DCIT v. Silver Spark Apparel Ltd. – [2023]
Private limited firm assessee filed its income tax return for the current assessment year. The assessee’s case was picked for scrutiny for the year. The Assessing Officer (AO) acquired information during proceedings that the assessee had purchased a sports automobile and claimed a deduction for the car’s depreciation and maintenance costs.
The AO asserted that the sports car’s primary purpose was for car racing. As a unit producing suits and trousers, the assessee’s need for such a car cannot be deemed totally and solely required for the operation of the company. He rejected the maintenance and depreciation expenditure deduction.
The assessee opted to appeal to CIT after being upset by the order (A). Once the CIT(A) upheld the amendments, the matter went to the Mumbai Tribunal.
The Appellate held that the assesses was a private limited company and should be treated as a different assessable entity in accordance with section 2(31) of the Act as well as a separate person. As a firm is an inanimate object, it is impossible to have any personal feelings for it. The business is not permitted to have any “personal use” by virtue of its very existence.
Even while the directors use the car for personal reasons, it cannot be said that the corporation is using it personally. Moreover, there could be no “non-business” purpose once the expenditure was made in accordance with sections 198 and 309 of the Companies Act.
As a result, the AO’s decision to reject depreciation and maintenance costs on the sports car that the assessee owned and utilized for business purposes was not justified.
