19 November 2010
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.
19 November 2010
Conterntion of the AO does not seems to be correct. The explanation given by the assessee is valid hence be accepted. Though the AO can always that propotionate expenditure may be of personal nature too, so he can at the most disallow part of the expenditure, not the entire expenditure. You should see the case law under section 37(1) in Direct Tax Mannual Vol.3. May not find identical case, but definitly something you may be able to get which will be helpful.
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