loan at Rs.3,33,915/- and conveyance expenses at Rs.37,050/-. The assessee was called upon to produce the car log book for demonstrating that the car was used only for business purposes. The assessee admitted that no such log book was maintained. Considering the fact that the tax audit report also depicted that personal element was involved in the vehicle expenses, the AO disallowed 30% of car depreciation, interest on such car loan and conveyance expenses. The ld. CIT(A) countenanced the disallowance.

Observation by the court

The court had considered the rival submissions and perused the relevant material on record. It is indisputable that the assessee could not lead any evidence to demonstrate that the user of the car was restricted only to business purposes and did not percolate for personal use. Even the auditor has also mentioned that the personal element in vehicle expenses could not be ignored. This shows that the car was partly used for business and partly for personal purpose. In such circumstances, disallowance of some percentage of the expenses in connection with the running of car is warranted. Keeping into consideration the peculiarity of the facts and circumstances of case under consideration, the court had considered opinion that the ends of justice would meet adequately if the disallowance is restricted to 15% of such expenses and allowance instead of 30% as sustained in the first appeal.



The appeal of the assessee is partly allowed by the court.

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