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ITAT Mumbai in the case of Meena Vaswani vs. ACIT in ITA No. 1983 to 1985/Mum/2015 dated 30.03.2017

·            The assessee is a chartered accountant working as Senior Finance and Accounts Executive with East India Hotels Limited.The AO during the course of assessment proceedings observed that the assessee is staying in his own house in Mumbai as the assessee had claimed deduction u/s 80C of the Act for housing loan repayment.

·            It was also observed by the AO that House Rent Allowance (HRA) received by the assessee from her employer was claimed as exempt by the assessee as per provisions of Section 10(13A) of the Act.Therefore, the AO rejected the contention of the assessee and held that the assessee needs to prove that she hired an accommodation and used it and paid the rent.

·            Aggrieved by the assessment order passed by the AO, the assessee filed first appeal before the Ld. CIT(A).The Ld. CIT(A) after considering the submission of the assessee rejected the same and observed that the AO had carried out detailed inquiries to establish that the claim of payment of rent by the assessee to her mother was not fully established.

·            Aggrieved by the appellate order passed the Ld. CIT(A), the assessee filed second appeal before the Tribunal.

·            It was submitted by the assessee that rent was paid regularly to her mother against which rent receipts were obtained and said rent was paid in cash. It was submitted that the AO treated rent receipts as self serving documents. The assessee also filed affidavit executed by her as well as a separate affidavit filed by her mother declaring the whole facts along with rent receipt.

·            The Hon’ble Tribunal observed that the assessee could not produce proof of cash withdrawals from her bank account to substantiate that the payments have been made by her to her mother towards rent, which were made out of withdrawals by her from her bank account.The Court further observed that the mother of the assessee had not filed return of income disclosing the said rental income received from the assessee, and in fact, no return of income had been filed by the mother of the assessee since last six assessment years.

·            The Court therefore was of the view that the assessee did not come forward with any evidence to substantiate its contentions except rent receipt, which was not backed by any known sources of cash held by the assessee as there were no cash withdrawal from bank account of the assessee.The assessee could not produce any evidence arising in the normal course of happening of transaction of hiring of premises such as leave and license agreement, letter to society intimating about her tenancy, payment through bank, cash payments backed with known sources, electricity bill payments through cheque, water bill payments through cheque, some correspondence coming during that period of alleged tenancy to prove that transaction of hiring of premises was genuine and was happening during the said period.

·            Therefore, the Hon’ble Tribunal held that the whole arrangement of rent payment by the assessee to her mother was a sham transaction, which was undertaken by the assessee with the sole intention to claim exemption of HRA u/s 10(13A) of 1961 Act, in order to reduce tax liability, and hence, exemption u/s 10(13A) of the Act was not allowed to the assessee as the payments towards rent were not genuine payments.

 

For further reading, refer the attachment.

  Further Reading
Posted on: 03-04-2017