An Income Tax Appellate Tribunal bench here has held that an assessee cannot be granted exemptions on house rent allowances (HRA) against "sham" rent payments, like the one made to one's parents supported only by receipts.
The HRA exemptions claim cannot be allowed u/s 10 (13A) of the Income Tax Act based on "sham" rent payments supported only by purported rent receipts from parent sans other genuine supporting evidence, ruled the Mumbai bench of IATA recently.
The bench even enumerated an indicative list of documents as supporting evidence arising normally during a tenancy.
The documents may include leave and licence agreement, letter to society intimating about tenancy, payment through bank, cash payments backed with known sources, electricity bill payments through cheques, water bill payments through cheques etc besides the correspondence during the period of alleged tenancy, the bench said.
The assessee, a woman, had been asked by the IT Department to prove the genuineness of the transaction with adequate supporting documents to claim the HRA exemptions.
A chartered accountant working with a private firm, the assessee was a woman staying in her own house in Mumbai and had claimed deduction under section 80C of the Income Tax Act for housing loan repayment.
The assessment officer (AO) of the IT Department noted that the woman had also claimed benefit of section 10(13A) of the IT Act as HRA of Rs 2,52,040 received by her from her employer. The AO brought the amount subject to tax.
The woman's mother owned a One BHK flat near Tropicana housing society in suburban Andheri, which had been declared as residential address by her.
The assessee submitted that though she has got a self-occupied property, jointly held with her husband at Tropicana, she had to live with her mother in her house located nearby as the latter was sick and living alone.
The woman claimed she had to pay rent to her mother so that none of her siblings object to her staying at her mother's house. She further added her living in a rented property was purely a family matter.
The assessee also submitted that since the transaction was between a mother and daughter, no formal agreement had been executed.
She added that the rent receipts, however, were taken as an evidence of payment of rent for the income tax purposes.
The bench noted the assessee has claimed deduction under section 80C of the Income Tax Act, 1961 for repayment of housing loan availed for purchasing residential flat at Tropicana.
The woman also claimed that the said residential flat at Tropicana was a self-occupied residential property and the interest on housing loan availed for purchase of the said flat was claimed as loss under the head 'Income from House Property.'
She had also declared the flat in Tropicana apartment as her residential address in bank records, in ration card as well in return of income filed with Revenue Department.
The assessee admitted during the proceedings that she was living with her husband and daughter, which is emanating from the assessment order of the AO.
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