HRA Exemption not Available in Case of Rent Paid to Mother: ITAT Mumbai [Read Order]

In a recent ruling, the ITAT, Mumbai bench held that the claim for HRA Exemption cannot be allowed in case of rent paid to mother of the assessee. The bench clarified that the claim under section 10(13A) of the Income Tax Act cannot be based on sham transactions unless the assessee proves the genuineness of the transaction with adequate supporting documents.

The assessee in the instant case, is a Chartered Accountant, working with a Private Company. The assessee is staying in his own house in Mumbai as the assessee had claimed deduction under section 80C of the Income Tax Act for housing loan repayment. AO noted that the assessee had claimed beneft of section 10(13A) of the Income Tax Act as House Rent Allowance (HRA) of Rs. 2,52,040/- received by her from the employer. The AO brought the amount subject to tax.

The assessee submitted that assessee has aself occupied property jointly held with her husband at ‘Tropicana’, but she has to live in her mother’s house since her mother is a sick and single old lady and at the same time she has to pay her rent so that none of the other siblings raise any question on her staying and her living in a rented property is a purely family matter. It was submitted that since this transaction is between mother and daughter, no formal agreement was executed. However, rent receipts were collected for income tax purpose as an evidence of payment of rent. Assessee claimed that she has complied with all the requirements as stipulated u/s 10(13A) of 1961 Act and therefore, she is eligibile for exemption.

The bench noted that the assessee has claimed deduction under section 80C of the Income Tax Act 1961 Act for repayment of housing loan availed for purchasing residential flat at ‘Tropicana’ . The assessee has also claimed the said residential flat at ‘Tropicana’ as self occupied residential property and interest on housing loan availed for purchase of said flat at ‘Tropicana’ is claimed as loss under the head ‘Income from House Property. She has also declared the said address of ‘Tropicana’ as her residential address with Bank, in ration card as well in return of income filed with Revenue. The assessee has also admitted during the assessment proceedings that she is living with her husband and daughter which is emanating from the assessment order of the AO. The assessee’s mother Smt. P B Dorwani owns a 1 BHK residential flat in “Tropicana”. It was further noted that the mother has not filed income tax return in respect of rent received form her mother.

Confirming the addition, the bench said that the claim cannot be allowed under section 10(13A) of the Income Tax Act based on some sham transaction where the assessee has no supporting 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.