Non-use of Car for Business Purpose cannot Deny Depreciation and Interest on Car Loan: ITAT Partially Allows Appeal [Read Order]

The Income Tax Appellate Tribunal (ITAT), NewDelhi Bench, partially allowed an appeal wherein the depreciation and interest on car loan was denied due to non-use for business purpose.

The facts were that the assessee, a global affiliate marketing network, was selected for scrutiny assessment. The Assessing Officer (AO) upon examination concluded that the amount charged by them was excessive and not at Arm’s Length. Accordingly, additions were made to the assessee's income.

The first issue was regarding the addition of INR 2,10,00,000/- made under Section 40A(2)(a) of the Income Tax Act, 1961 on the premise of excessive payment made and its confirmation by the Commissioner of Income Tax (Appeals).

The other issues were regarding disallowance of depreciation and interest on car loan and disallowance of HR recruitment, placement expenditure and staff welfare expenses.

The AO had argued that the vehicles were not used during the AY 2015-16 and the assessee-company did not have any employees in the same year.

The counsel for the assessee argued explaining the modalities of the business of email marketing, providing a paper book as evidence. With regards to the depreciation and interest on car loan, it was further submitted that the non-use of the asset for business purpose would not be a ground to deny claim of depreciation and interest.

The result of the appeal was that it was partly allowed as the bench of Satbeer Singh Godara (Judicial Member) and Amitabh Shukla (Accountant Member) disallowed the HR recruitment and placement expenditure as well as the staff welfare expenditure but deleted the addition made under Section 40A(2) and allowed the claim of depreciation and interest on the car loan.

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