Depreciation cannot be denied simply because the cars are registered in the name of the company’s Directors, as long as the dominion ownership test is met.

In the assessment year 2009-10, the Assessee-Company purchased 5 cars, including Audi and BMW, and registered them in the name of the Directors. The company claimed depreciation for these cars but the Revenue denied the depreciation of 2 cars on the ground that the Assessee failed to furnish the logbooks. The Revenue had an apprehension that the cars were used for personal purposes and accordingly made an ad hoc disallowance of 20% of the depreciation with respect to the said two cars and added it to the total income. The CIT(A) confirmed the disallowance and held that the copy of RC books and the invoices were not readable and in the absence of necessary evidences, disallowance had to be made.

The ITAT observed that there was no dispute as to the fact that the cars were purchased in the name of the Directors but the payment was made through the Assessee. It was also observed that the legal ownership though vested with the individual directors but the dominion ownership rested with the Assessee due to the fact that the payment for purchase was made by the Assessee from its books of accounts and also the fact that the Assessee being a body corporate, there was no possibility for the directors to use the cars for personal purposes.

The ITAT also observed that even assuming a situation where the Assessee was not maintaining the logbook and the directors used the cars for personal purposes, then in such a situation, at the most, such a facility extended to the directors could be treated as perquisites under Section 17(2) which could be brought to tax in the hands of the directors as a part of salary. The ITAT also relied on Gujarat High Court in PCIT v. Asian Mills (P) Ltd. (2022) 135 163 (Guj.) wherein it was held that where an assessee company had made payment for the acquisition of cars and qualified as the beneficial owner, it would be entitled to depreciation under Section 32 even though the car was registered in the name of the directors. The ITAT observed that there could not be any disallowance on an ad-hoc basis as far as the depreciation was concerned.

The Ahmedabad ITAT held that depreciation could not be denied merely on the reasoning that cars were registered in the name of the directors of the Company. The ITAT also held that depreciation was an allowance and not an expenditure which had to be allowed in pursuance to the provisions of Section 32 irrespective of its use by the Directors. The judgement in this case is Shivam Water Treaters (P) Ltd. v. ACIT – Date of Judgement : 06.05.2022 (ITAT Ahmedabad

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