Vehicle expenses allowed as expense to the Company when vehicle is used by Director employees

The ITAT, Pune in M/s. Pushpak Steel Industries Pvt. Ltd. v. ACIT, Circle-10, Pune [ITA No. 301/PUN/2023 dated on May, 16, 2023] allowed the depreciation or other expenses on maintenance of the vehicles used by the director employees by treating it business expense of the company.

Facts:

M/s. Pushpak Steel Industries Pvt. Ltd. (“the Appellant/the Company”) has 2 vehicles which were used by the director employees. The Appellant claimed deduction of INR 10,88,998/- on these vehicles.

In absence of log records, the Assessing Officer (“the AO”) made disallowance of 15% of total expenses totaling to INR 1,51,350/- which was duly affirmed by the Commissioner of Income Tax Appeal (“CIT (A)”) vide an Order dated January 20, 2023 (“the Impugned Order”).

 Aggrieved by the decision of CIT(A), the Petitioner filed an appeal before the ITAT, Pune.

Issues:

Whether the expenses incurred by the Appellant on vehicles provided to director employees are allowed as expense to the Appellant?

Held:

The ITAT, Pune in [ITA No. 301/PUN/2023] held as under:

• Observed that, major reason given by the AO for disallowing the expenses incurred on cars is the personal use of vehicles by the directors-employees of the company.
• Relied upon the judgement of ITAT, Delhi in DCIT v. Haryana Oxygen Ltd. (2001) 76 ITD 32 (Del), wherein it was held that the use of cars by director employee of a company cannot be characterized as use for non-business purpose and therefore expenses incurred on the vehicle cannot be disallowed.
• Further relied upon the judgement of Hon’ble Gujarat High Court in Sayaji Iron and Engineering Company v. CIT (2002) 253 ITR 749 (Gui.), wherein court held that the assessee is entitled to use the vehicles of the company for personal use as per the terms and conditions of their appointment and it cannot be said to be a personal use of the cars.
• Opined that, there is no rationale in disallowing the expenses incurred on cars as for personal use, when they are admittedly been provided to director-employees.
• Held that, the vehicles used by the director employees of the Appellant cannot be considered as ‘non-business use’.
• The ITAT deleted the disallowance and allowed the Appeal.

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