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Facts
The assessee purchased a Mercedes Benz car in his wife's name and obtained a loan from Mercedes Benz Financial Services. The assessee claimed depreciation and interest expenses for the car. The AO treated the loan as unexplained income and disallowed depreciation and interest.
Held
The Tribunal held that the addition of the loan under Section 68 was not justified as the lender was an identifiable NBFC and not a bogus party. The Tribunal also found that the assessee was the beneficial owner of the car by virtue of a General Power of Attorney and was entitled to claim expenses and depreciation.
Key Issues
Whether the loan obtained for a car purchased in the spouse's name, with the assessee claiming beneficial ownership, constitutes unexplained income? Whether depreciation, interest, and expenses related to such a car are allowable?
Sections Cited
250, 143(3), 41(1), 68, 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI NAVEEN CHANDRA
ORDER PER NAVEEN CHANDRA [A. M]: The above captioned appeal is preferred by the assessee against the order dated 17.07.2025, passed by National Faceless Appeal Centre/Learned Commissioner of Income Tax (Appeals), New Delhi (hereinafter referred to as ‘ld. CIT(A)), under section 250 of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for Assessment Year 2022-23. The assessment order in this appeal is passed by the Assessing Officer [for short, AO] under section 143(3) of the Act.
1. That the order passed by the Learned CIT(A) is bad in law, void ab initio, against facts and circumstances of the case, and against principles of natural justice, and hence deserves to be quashed.
2. That the additions confirmed by the Learned CIT(A) are based on suspicion, surmises, and conjectures and not on cogent evidence or correct application of law. Grounds Relating to Loan Liability 3. That the Learned CIT(A) erred in confirming the addition of Rs.27,22,157/- representing loan liability from Mercedes-Benz Financial Services India Private Limited (Formerly Known as Daimler Financial Services India Private Limited), treating the same as unexplained income, despite the fact that: The liability was duly reflected in the balance sheet, Repayments were made by the assessee from his own bank account, and The lender is a well-known, identifiable NBFC and not a bogus party. The said addition is wholly without jurisdiction and contrary to provisions of Sections 41(1) and Section 68 of the Income Tax Act 1961, neither of which are attracted to the present facts. Grounds Relating to Depreciation, Interest and Expenses 4. That the Learned CIT(A) erred in law and facts in disallowing depreciation of Rs.12,48,730/- on Mercedes Benz, ignoring that: The assessee was in possession and beneficial owner of the vehicle by virtue of General Power of Attorney and duly used for the purpose of the business. Loan repayment and expenses were borne by the assessee; and 5. That the Learned CIT(A) further erred in upholding disallowance of interest on car loan of Rs.64,540/- and repairs & maintenance expenses of Rs.41,070/-, without appreciating that: The vehicle was used for the business of the appellant, All payments were made from assessee's accounts, and The disallowance of 50% of vehicle repairs & maintenance is purely on assumption and presumption of personal use, without bringing any cogent evidence on record. Grounds Relating to Ownership and Gift 6 That the Learned CIT(A) erred in holding that General Power of Attorney cannot constitute a valid transfer, without appreciating that: Possession, use and control of the asset were transferred to the assessee, Income-tax law recognizes beneficial ownership over legal registration, and Page 2 of 6 Vikas Chawla The rejection of case law cited by the assessee (Metalman Auto, supra) is perfunctory and without proper distinction. 8.That the Learned CIT(A) erred in sustaining additions on the ground that assessee's declared income "does not commensurate" with luxury car, which is an extraneous and irrelevant consideration having no basis in law. 9.Prayer In That the Learned CIT(A) failed to adjudicate properly on the penalty initiation u/s 270A despite full disclosure by the assessee, contrary to the ratio laid down by Hon'ble Courts that mere disallowance of a bona fide claim cannot attract penalty.
The brief facts of the case are that the assessee is running a firm in the name and style of M/s Shilpa Impex, which is dealing in wholesale and retail trading of textile fabrics. The Assessee’s Balance Sheet showed a secured loan amounting to Rs.27,22,157/- against Daimler Financial Services, the financial arm of Mercedes Benz, for purchase of Mercedes Car. The AO found that the said loan was obtained in the name of Ms. Shilpa Chawla but the depreciation on the said car and interest payment on the said loan, was claimed by the assessee.
The assessee explained that Mercedes Benz GLS 350 has been bought by the assessee in the name of his wife Mrs. Shilpa Chawla in natural love and affection and that the vehicle was bought in the year 2018 and was gifted by Mrs. Shilpa Chawla to her husband Mr. Vikas Cawla in December 2020 through General Power of Attorney dated 4.12.2020. The purpose of transfer was to use the vehicle for business purpose only and to avoid any difficulty to claim the expenses in the Page 3 of 6 Vikas Chawla proprietorship firm. The loan repayment is also made by Mr. Vikas Chawla from day one. The Assessing Officer however, rejected the explanation and has treated the loan as unexplained income under section 68 of the Act, disallowed depreciation on Mercedes car and interest on car loan and vehicle repair charges incurred by the assessee.
The ld. Authorized Representative of the assessee vehemently argued that though the car was purchased in the name of spouse the fund utilized for repayment of car loan was that of the assessee. The ld. AR submitted that the assessee was in possession and beneficial owner of the vehicle by virtue of general power of attorney and duly used for the purpose of business. It is further stated that the loan repayment and expenses were borne by the assessee.
Per Contra, ld. Senior Departmental Representative relied upon the orders of the AO and of the ld. CIT(A).
We have heard the rival submission and perused the material on record. We find that the possession, use and control over the car was with the assessee and the income tax law recognises the beneficial ownership over an asset as held in CIT vs. Metalman Auto P. Led. 52 DTR 385(P&H). We further find the lender Mercedes Benz Financial Services India Pvt Ltd. is an identifiable NBFC and neither the AO nor the ld. CIT(A) has considered the same as bogus party or has placed any Page 4 of 6 Services India Pvt Ltd is an accommodation entry or is a bogus loan. We thus hold that addition of the loan from Mercedes Benz Financial Services India Pvt Ltd u/s 68 of the Act is not justified on the ground that the said loan was obtained in the name of the spouse of the assessee.
We further note that the disallowances of various expenses have mainly occurred on account of fact that the assessee’s spouse name was in the ownership document. We find that the AO has not controverted the fact that the possession as well as utilisation of the vehicle was by the assessee and that all the funds and expenses towards maintenance of the said vehicle were made from the account of the assessee. In such factual matrix of the instant case, we therefore, are of the considered view that the ld. CIT(A) has not appreciated the fact that the assessee was the beneficial owner of the vehicle by virtue of general power of attorney and therefore was entitled to claim all the expenses, depreciation on car and the interest on procurement of loan fund related to the said vehicle. In view of the same, all the additions made by the AO is directed to be deleted. The grounds of appeal of the assessee are allowed.