2017 (4) TMI 288 - AT - Income Tax

Income Tax Tribunal Upholds Disallowance of HRA Exemptions

Mrs. Meena Vaswani Versus ACIT – 26 (1), Mumbai

Mrs. Meena Vaswani Versus ACIT – 26 (1), Mumbai - [2017] 57 ITR (Trib) 497 Issues Involved:1. Disallowance of House Rent Allowance (HRA) exemption under Section 10(13A) of the Income Tax Act, 1961.Detailed Analysis:1. Disallowance of HRA Exemption:The assessee, a chartered accountant working as a Senior Finance and Accounts Executive, claimed HRA exemptions under Section 10(13A) of the Income Tax Act, 1961, for the assessment years 2009-10 to 2011-12. The Assessing Officer (AO) disallowed these claims, leading to appeals before the Commissioner of Income Tax (Appeals) [CIT(A)] and subsequently the Income Tax Appellate Tribunal (ITAT).The AO observed that the assessee claimed both HRA exemption and deductions for a self-occupied property under Section 80C, raising doubts about the genuineness of the HRA claim. The assessee stated that she paid rent in cash to her mother, who owned a different property, while her own property was claimed as self-occupied. The AO's investigation, including a report from a Ward Inspector, revealed that the assessee was actually residing in her own property, not the rented one, leading to the conclusion that the HRA claim was not genuine.The CIT(A) upheld the AO's decision, noting that the assessee failed to provide substantial evidence to prove she was living in the rented property. The assessee's arguments, including the necessity of living with her sick mother and the lack of formal rental agreements due to family relations, were rejected. The CIT(A) emphasized that the assessee's own property was significantly larger and more suitable for her family, making the claim of living in a smaller rented property less credible.Before the ITAT, the assessee reiterated her claims, providing affidavits and rent receipts as evidence. However, the ITAT found these documents insufficient, emphasizing the lack of corroborative evidence such as bank withdrawals, leave and license agreements, or any formal communication with the housing society about her tenancy. The Tribunal also noted that the assessee's mother had not filed income tax returns for the relevant years, further questioning the legitimacy of the rental payments.The ITAT concluded that the entire arrangement appeared to be a sham transaction aimed at claiming HRA exemption illegitimately. The Tribunal highlighted the improbability of the assessee living separately from her husband and daughter in a smaller rented property while owning a larger, more suitable property nearby. The Tribunal dismissed the appeals, affirming the disallowance of HRA exemptions for all the assessment years in question.In summary, the Tribunal upheld the AO's and CIT(A)'s findings that the assessee's claim for HRA exemption was not genuine and was rightly disallowed under Section 10(13A) of the Income Tax Act, 1961.Conclusion:The appeals filed by the assessee for the assessment years 2009-10 to 2011-12 were dismissed, confirming the disallowance of HRA exemptions under Section 10(13A) of the Income Tax Act, 1961.