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Allowalability of Expenses under I.T.Act

CA Sanjay Baheti (PROPRIETOR) (1155 Points)

07 May 2010

A vehical (either 2/4 wheeler) owned & registered in the name of individual proprietor but not capatilised in books of his proprietorship concern. Now query is whether he can claim expenses related to petrol,Insurance ,repairs & maint.,Depreciation etc. by way of accounting for the same in books under Income tax Act while computing the taxable income under head PFBP.

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11 Replies

Rachit (Analyst) (913 Points)
Replied 07 May 2010

Yes he can claim the same.

Even in the case of a partnership firm or a Ltd. co. if the vehicle is registered in the name of the partner / Director, the firm / company can claim the expenses attributable to the vehicle; provided payment for purchasing it has been made from the firms/ company's account

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CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 07 May 2010

As far as my knowledge is concerned., such expenses cannot be allowed :

A. The asset itself is not capitalised, so ITO will consider the same to be a personal asset and for the same reason, any expenses incurred thereon won't be allowable.

B. The asset is, if personal, assumed to be not used for business, so expenses again not related to business cannot be allowed.

C. If part of expenses claimed as business expenses, then too, as asset is not in balancesheet, expenses cannot be claimed..

Ok, just tell me, on what amount you will claim depreciation???

The amount which is not recoreded, how can you claim depreciation on the same???

Please, any expert reply on this....

Amir (Learner) (4016 Points)
Replied 07 May 2010

Dear Sir,

Interesting Query.....I

Though Sec 32 has not laid down any condition that for claiming depreciation asset must be capitalised in the Books.

Lets take a case where assesee is not required to maintain books at all becos his turnover is well below the limits specified u/s 44AA, now assesee can claim depreciation in this case even when he is not required to maintain books.

Sir, I dont see any reason why assessee would hesitate to record the asset in his books??

Beacuse in the absence of it AO will create problem in allowing expenses..

But nevertheless due consideration should be gven to Sec 38 {dissallowances on account of personal use}

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(Guest)

Dear sir,

As per IT Act,1961

Conditions for claiming depreciation

Assets must be owned and used for the purpose of business or profession
		during the Previous year.

Stress -Ownership

Beneficial ownership is more important than legal ownership.
Assessee need not be a registered owner, even a beneficial owner
can claim depreciation.

Co-owner
In case of joint ownership, depreciation is allowed on proportionate basis.

Property acquired on hire purchase

In case of hire purchase, the buyer can claim depreciation eventhough
he does not get legal title of the asset till he pays the last instalment.

Capital expenditure on a property by the lessee.

Where an assessee being a lessee of a property incurs any capital expenditure
by way of improvement,extension,super construction etc., on a building being used for
his business or profession, he is entitled to depreciation in respect of such capital
expenditure.

Sec.53A of transfer of property act.

Possessor of an immovable proprty u/s. 53A of transfer of property act
can claim depreciation eventhough he is not the registered owner of the property.

In the case of CIT V.Mohd.Bux shokat ali (HC)

The question related to allowing the depreciation on the vehicles in the assessment of the firm where the vehicles were not registered in the name of the assessee-firm but were registered in the name of one of the partneres of the firm.

The tribunal refused to refer the question while rejecting the application u/s.256(1).

On reference, the highcourt following the SC decision in case of mysore minerals ltd V. CIT (SC) declined to require the tribunal to refer to the aforesaid question of law to court notwithstanding that it was a question of law.

In this case, SC held that,

It is well settled that there cannot be two owners of the property simultaneously and in the same sense of the term.

The intention of the legislature in enacting sec.32 of the IT Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purpose of his business or profession.

Assigning any different meaning would not subserve the legislation intent.

So, the depreciation is allowable even when the same is registered in the name of partner, if the same is used for firm business purposes.

Stress:

A.O will Disallow some portion due to personal use.

Regards

K.Ilayaraja.

(Guest)

Originally posted by : CA Sanjay Baheti
	A vehical (either 2/4 wheeler) owned & registered in the name of individual proprietor but not capatilised in books of his proprietorship concern. Now query is whether he can claim expenses related to petrol,Insurance ,repairs & maint.,Depreciation etc. by way of accounting for the same in books under Income tax Act while computing the taxable income under head PFBP.

He can claim exp. related to petrol,insurance,repairs & Maintenance,Depreciation ect......

Regards

K.Ilayaraja.

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varun gupta (Senior Accounts Officer) (89 Points)
Replied 07 May 2010

1) no dep can be claimed until it is capitalised in books, so no dep here.

2) other expenses can be claimed as deduction by showing incurred for official purpose.

CA SHABIR (CA) (336 Points)
Replied 08 May 2010

Yes you can claim such expenses, but at the time of assessment u/s 143(2)/147/153A, you have to be very carefull, because if AO becomes aware about the fact that asset is in the name of proprietor and same has not be disclosed, he may treat it as purchased from undisclosed sources and apart from leavy of taxe, he may impose penalty u/s 271(1)(C) and interest thereon.

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Krishna (Article Assistant) (22 Points)
Replied 08 May 2010

Yes, it can be allowed as deduction if the said vehicle is used for business purpose but not for personal use and if in case scrutiny the assessee is able to explain ITO about the usage of such vehile is only used for business purpose.

CA Punit GoSwaMi (Chartered Accountant) (310 Points)
Replied 08 May 2010

Allowed.....

Dhruva Hegde (Chartered Accountant) (230 Points)
Replied 08 May 2010

For claiming any expenses you have to capitalise the asset in your book for claiming expn the vehicle need not be registered in company name controlling of asset is enough to claim exps...

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CA CS Mohan Kumar B.N. (partner) (118 Points)
Replied 13 May 2010

Sec. 32 talks about the fact that the asset must be put to use during the previous year in order to claim depreciation, in the instant case even though asset has not been capitalised it has been put to use hence u can claim depreciation, further depreciation is a compulsary expenditure that has to be allowed by the AO even if not claimed by the assessee....

as for as other expenditure in connection with the vehicle are concerned section 37 says if it is a genuine business expenditure it can always be claimed....