Tribunal overturns disallowance of car expenses for personal use by company directors

The Tribunal allowed the appeal, deleting the disallowance of car expenses incurred by a Private Limited company for personal use by the Directors. The Tribunal held that expenses on vehicles used by directors/employees should not be disallowed as personal use, as the company is a separate legal entity distinct from its directors or employees. Consequently, the disallowance of expenses on vehicles was deleted, overturning the CIT(A)'s decision.

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Issues:
The judgment involves the confirmation of disallowance of car expenses incurred by a Private Limited company for personal use by the two Directors.

Confirmation of Disallowance of Car Expenses:
The appeal arose from an order passed by the CIT(A) regarding the disallowance of car expenses incurred by the assessee for personal use by the Directors. The AO had made a disallowance of Rs.1,51,350/- due to the absence of log books. The CIT(A) affirmed the disallowance, leading the assessee to approach the Tribunal. The Tribunal considered that the company provided vehicles to its employees, including the Directors, for business purposes. Citing precedents, the Tribunal held that the use of cars by directors-employees cannot be characterized as non-business use. Various judgments supported the position that expenses on vehicles used by directors/employees should not be disallowed as personal use, as the company is a separate legal entity distinct from its directors or employees. Consequently, the Tribunal ordered the deletion of the disallowance of expenses incurred on vehicles.

Result:
The appeal was allowed, and the disallowance of expenses incurred on vehicles was deleted. The order was pronounced in the Open Court on 16th May 2023.

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