DISALLOWANCE OF CAR EXPENSE

[manoj gupta]

A doctor has his hospital at ground floor and his residence at first floor of same building. He owns two cars which he has purchased from funds of hospital. He is claiming car expenses, depreciation and interest on car loan for the past several years as business expenditure. In the assessment of current year, the A.O. wants to disallow entire car expenses on the ground that as the doctor has residence and hospital in the same building,the car cannot be used for official purposes and the entire expenses on car are for personal purpose. The doctor has explained that he has to use the car for attending conferences, visiting patients and other official work though no such specific evidence of these particular visits is maintained. Now, can the A.O. disallow the entire expenses. what is the legal position. Pls. tell along with any relevang case laws. I will be grateful for sincere help and advise.Thank you.

AI Summary

Block asset doctrine permits depreciation where the asset block is used for business, limiting full disallowance of car expenses.
Where a taxpayer's residence and business are co-located, the mere fact of co-location does not justify total disallowance of car expenses; business use is a question of fact. One car's business use is normally supportable and a second car requires specific evidence. Absent log books or contemporaneous records, the assessing officer may make a reasonable disallowance for personal use. For depreciation, the block of assets principle applies: if the block is used for business, depreciation is allowable even if an individual asset within the block was not separately used.