HRA tax exemption for rent paid to mother (parents) is not allowed by the Mumbai Bench of Income Tax Appellate Tribunal in the case of Mrs. Meena Vaswani Vs. ACIT in ITA No. 1983/Mum/2015 for failure on the part of the assessee to prove the genuineness of the rent paid by the assessee to her mother for renting of the apartment and usage of the apartment by the assessee.
Read the case details.
Case Title
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Mrs. Meena Vaswani Vs. ACIT, Mumbai
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Court
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ITAT, Mumbai Bench, Mumbai
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Appeal No./Citation
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ITA No. 1983/Mum/2015
ITA No. 1984/Mum/2015 ITA No. 1985/Mum/2015 |
Section covered
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10(13A)
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Order Result
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Appeal dismissed. Decided against the assessee.
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Date of judgment
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30.03.2017
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Facts of the case:
Three appeals were filed for three different assessment years and the ITAT disposed of all the three appeals by a common order.
The assessee is a Chartered Accountant and working as a senior executive in a reputed company. The case was picked up for scrutiny assessment and the assessment was framed u/s 143(3) of the Income Tax Act, 1961 (the Act) and u/s 148 for the preceding assessment year.
In the assessment order, the AO disallowed the claim of the assessee for exemption from the rent payment u/s 10(13A) from the house rent allowance received by the assessee from her employer. The assessee claimed the HRA tax exemption for rent paid to her mother. In addition, she also claimed interest on the home loan paid for acquisition of a self-occupied property jointly with her husband.
During the course of assessment proceedings, the assessee contended that she was staying with her mother and paid the rent in cash to her mother. The Assessing Officer verified the claim of the assessee by deputing his Inspector for physical verification of the rented house of the assessee. The Inspector interviewed the secretary and watchman of both the apartments and found that she never stayed with her parents rather was staying with her husband and daughter in her own apartment which is five-minute walking distance from her mother's apartment. The AO also sent a notice u/s 133(6) calling for information to her mother which was never replied.
The AO also found that her mother never filed any income tax return before showing any rental income.
The assessee failed to provide any leave and license agreement or rent agreement between herself and her mother. Though she produced rent receipts but could not substantiate the source of cash payments of rent to her mother. The AO found that neither the assessee had cash withdrawals from the bank account to justify the payment of rent nor any other income in cash is offered to tax.
Thereafter, the AO came to the conclusion that the assessee did not occupy the mother's house and no rent payment was actually made by the assessee and the claim of HRA tax exemption was a bogus one only to avoid payment of taxes and thus disallowed the HRA tax exemption claim of the assessee.
The assessee filed an appeal before the CIT(A) who confirmed the addition. Thus, the assessee preferred the second appeal before the Tribunal.
The assessee is a Chartered Accountant and working as a senior executive in a reputed company. The case was picked up for scrutiny assessment and the assessment was framed u/s 143(3) of the Income Tax Act, 1961 (the Act) and u/s 148 for the preceding assessment year.
In the assessment order, the AO disallowed the claim of the assessee for exemption from the rent payment u/s 10(13A) from the house rent allowance received by the assessee from her employer. The assessee claimed the HRA tax exemption for rent paid to her mother. In addition, she also claimed interest on the home loan paid for acquisition of a self-occupied property jointly with her husband.
During the course of assessment proceedings, the assessee contended that she was staying with her mother and paid the rent in cash to her mother. The Assessing Officer verified the claim of the assessee by deputing his Inspector for physical verification of the rented house of the assessee. The Inspector interviewed the secretary and watchman of both the apartments and found that she never stayed with her parents rather was staying with her husband and daughter in her own apartment which is five-minute walking distance from her mother's apartment. The AO also sent a notice u/s 133(6) calling for information to her mother which was never replied.
The AO also found that her mother never filed any income tax return before showing any rental income.
The assessee failed to provide any leave and license agreement or rent agreement between herself and her mother. Though she produced rent receipts but could not substantiate the source of cash payments of rent to her mother. The AO found that neither the assessee had cash withdrawals from the bank account to justify the payment of rent nor any other income in cash is offered to tax.
Thereafter, the AO came to the conclusion that the assessee did not occupy the mother's house and no rent payment was actually made by the assessee and the claim of HRA tax exemption was a bogus one only to avoid payment of taxes and thus disallowed the HRA tax exemption claim of the assessee.
The assessee filed an appeal before the CIT(A) who confirmed the addition. Thus, the assessee preferred the second appeal before the Tribunal.
Issues:
Whether assessee can claim HRA tax exemption from house rent allowance for rent paid to the mother of the assessee?
Arguments of the assessee:
Before the Tribunal, assessee's repeated the fact that the assessee was staying with her mother and was regularly paying monthly rent in cash to her mother. The A/R of the assessee also rebutted the findings of the Inspector which was negated by the Tribunal. Before the Tribunal, the assessee and her mother, for the first time, filed an affidavit declaring the whole facts along with rent receipts which were held as additional evidence by the Tribunal.
Arguments of the department:
Before the Tribunal, the Ld. D/R submitted that the claim of the assessee u/s 10(13A) was a wrong claim as no rent was actually paid by the assessee and the rent payment was shown only to take exemption of HRA u/s 10(13A). He relied upon the report of the Inspector and further submitted that assessee's mother never filed any return in the last six assessment years and the assessee's various documents like ration card, bank statements and even the return of income filed by the assessee shows the address of the assessee's apartment in which she stays with her husband and daughter. In the return of income, the assessee has shown that apartment as self-occupied house property and also claimed deduction u/s 80C of the Act for repayment of housing loan taken for acquisition of that house property. The interest paid on the housing loan was also claimed as a loss under the head 'Income from House Property' by the assessee.
This decision is contrary to the decision of the ITAT, Ahemdabad in the case of Bajrang Prasad Ramdharani vs ACIT (ITA No. 715/Ahd/2013) where the Tribunal decided the case in favour of the assessee and allowed the HRA tax exemption u/s 10(13A) to the assessee since in that case, the assessee satisfied the twin conditions as stipulated in the provision.
The Ld. D/R continued that assessee's mother had pension income and if the rent income was included, her income would exceed the basic exemption limit which is rebutted by the assessee in the rejoinder.
The Decision:
The Tribunal observed that the assessee had received HRA from her employer as a part of her remuneration which was claimed as exempt u/s 10(13A) on the ground that she had paid monthly rent to her mother and claimed that she was staying with her mother. It further observed that though the assessee produced the rent receipts before the lower authorities but could not produce proof of cash withdrawals from her bank account to substantiate that rent was paid to her mother out of withdrawals from her bank account. It also noted that the assessee's mother did not file any return of income disclosing the rental income received from the assessee. It also discussed on the personal visit and report of the Inspector and the non-compliance of notice issued u/s 133(6) by the assessee's mother.
It held that the affidavits filed by the assessee and her mother constitute additional evidence for which no application has been made by the assessee as per rules nor any reasons were specified for non-furnishing the same before the lower authorities.
Finally, after discussing the case at length, the Tribunal came to conclusion that whole arrangement of rent paid by the assessee to her mother was a sham transaction which was undertaken with the sole intention to claim exemption of HRA u/s 10(13A) of the Act in order to reduce her tax liability and dismissed the appeal of the assessee. It held that the exemption u/s 10(13A) cannot be allowed to the assessee as the payment towards rent were not a genuine payment.
Analysis:
It held that the affidavits filed by the assessee and her mother constitute additional evidence for which no application has been made by the assessee as per rules nor any reasons were specified for non-furnishing the same before the lower authorities.
Finally, after discussing the case at length, the Tribunal came to conclusion that whole arrangement of rent paid by the assessee to her mother was a sham transaction which was undertaken with the sole intention to claim exemption of HRA u/s 10(13A) of the Act in order to reduce her tax liability and dismissed the appeal of the assessee. It held that the exemption u/s 10(13A) cannot be allowed to the assessee as the payment towards rent were not a genuine payment.
Analysis:
The text of section 10(13A) is reproduced below-
(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.
Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where—
(a) the residential accommodation occupied by the assessee is owned by him; or
(b) the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him;
The Tribunal decided the case against the assessee due to the fact that the assessee failed to satisfy twin conditions of section 10(13A)-
1. The assessee was not occupying the residential house property for which rent was paid. In fact, the assessee was staying in another house property with her husband and daughter and not with her mother.
2. The assessee did not actually pay the rent. The assessee failed to prove the payment made to the landlord. The assessee contended that the rent was paid in cash. Being a salaried individual, there were no sufficient cash withdrawals from the bank account to justify the rent payments in cash.
Also Read:
ITAT Allows HRA Exemption for Rent Paid to Wife
Full text of the judgment:
Date of
Pronouncement : 30-03-2017
These three appeals filed by the assessee are directed against three separate appellate orders all dated 27th January, 2015 passed by the learned Commissioner of Income Tax(Appeals)- 46, Mumbai (Hereinafter called “the CIT (A)”) pertaining to the assessment year’s 2009-10 to 2011-12. Since identical issues are involved in all three appeals, these appeals were heard together and are disposed of by this common order for the sake of convenience and brevity.
2. The common grounds of appeal raised by the assessee in all these appeals (only difference in amount) in the memo of appeals filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“The appellant objects to the order dated 27/01/2015 passed by Additional Commissioner of Income Tax - 26 (1), Mumbai passed u/s 143(3) of the Income Tax Act, 1961 for the Assessment Years 2009-10 to 2011-12 on the following amongst the other grounds:
1. The learned Assessing Officer has erred in disallowing HRA exemption u/s l0(13A) amounting to Rs.2,21,640/- (for A.Y. 2009-10) Rs. 2,52,000/- (For A.Y. 2010-11) & Rs. 2,58,000/- (For A.Y. 2011-12) without appreciating the facts of the case in the right perspective.
2. The ground of appeal is without prejudice to the other.”
3. First, we shall take up the appeal filed by the assessee in ITA No. 1984/Mum/2015 for assessment year 2010-11a as we have observed that AO while making disallowance of House Rent Allowance exemption u/s 10(13A) of 1961 Act for the assessment year 2009-10 has relied upon the assessment order dated 28-03-2013 passed by AO u/s 143(3) of 1961 Act for the assessment year 2010-11, based upon which notice dated 05-04-2013 u/s 148 of 1961 Act was issued by AO for reopening of assessment for assessment year 2009-10.
4. The Brief facts of the case as they will unfold are in a very narrow compass . The assessee is a chartered accountant working as Senior Finance and Accounts Executive with East India Hotels Limited. The A.O. during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of 1961 Act 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) of Rs. 2,52,040/- received by the assessee from her employer was claimed as exempt by the assessee as per provisions of Section 10(13A) of the Act. The assessee was asked by the AO vide SCN dated 14-02-2013 as to why HRA claimed as exempt should not be added to income of the assessee and consequently brought to tax under the provisions of 1961 Act. The assessee submitted that she has paid a rent of Rs.31,500/- per month to her mother in cash.
The A.O. observed that the assessee has shown her residential address as 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai( hereinafter called “Tropicana” ) in return of income filed with Revenue which address also appears in the ration card as well as the bank account maintained with Saraswat Co-op. Bank, Juhu Branch. The AO also observed that the assessee has claimed this property at ‘Tropicana’ as a self occupied property(SOP) and has also claimed loss from self occupied house property being interest on housing loan amounting to Rs.13,888/-. Thus it was observed by AO that assessee was claiming loss from self occupied property and also claiming exemption u/s.10(13A) of the Act. The AO asked assessee to furnish leave and license agreement with respect to property claimed to be taken on rent, and need of hiring a house property when one property has been claimed as self occupied being residential flat situated at ‘Tropicana’ itself.
The assessee submitted that assessee has a self occupied property jointly held with her husband at ‘Tropicana’ but she has to live in her mother's house at A-3, Ground floor, Neha Apartment, Seven Bunglows, Andheri, Mumbai (Hereinafter called “Neha Apartments”) and pay her rent for her day to day living cost. The assessee submitted that she has no option but to live with her mother at ‘Neha Apartments’ as 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. The assessee submitted that it complied with all the requirements as stipulated u/s 10(13A) of 1961 Act and there is no violation by the assessee while claiming exemption u/s 10(13A) of 1961 Act.
The A.O. 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.The contention of the assessee that payment of rent was a family affair and no leave and license agreement was entered was rejected by the AO as it was observed by the AO that if the rent is paid the relation between the parties was a contractual relation even if it is between family members also, and it needs to be supported by documentary evidence to prove the same. It was observed by the AO that if the rent was paid by the assessee to help her mother who was old and sick to meet her day to day living cost does not entitle assessee to claim exemption of HRA u/s 10(13A) of 1961 Act.
The A.O. deputed Ward Inspector to make an enquiry to verify claim of the assessee that she is living with her mother at ‘Neha Apartments’ and paying rent to her mother. The inspector visited the residential premises of mother of the assessee Smt. P.B. Dorwani, situated at A-3, Ground floor, Neha Apartment, Seven Bunglows, Andheri, Mumbai and served notice u/s 133(6) of the Act on mother of the assessee Smt. P.B.Dorwani who was present at the said premises. The Ward Inspector in his report stated that Smt. P.B. Dorwani is staying in a one BHK residential flat having an area of 400 sq. ft. at ‘Neha Apartments’. The Ward Inspector reported that Smt P.B.Dorwani has three daughters and one of them Ms. Vimla who is unmarried is staying in the said flat at ‘Neha Apartments’ with Smt. P.B. Dorwani and another daughter Ms. Meena Vaswani i.e. assessee is staying at ‘Tropicana’ with her family consisting of husband and daughter , while the third daughter Ms Kamla is staying at Thane. The Inspector also visited premises at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai which is only five minutes walking distance from the residential flat of Mrs. P B . Dorwani and confirmed that the assessee Mrs. Meena D. Vaswani is staying at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai which is a 2 BHK flat for the last many years with her husband and her daughter.
The AO observed that ward inspector report clearly reveals that the assessee is staying at ‘Tropicana’ and not with her mother Smt P B Dorwani at ‘Neha Apartments’ as claimed by the assessee. The AO also observed that Secretaries and watchman of these two societies ( where ‘Tropicana’ and ‘Neha Apartments’ are situated)also confirmed that the assessee is not staying with her mother but with her husband and accordingly the AO concluded that the rent receipt issued by mother of the assessee are merely to claim the benefit of exemption of HRA received u/s 10(13A) of 1961 Act
The A.O. also observed that the assessee’s had herself submitted vide letter dated 6th March, 2013 that the assessee is a qualified chartered accountant living with her husband, who is also a qualified chartered accountant and a daughter (student) and most of the household expenses were being taken care of by the husband of the assessee. .It was also submitted by the assessee that there are not many withdrawals for household expenses except the payment of mobile bills by cheque. The assessee also could not produce Mrs. P.B. Dorwani for examination before the AO nor Mrs. Dorwani filed any details subsequent to serving of notice u/s. 133(6) of the Act. The A.O. after verifications ,also found that Mrs. P.B. Dorwani was not filing any return of income with Revenue for last six assessment years. However, on 21-03-2013 the assessee filed a copy of the return of income filed with the Revenue by Mrs. P.B. Dorwani for assessment year 2011-12 and the return of income was found to be filed for the first time on 21st March, 2013 itself which shows that return of income was filed by Mrs P B Dorwani with Revenue only because the verification was being done by the AO regarding the offering of the rent received from assessee by her mother Mrs. P B Dorwani as income in the hands of Mrs. P.B. Dorwani. The A.O. observed that the assessee's mother Mrs. P.B. Dorwani receives pension from her employer and rental income if received has to be offered for taxation by her. It was observed that Mrs. P.B. Dorwani had not filed any return of income for the relevant assessment year disclosing any income from house property till this issue was raised during the assessment proceedings on 4th October, 2012. It was also held by the AO that Smt. P B Dorwani lives in her one bed room flat of 400 square feet along with her unmarried daughter Ms Vimla and not with the assessee.It was also held by the AO that the assessee cannot claim both the benefits u/s 10(13A) and 24(1) of 1961 Act. The AO also held that there is no leave and license agreement and there is no proof of stay of assessee with her mother, thus, genuineness of payment of rent is not established by the assessee. The A.O. accordingly came to the conclusion that the assessee is neither staying in her mother's flat, nor paying any rent to her and therefore the assessee’s claim of exemption of HRA u/s.10(13A) is totally wrong and bogus and accordingly AO added the amount of Rs. 2,52,000/- to the total income of the assessee which was claimed as exempt by the assessee u/s 10(13A) of 1961 Act, vide assessment order dated 28-03-2013 passed by the AO u/s 143(3) of 1961 Act.
5. Aggrieved by the assessment order dated 28-03-2013 passed by the A.O. u/s 143(3) of 1961 Act , the assessee filed first appeal before the ld. CIT(A).
6. Before the ld. CIT(A), the assessee submitted that the assessee is staying at A-3, Ground floor, Neha Apartment, Seven Bunglows, Andheri, Mumbai on rental basis by paying monthly rent of Rs. 31,500/- to her mother Mrs P B Dowani as the said apartment is owned by assessee’s mother Mrs P B Dorwani. The assessee submitted that she was paying rent on regular basis in cash to her mother Mrs P B Dorwani for renting of her mother’s flat at ‘Neha Apartments’ and exemption of HRA u/s 10(13A) of 1961 Act was rightly claimed. The assessee submitted before learned CIT(A) that rent receipts were duly submitted in assessment proceedings before the AO. The assessee submitted that the inference drawn by the Inspector was incorrect due to the following grounds:-
“1. Ms. Vimla who is unmarried does not stay with Smt. P. B. Dorwani since she has her own ownership flat at Bhayander.
2. Secondly, the fact that Mrs. Meena Vaswani is staying at 30I-Tropicana, it is clarified that the appellant actually shifted to Tropicana Apt. in A. Y. 2013-14 and hence no HRA was claimed for the A. Y. 2013-14 onwards.
3. The payment of rent to Mrs. Dorwani actually pertains to A.Y. 2010-11 whereas the Inspector visited on 12.03.2013.
4. The statement of the watchman does not hold ground, since the watchman keeps changing on a monthly basis.
5. Statement of Mr. Girish Raheja and Mr. Govind Thawani, if any in the capacity of a Secretary, deserves to be condemned in totality since the statement of the Secretary cannot be treated as "Evidence" especially since he is neither authorized to keep constant watch about the movement of any member residing in or moving out nor his statement for past events can be considered as "Evidence" by any stretch of imagination.
6. It is worth mentioning that even the Inspector did not record the statement of Mrs. P.B. Dorwani on his visit on 12. 03.2013.
Thus, the assessee submitted that the conclusion drawn by the Inspector in his report was purely on surmises and conjectures and that no adverse inference could be drawn against the assessee without any documentary evidence to support the inspector report. The assessee submitted that confirmations obtained by the Inspector from the Secretary of the societies and watchman cannot be inferred as crucial evidence by any stretch of imagination. The assessee contended that the rent receipts are valid documentary evidence for claiming exemption of HRA u/s 10(13A) of 1961 Act.
The ld. CIT(A) after considering the submission of the assessee rejected the same and observed that the A.O. had carried out detailed inquiries to establish that the claim of payment of rent by the assessee to her mother was not fully established. The ld. CIT(A) observed that the assessee has a bigger flat owned by her at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai in which the assessee and her husband and children reside and no pressing need is shown by the assessee as to why the assessee stayed with her mother in a small flat of 400 square feet at ‘Neha Apartments’ while leaving her bigger flat at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai with family, which is five minute walking distance away. The assessee’s claim that Ms. Vimla was not staying with Mrs. P.B. Dorwani as she has own flat at Bhayander and also the claim that the assessee shifted back to ‘Tropicana’ in assessment year 2013-14 and was staying with her mother was a self serving statement which are not supported by any evidence on record. The learned CIT(A) also gave credence to inspector report and statement of Secretaries and Watchman of the society who had confirmed that the assessee was not staying with her mother but was staying at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai with her husband and daughter and observed that the said statements could not be rebutted by the assessee. Hence, the ld. CIT(A) rejected the contention of the assessee and held that the assessee grossly failed to establish that she was staying with her mother and paying rent to her mother and hence , as such learned CIT(A) held that the exemption of HRA u/s 10(13A) of the Act was rightly denied to the assessee by the AO, vide appellate orders dated 27-01-2015 passed by learned CIT(A).
7. Aggrieved by the appellate order dated 27-01-2015 passed the ld. CIT(A), the assessee filed second appeal before the Tribunal.
8. The ld. counsel for the assessee submitted that the assessee is an individual being a chartered accountant working as Senior Finance and Accounts Executive in East India Hotels Ltd. . The assessee received HRA which was claimed as exempt u/s 10(13A) of the Act. The assessee is paying rent to her mother Smt. P B Dorwani of Rs. 31,500/- per month which was paid in cash and monthly rent receipts were produced before the A.O. . The ld. Counsel for the assessee submitted that the A.O. doubted the genuineness of rent paid by the assessee and deputed Ward Inspector for verification and the Ward Inspector submitted his report on 12th March, 2013 wherein Ward Inspector stated that the asssesse is not staying at premises at ‘Neha Apartments’ which is owned by mother of the assessee and rather the assessee is staying at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai with her husband and daughter which residential flat at ‘Tropicana’ is owned by assessee jointly with her husband . The enquiry has been made by Ward Inspector from the watchman and Secretaries of the Societies who stated that the assessee is staying at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai and not at residence owned by mother Mrs P B Doorwani at ‘Neha Apartment’ for which rent was paid by the assessee. The distance between the residence owned by the assessee at ‘Tropicana’ and her mother residence at ‘Neha Apartments’ is only five minute walking distance. It is submitted by learned counsel for assessee that the assessee’s mother is a old and sick lady. The learned counsel for the assessee submitted that other daughter of Smt P B Dorwani i.e Ms Vimla is staying at Bhayander and not with mother of the assessee at ‘Neha Apartment’ as contended by Inspector in his report. It is submitted that the third daughter of Mrs P B Dorwani namely Ms Kamla stays at Thane while the assessee stays with Mrs P B Dorwani at ‘Neha Apartments’ for which rent of Rs. 31,500/- per month is paid by the assessee. It is submitted that rent was paid regularly to Mrs P B Dorwani against which rent receipts were obtained and the said rent was paid in cash. It was submitted that the AO treated rent receipts as self serving documents. It was submitted that rent paid by the assessee was not treated as genuine by the authorities below. The learned counsel reiterated the submissions as were made before lower authorities. The assessee also filed affidavit executed by her as well separate affidavit filed by her mother declaring the whole facts along with rent receipt which were filed along with written submissions which are placed in file. The assessee prayed for allowability of claim of exemption of HRA u/s 10(13A) of 1961 Act .
9. The ld. D.R. on the other hand submitted that the assessee had claimed deduction u/s 10(13A) of 1961 Act which is a wrong claim as no rent was paid by the assessee and the said alleged rent of Rs. 31,500/- per month being paid to mother was shown only to take exemption of HRA u/s 10(13A) of 1961 Act. The A.O. had conducted detailed enquiry by deputing the Ward Inspector who reported that the assessee is staying with her husband and daughter at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai and not with her mother at ‘Neha Apartments’ . No payments of alleged rents were made by cheque and the alleged rent is stated to be paid in cash. The A.O. verified the bank statements and there were no payments by cheque of rent to mother of the assessee as well drawings from bank are minimal as also admitted by the assessee that her household expenses were met by her husband and only payments for mobile bills were made from bank account of the assessee. No leave and license agreement has been produced by the assessee and only rent receipts were submitted. There is no independent evidence submitted by the assessee to prove of being living in the residential apartments at ‘Neha Apartment’ owned by mother of the assessee namely Mrs P B Dorwani for which rent is being allegedly paid by the assessee. The ld. D.R. submitted that no intimation has been given to the society of ‘Neha Apartments’ by the assessee about the stay of the assessee with her mother. On verification by the A.O., it was revealed that Mrs. P.B. Dorwani was not filing any return of income with Revenue for last six assessment years and only after enquiry was started to verify genuineness of HRA exemption claimed by the assessee on 14-10-2012, the said Mrs P B Dorwani i.e. mother of the assessee filed return of income for assessment year 2011-12 only on 21st March, 2013. It was submitted that the AO verified ration card, bank statements and also return of income filed by the assessee and the assessee is showing her residence at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai in the afore-stated documents and not at ‘Neha Apartments’ as her residence. It is submitted by learned DR that the assessee has claimed exemption of HRA u/s 10(13A) of 1961 Act and also assessee has shown apartment at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai as self occupied property and deduction u/s 80C of 1961 Act was claimed towards the housing loan repayment for loan borrowed for purchase of residential flat at ‘Tropicana’. The learned DR submitted that residential flat owned by the assessee at ‘Tropicana’ is a joint property with her husband and was declared as self occupied property by the assessee and benefit of interest payments were also availed by the assessee to claim loss under the head ‘income from house property’. It was submitted by learned DR that no reply was filed against the issue of notice u/s 133(6) of the Act to Mrs P B Dorwani which was duly served on Mrs P B Dorwani. The assessee did not produce her mother before the authorities below was the contention of learned DR.. It was submitted by learned DR that whereas now the assessee has filed before the tribunal an affidavit executed by Mrs P B Dorwani which is to be rejected as the same is filed for the first time before ITAT after 4 years. It was submitted that this constitute additional evidence which should not be admitted by tribunal. The learned DR submitted that Ward Inspector had made detailed enquiry with Secretaries and watchman of both the societies which clearly reveals that the assessee is not staying with her mother at ‘Neha Apartments’ rather the assessee is staying in her own flat at ‘Tropicana’ . It is also submitted by learned DR that the contention of the assessee that the unmarried daughter Ms Vimla is staying in Bhayender and not with her mother at ‘Neha Apartments’ is not supported by any evidence on record . It was submitted that rent receipts are self serving documents as both the assessee and her mother to whom rent was paid are closely related to each other being daughter and mother. The assessee is a qualified chartered accountant and she was fully aware of the legal requirements for availing exemption of HRA u/s 10(13A) of 1961 Act and also that mother of the assessee has pension income and if rent is included then she will have income exceeding minimum amount not chargeable to tax and she will be liable to file return of income with Revenue and pay due taxes which was not done by mother of the assessee. It was submitted that no such return of income was filed by said Mrs P B Dorwani for the last six assessment years.The learned DR relied upon orders of the learned CIT(A).
10. In the rejoinder, the ld. Counsel for assessee submitted that there is no bar to the rent being paid in cash. There is no requirement imposed by law on the assessee to inform Society of ‘Neha Apartments’ that the assessee is staying with her mother at her mother’s flat at ‘Neha Apartment’. The assessee’s mother is a senior citizen who is drawing meager pension of Rs. 8000 per month and her taxable income will be less even if rental income is included.It was submitted that there is no finding by lower authorities that income of mother of the assessee exceeded minimum amount not chargeable to tax and is having an taxable income. Ward Inspector’s report cannot be relied upon. It was submitted that no evidence was called for by the authorities below to prove that the unmarried daughter of Mrs P B Dorwani namely Ms. Vimla stays at Bhayander.
11. We have considered rival contentions and perused all the materials placed on record. We have observed that the assessee is an individual being a qualified chartered accountant working with East India Hotels Limited as Senior Finance and Accounts Executive. The assessee husband incidentally is also qualified chartered accountant. The couple had one daughter. The assessee owned a 2BHK residential flat at ‘Tropicana’ which is jointly owned by the assessee with her husband. The assessee has claimed deduction u/s 80C of 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. The assessee has 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 of 400 square feet at ‘Neha Apartments’ which is just five minutes walking distance from ‘Tropicana’. Smt P B Dorwani has three daughters namely assessee who is married , Ms Kamla who is staying at Thane and one unmarried daughter Ms Vimla. The assessee has received HRA of Rs.2,52,000/- from her employer as a part of her remuneration which was claimed as exempt u/s 10(13A) of the Act on the ground that she had paid rent of Rs. 31,500/- per month to her mother Mrs. P B Dorwani towards renting of her residential flat situated at ‘Neha Apartments’ , wherein assessee has claimed that she was staying with her mother at ‘Neha Apartments‘ instead of staying in her own flat at ‘Tropicana’ which is only five minute walking distance. It is also observed that no leave and license agreement was entered into by the assessee with her mother for renting of ‘Neha Apartment’. The rent receipts issued by Mrs P B Dorwani were however duly produced before the authorities below and rent was stated to be paid regularly in cash. It is undisputed that no cheque has been issued by the assessee to Mrs P B Dorwani towards rent. The assessee also could not produce any document showing the intimation given by her to the society of ‘Neha Apartments’ regarding her stay with her mother. It is also an undisputed position that the assessee could not produce proof of cash withdrawals from her bank account to substantiate that the payment have been made by her to her mother towards rent which were made out of withdrawals by her from her bank account. The assessee in-fact admitted that household expenses were met by her husband and withdrawal from her bank account is minimum as cheques were issued only for mobile bill payments. The assessee has produced the rent receipt to substantiate that the rent has been paid by the assessee. It is also noticed that the mother of the assessee has not filed return of income with Revenue disclosing the said rental income received from the assessee. No return of income has been filed by the mother of the assessee since last six assessment years. The ward inspector was deputed by the AO to verify the contentions of the assessee who has reported that the assessee is staying at ‘Tropicana’ and not at ‘Neha Apartments’ . The report was submitted by Inspector after personally visiting both the residential flats at ‘Tropicana’ and ‘Neha Apartments’ and after making due enquiries from Secretaries and watchman of the two societies of ‘Tropicana’ and ‘Neha Apartments’ .It was also stated by the inspector in his report that flat at ‘Neha Apartment’ is one BHK flat of 400 square feet wherein mother of the assessee namely Mrs P B Dorwani lives with her unmarried daughter Ms Vimla. Notices u/s 133(6) of 1961 Act were served on mother of the assessee Mrs P B Dorwani but no replies were submitted by said Mrs. P B Dorwani to the said notice. The assessee also did not produce Smt. P.B. Dorwani, mother of the assessee before the AO. No cogent reasons are brought on record for non-compliance of notices u/s 133(6) of 1961 Act nor any reasons were forthcoming for non production of Mrs P B Dorwani before the authorities below, more so opportunities were accorded to the assessee by the AO and even at the stage of appellate proceedings before learned CIT(A) to substantiate its claim. The assessee has now filed affidavit of her mother Mrs P B Dorwani for the first time before the tribunal stating that the assessee has paid rent of Rs. Rs.31,500/- to her mother during the previous year relevant assessment year and residential flat at ‘Neha Apartment’ was taken on rent by the assessee from her mother Mrs. P B Dorwani . The said affidavit filed by the assessee of her mother as well an affidavit of her ( both placed in file ) constitute additional evidences for which no application has been made by the assessee for admission of additional evidences as contemplated u/r 29 of Income-tax(Appellate Tribunal) Rules, 1963 nor any reasons have been specified for non furnishing of the same before authorities below. However, on perusal of the content of the two affidavits it is seen that the reiteration is made of the contentions of the assessee before lower authorities which were already on record. The assessee has also submitted that inspector report was not provided to the assessee by the AO and no opportunity was given for cross examination of the incriminating information provided to the ward inspector by the Secretary and Watch man of the two societies of the residential apartments situated at ‘Tropicana’ and ‘Neha Apartments’. We have observed that the assessee as well her husband both are qualified chartered accountants and are well versed with the law. The assessee is contemplating paying rent to her mother for taking her premises on rent for her residential purposes. The assessee did not produce any evidence except rent receipts to substantiate that there was actual hiring of premises by the assessee for which rent is paid. The rent is paid in cash against which there are no withdrawal of cash from bank shown by the assessee. The assesse herself admitted that there are minimal withdrawal from her bank account as household expenses are incurred by her husband. The assessee could not explain and reconcile said cash payments of rent with known sources of cash as the cash was not withdrawn from bank. This rent receipt prepared by her mother does not inspire confidence. There are no other evidences available which relate to the period when the transaction of hiring of the premises by the assessee in the normal course of renting of premises was progressing . The evidences at the time of transactions which are normal to are relevant and cogent evidence to substantiate the assessee’s contentions. These facts are especially in the knowledge of the assessee and burden is on the assessee to bring out these evidences to substantiate her contentions that rent paid was genuine but such evidences are not forthcoming . The assessee did not come forward with any evidence to substantiate its contentions except rent receipt which is not backed by any known sources of cash held by the assessee as there were no cash withdrawal from bank account of the assessee
Section 106 of Indian Evidence Act, 1872 is relevant which stipulates as under:
“Section 106 in The Indian Evidence Act, 1872
106. Burden of proving fact especially within knowledge.—When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him. Illustrations
(a) ****
(b) A is charged with travelling on a railway without a ticket. The burden of proving that he had a ticket is on him.”
Section 6 of Indian Evidence Act, 1872 is also relevant in this context which is reproduce hereunder:
“Section 6 in The Indian Evidence Act, 1872
6. Relevancy of facts forming part of same transaction.—Facts which, though not in issue, are so connected with a fact in issue as to form part of the same transaction, are relevant, whether they occurred at the same time and place or at different times and places. Illustrations
(a) to (c) ****
(c) A sues B for a libel contained in a letter forming part of a correspondence. Letters between the parties relating to the subject out of which the libel arose, and forming part of the correspondence in which it is contained, are relevant facts, though they do not contain the libel itself.”
(d) The question is, whether certain goods ordered from B were delivered to A. The goods were delivered to several intermediate persons successively. Each delivery is a relevant fact.”
The doctrine of Res gestae will set in. 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. In-fact we have observed that no such cogent evidence has been brought on record which could substantiate that the assessee had taken the said premises on rent from her mother as no evidence of her actually staying at the said premises were produced on record. The assessee was in-fact staying in her own flat at ‘Tropicana’ with her husband which is emanating from various evidences which are on record such as ration card, bank statements, return of income filed with Revenue etc which is also in consonance with normal human conduct of Indian married women living with her husband and daughter in a residential flat owned by the assessee jointly with husband , the assessee also did not bring any cogent evidence to substantiate that she had taken the residential flat at ‘Neha Apartment’ on rent from her mother. The mother of the assessee has also not filed return of income since last six assessment years and said rental income was not brought to tax in the hands of mother of the assessee . The assessee could also not able to bring on record any cogent evidence to prove that her un-married sister Ms Vimla was living at Bhayander. Even on touchstone of preponderance of human probabilities , it is quite improbable that the assessee was living with her mother at ‘Neha Apartments’ and paying her substantial rent of Rs. 31,500/- per month for a small flat of 1 BHK of 400 square feet while her own house was at just five minute walking distance at ‘Tropicana’ . It is also improbable that the assessee being a married lady will leave her husband and daughter and start living with mother at another residential flat which is just five minute walking distance and pay huge rent per month. It is different matter that the assessee may look after her old and sick mother by frequent visits but this theory of rent as set out by the assessee did not inspire confidence keeping in view material produced before us. It is also probable that the assessee may contribute towards looking after her old and ailing mother out of salary but the same is not sufficient to claim exemption u/s 10(13A) of 1961 Act. Looking into all these factual matrix of the case before us, we are of considered view that the whole arrangement of rent payment by the assessee to her mother is 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 in our considered view, exemption u/s 10(13A) of the Act cannot be allowed to the assessee as the payments towards rent are not genuine payment . The evidences on record are speaking loudly which is just opposite to what the assessee is contending. Even if we eschew report of inspector , then also material on record do not inspire confidence that the transaction of rent was a genuine transaction as discussed by us in detail above. The right of cross examination is not absolute. The assessee has to first discharge its primary onus cast under law and if the same stood duly discharged which is not rebutted by authorities , but despite that then also the authorities proceed to put assessee to prejudice solely relying on the basis of incriminating statement recorded of third party at the back of the assessee, then certainly the right to cross examination the said third party whose incriminating statement recorded at the back of the assessee is relied upon by authorities to prejudice the assessee will become absolute. But in the instant case , primary onus cast on the assessee itself did not stood discharged by the assessee as discussed above. The assessee could not prove the genuineness of the rent paid by the assessee to her mother Mrs. P B Dorwani for alleged renting of ‘Neha Apartments’ and usage of the said premises ‘Neha Apartments’ by the assessee. Under these circumstances, we find no infirmity in the order of the ld. CIT(A) and we confirm the same and dismiss the appeal of the assessee. We order accordingly.
12. In the result, appeal of the assessee in ITA no. 1984/Mum/2015 for assessment year 2010-11 is dismissed.
13. Our above decision in ITA No. 1984/Mum/2015 for assessment year 2010-11 shall apply mutatis mutandis to the assessee’s other appeals in ITA No. 1983/Mum/2015 for assessment year 2009-10 and ITA No. 1985/Mum/2015 for assessment year 2011-12 wherein the facts are identical.
14. In the result, appeals filed by the assessee in ITA No. 1983/Mum/2015 to 1985/Mum./2015 for assessment years 2009-10 to 2011-12 are dismissed.
IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH,
MUMBAI
BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
I.T.A. No.1983/M u m
/ 20 1 5
(As s e s sm e n
t Y ea r
: 20 09 - 10 )
I.T.A. No.1984/M u m
/ 20 15
(As s e s sm e n
t Y ea r
: 20 10 - 11 )
I.T.A. No.1985/M u m
/ 20 15
(As s e s sm e n
t Y ea r
: 20 11 - 12 )
Mrs. Meena Vaswani,
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v.
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ACIT – 26(1),
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301,
Tropicana 7 Bunglow,
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Mumbai.
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Near NanaNani Park,
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Andheri (W),
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Mumbai – 400 061.
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PAN : ACJPV8378B
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(Appellant)
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..
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(Respondent)
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Assessee by :
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Shri Snehal R. Shah, AR
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Revenue
by :
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Shri
B.S. Bist, DR
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||
Date of Hearing
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: 08-03-2017
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||
Date of
Pronouncement : 30-03-2017
O R D E R
PER BENCH
These three appeals filed by the assessee are directed against three separate appellate orders all dated 27th January, 2015 passed by the learned Commissioner of Income Tax(Appeals)- 46, Mumbai (Hereinafter called “the CIT (A)”) pertaining to the assessment year’s 2009-10 to 2011-12. Since identical issues are involved in all three appeals, these appeals were heard together and are disposed of by this common order for the sake of convenience and brevity.
2. The common grounds of appeal raised by the assessee in all these appeals (only difference in amount) in the memo of appeals filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“The appellant objects to the order dated 27/01/2015 passed by Additional Commissioner of Income Tax - 26 (1), Mumbai passed u/s 143(3) of the Income Tax Act, 1961 for the Assessment Years 2009-10 to 2011-12 on the following amongst the other grounds:
1. The learned Assessing Officer has erred in disallowing HRA exemption u/s l0(13A) amounting to Rs.2,21,640/- (for A.Y. 2009-10) Rs. 2,52,000/- (For A.Y. 2010-11) & Rs. 2,58,000/- (For A.Y. 2011-12) without appreciating the facts of the case in the right perspective.
2. The ground of appeal is without prejudice to the other.”
3. First, we shall take up the appeal filed by the assessee in ITA No. 1984/Mum/2015 for assessment year 2010-11a as we have observed that AO while making disallowance of House Rent Allowance exemption u/s 10(13A) of 1961 Act for the assessment year 2009-10 has relied upon the assessment order dated 28-03-2013 passed by AO u/s 143(3) of 1961 Act for the assessment year 2010-11, based upon which notice dated 05-04-2013 u/s 148 of 1961 Act was issued by AO for reopening of assessment for assessment year 2009-10.
4. The Brief facts of the case as they will unfold are in a very narrow compass . The assessee is a chartered accountant working as Senior Finance and Accounts Executive with East India Hotels Limited. The A.O. during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of 1961 Act 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) of Rs. 2,52,040/- received by the assessee from her employer was claimed as exempt by the assessee as per provisions of Section 10(13A) of the Act. The assessee was asked by the AO vide SCN dated 14-02-2013 as to why HRA claimed as exempt should not be added to income of the assessee and consequently brought to tax under the provisions of 1961 Act. The assessee submitted that she has paid a rent of Rs.31,500/- per month to her mother in cash.
The A.O. observed that the assessee has shown her residential address as 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai( hereinafter called “Tropicana” ) in return of income filed with Revenue which address also appears in the ration card as well as the bank account maintained with Saraswat Co-op. Bank, Juhu Branch. The AO also observed that the assessee has claimed this property at ‘Tropicana’ as a self occupied property(SOP) and has also claimed loss from self occupied house property being interest on housing loan amounting to Rs.13,888/-. Thus it was observed by AO that assessee was claiming loss from self occupied property and also claiming exemption u/s.10(13A) of the Act. The AO asked assessee to furnish leave and license agreement with respect to property claimed to be taken on rent, and need of hiring a house property when one property has been claimed as self occupied being residential flat situated at ‘Tropicana’ itself.
The assessee submitted that assessee has a self occupied property jointly held with her husband at ‘Tropicana’ but she has to live in her mother's house at A-3, Ground floor, Neha Apartment, Seven Bunglows, Andheri, Mumbai (Hereinafter called “Neha Apartments”) and pay her rent for her day to day living cost. The assessee submitted that she has no option but to live with her mother at ‘Neha Apartments’ as 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. The assessee submitted that it complied with all the requirements as stipulated u/s 10(13A) of 1961 Act and there is no violation by the assessee while claiming exemption u/s 10(13A) of 1961 Act.
The A.O. 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.The contention of the assessee that payment of rent was a family affair and no leave and license agreement was entered was rejected by the AO as it was observed by the AO that if the rent is paid the relation between the parties was a contractual relation even if it is between family members also, and it needs to be supported by documentary evidence to prove the same. It was observed by the AO that if the rent was paid by the assessee to help her mother who was old and sick to meet her day to day living cost does not entitle assessee to claim exemption of HRA u/s 10(13A) of 1961 Act.
The A.O. deputed Ward Inspector to make an enquiry to verify claim of the assessee that she is living with her mother at ‘Neha Apartments’ and paying rent to her mother. The inspector visited the residential premises of mother of the assessee Smt. P.B. Dorwani, situated at A-3, Ground floor, Neha Apartment, Seven Bunglows, Andheri, Mumbai and served notice u/s 133(6) of the Act on mother of the assessee Smt. P.B.Dorwani who was present at the said premises. The Ward Inspector in his report stated that Smt. P.B. Dorwani is staying in a one BHK residential flat having an area of 400 sq. ft. at ‘Neha Apartments’. The Ward Inspector reported that Smt P.B.Dorwani has three daughters and one of them Ms. Vimla who is unmarried is staying in the said flat at ‘Neha Apartments’ with Smt. P.B. Dorwani and another daughter Ms. Meena Vaswani i.e. assessee is staying at ‘Tropicana’ with her family consisting of husband and daughter , while the third daughter Ms Kamla is staying at Thane. The Inspector also visited premises at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai which is only five minutes walking distance from the residential flat of Mrs. P B . Dorwani and confirmed that the assessee Mrs. Meena D. Vaswani is staying at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai which is a 2 BHK flat for the last many years with her husband and her daughter.
The AO observed that ward inspector report clearly reveals that the assessee is staying at ‘Tropicana’ and not with her mother Smt P B Dorwani at ‘Neha Apartments’ as claimed by the assessee. The AO also observed that Secretaries and watchman of these two societies ( where ‘Tropicana’ and ‘Neha Apartments’ are situated)also confirmed that the assessee is not staying with her mother but with her husband and accordingly the AO concluded that the rent receipt issued by mother of the assessee are merely to claim the benefit of exemption of HRA received u/s 10(13A) of 1961 Act
The A.O. also observed that the assessee’s had herself submitted vide letter dated 6th March, 2013 that the assessee is a qualified chartered accountant living with her husband, who is also a qualified chartered accountant and a daughter (student) and most of the household expenses were being taken care of by the husband of the assessee. .It was also submitted by the assessee that there are not many withdrawals for household expenses except the payment of mobile bills by cheque. The assessee also could not produce Mrs. P.B. Dorwani for examination before the AO nor Mrs. Dorwani filed any details subsequent to serving of notice u/s. 133(6) of the Act. The A.O. after verifications ,also found that Mrs. P.B. Dorwani was not filing any return of income with Revenue for last six assessment years. However, on 21-03-2013 the assessee filed a copy of the return of income filed with the Revenue by Mrs. P.B. Dorwani for assessment year 2011-12 and the return of income was found to be filed for the first time on 21st March, 2013 itself which shows that return of income was filed by Mrs P B Dorwani with Revenue only because the verification was being done by the AO regarding the offering of the rent received from assessee by her mother Mrs. P B Dorwani as income in the hands of Mrs. P.B. Dorwani. The A.O. observed that the assessee's mother Mrs. P.B. Dorwani receives pension from her employer and rental income if received has to be offered for taxation by her. It was observed that Mrs. P.B. Dorwani had not filed any return of income for the relevant assessment year disclosing any income from house property till this issue was raised during the assessment proceedings on 4th October, 2012. It was also held by the AO that Smt. P B Dorwani lives in her one bed room flat of 400 square feet along with her unmarried daughter Ms Vimla and not with the assessee.It was also held by the AO that the assessee cannot claim both the benefits u/s 10(13A) and 24(1) of 1961 Act. The AO also held that there is no leave and license agreement and there is no proof of stay of assessee with her mother, thus, genuineness of payment of rent is not established by the assessee. The A.O. accordingly came to the conclusion that the assessee is neither staying in her mother's flat, nor paying any rent to her and therefore the assessee’s claim of exemption of HRA u/s.10(13A) is totally wrong and bogus and accordingly AO added the amount of Rs. 2,52,000/- to the total income of the assessee which was claimed as exempt by the assessee u/s 10(13A) of 1961 Act, vide assessment order dated 28-03-2013 passed by the AO u/s 143(3) of 1961 Act.
5. Aggrieved by the assessment order dated 28-03-2013 passed by the A.O. u/s 143(3) of 1961 Act , the assessee filed first appeal before the ld. CIT(A).
6. Before the ld. CIT(A), the assessee submitted that the assessee is staying at A-3, Ground floor, Neha Apartment, Seven Bunglows, Andheri, Mumbai on rental basis by paying monthly rent of Rs. 31,500/- to her mother Mrs P B Dowani as the said apartment is owned by assessee’s mother Mrs P B Dorwani. The assessee submitted that she was paying rent on regular basis in cash to her mother Mrs P B Dorwani for renting of her mother’s flat at ‘Neha Apartments’ and exemption of HRA u/s 10(13A) of 1961 Act was rightly claimed. The assessee submitted before learned CIT(A) that rent receipts were duly submitted in assessment proceedings before the AO. The assessee submitted that the inference drawn by the Inspector was incorrect due to the following grounds:-
“1. Ms. Vimla who is unmarried does not stay with Smt. P. B. Dorwani since she has her own ownership flat at Bhayander.
2. Secondly, the fact that Mrs. Meena Vaswani is staying at 30I-Tropicana, it is clarified that the appellant actually shifted to Tropicana Apt. in A. Y. 2013-14 and hence no HRA was claimed for the A. Y. 2013-14 onwards.
3. The payment of rent to Mrs. Dorwani actually pertains to A.Y. 2010-11 whereas the Inspector visited on 12.03.2013.
4. The statement of the watchman does not hold ground, since the watchman keeps changing on a monthly basis.
5. Statement of Mr. Girish Raheja and Mr. Govind Thawani, if any in the capacity of a Secretary, deserves to be condemned in totality since the statement of the Secretary cannot be treated as "Evidence" especially since he is neither authorized to keep constant watch about the movement of any member residing in or moving out nor his statement for past events can be considered as "Evidence" by any stretch of imagination.
6. It is worth mentioning that even the Inspector did not record the statement of Mrs. P.B. Dorwani on his visit on 12. 03.2013.
Thus, the assessee submitted that the conclusion drawn by the Inspector in his report was purely on surmises and conjectures and that no adverse inference could be drawn against the assessee without any documentary evidence to support the inspector report. The assessee submitted that confirmations obtained by the Inspector from the Secretary of the societies and watchman cannot be inferred as crucial evidence by any stretch of imagination. The assessee contended that the rent receipts are valid documentary evidence for claiming exemption of HRA u/s 10(13A) of 1961 Act.
The ld. CIT(A) after considering the submission of the assessee rejected the same and observed that the A.O. had carried out detailed inquiries to establish that the claim of payment of rent by the assessee to her mother was not fully established. The ld. CIT(A) observed that the assessee has a bigger flat owned by her at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai in which the assessee and her husband and children reside and no pressing need is shown by the assessee as to why the assessee stayed with her mother in a small flat of 400 square feet at ‘Neha Apartments’ while leaving her bigger flat at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai with family, which is five minute walking distance away. The assessee’s claim that Ms. Vimla was not staying with Mrs. P.B. Dorwani as she has own flat at Bhayander and also the claim that the assessee shifted back to ‘Tropicana’ in assessment year 2013-14 and was staying with her mother was a self serving statement which are not supported by any evidence on record. The learned CIT(A) also gave credence to inspector report and statement of Secretaries and Watchman of the society who had confirmed that the assessee was not staying with her mother but was staying at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai with her husband and daughter and observed that the said statements could not be rebutted by the assessee. Hence, the ld. CIT(A) rejected the contention of the assessee and held that the assessee grossly failed to establish that she was staying with her mother and paying rent to her mother and hence , as such learned CIT(A) held that the exemption of HRA u/s 10(13A) of the Act was rightly denied to the assessee by the AO, vide appellate orders dated 27-01-2015 passed by learned CIT(A).
7. Aggrieved by the appellate order dated 27-01-2015 passed the ld. CIT(A), the assessee filed second appeal before the Tribunal.
8. The ld. counsel for the assessee submitted that the assessee is an individual being a chartered accountant working as Senior Finance and Accounts Executive in East India Hotels Ltd. . The assessee received HRA which was claimed as exempt u/s 10(13A) of the Act. The assessee is paying rent to her mother Smt. P B Dorwani of Rs. 31,500/- per month which was paid in cash and monthly rent receipts were produced before the A.O. . The ld. Counsel for the assessee submitted that the A.O. doubted the genuineness of rent paid by the assessee and deputed Ward Inspector for verification and the Ward Inspector submitted his report on 12th March, 2013 wherein Ward Inspector stated that the asssesse is not staying at premises at ‘Neha Apartments’ which is owned by mother of the assessee and rather the assessee is staying at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai with her husband and daughter which residential flat at ‘Tropicana’ is owned by assessee jointly with her husband . The enquiry has been made by Ward Inspector from the watchman and Secretaries of the Societies who stated that the assessee is staying at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai and not at residence owned by mother Mrs P B Doorwani at ‘Neha Apartment’ for which rent was paid by the assessee. The distance between the residence owned by the assessee at ‘Tropicana’ and her mother residence at ‘Neha Apartments’ is only five minute walking distance. It is submitted by learned counsel for assessee that the assessee’s mother is a old and sick lady. The learned counsel for the assessee submitted that other daughter of Smt P B Dorwani i.e Ms Vimla is staying at Bhayander and not with mother of the assessee at ‘Neha Apartment’ as contended by Inspector in his report. It is submitted that the third daughter of Mrs P B Dorwani namely Ms Kamla stays at Thane while the assessee stays with Mrs P B Dorwani at ‘Neha Apartments’ for which rent of Rs. 31,500/- per month is paid by the assessee. It is submitted that rent was paid regularly to Mrs P B Dorwani against which rent receipts were obtained and the said rent was paid in cash. It was submitted that the AO treated rent receipts as self serving documents. It was submitted that rent paid by the assessee was not treated as genuine by the authorities below. The learned counsel reiterated the submissions as were made before lower authorities. The assessee also filed affidavit executed by her as well separate affidavit filed by her mother declaring the whole facts along with rent receipt which were filed along with written submissions which are placed in file. The assessee prayed for allowability of claim of exemption of HRA u/s 10(13A) of 1961 Act .
9. The ld. D.R. on the other hand submitted that the assessee had claimed deduction u/s 10(13A) of 1961 Act which is a wrong claim as no rent was paid by the assessee and the said alleged rent of Rs. 31,500/- per month being paid to mother was shown only to take exemption of HRA u/s 10(13A) of 1961 Act. The A.O. had conducted detailed enquiry by deputing the Ward Inspector who reported that the assessee is staying with her husband and daughter at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai and not with her mother at ‘Neha Apartments’ . No payments of alleged rents were made by cheque and the alleged rent is stated to be paid in cash. The A.O. verified the bank statements and there were no payments by cheque of rent to mother of the assessee as well drawings from bank are minimal as also admitted by the assessee that her household expenses were met by her husband and only payments for mobile bills were made from bank account of the assessee. No leave and license agreement has been produced by the assessee and only rent receipts were submitted. There is no independent evidence submitted by the assessee to prove of being living in the residential apartments at ‘Neha Apartment’ owned by mother of the assessee namely Mrs P B Dorwani for which rent is being allegedly paid by the assessee. The ld. D.R. submitted that no intimation has been given to the society of ‘Neha Apartments’ by the assessee about the stay of the assessee with her mother. On verification by the A.O., it was revealed that Mrs. P.B. Dorwani was not filing any return of income with Revenue for last six assessment years and only after enquiry was started to verify genuineness of HRA exemption claimed by the assessee on 14-10-2012, the said Mrs P B Dorwani i.e. mother of the assessee filed return of income for assessment year 2011-12 only on 21st March, 2013. It was submitted that the AO verified ration card, bank statements and also return of income filed by the assessee and the assessee is showing her residence at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai in the afore-stated documents and not at ‘Neha Apartments’ as her residence. It is submitted by learned DR that the assessee has claimed exemption of HRA u/s 10(13A) of 1961 Act and also assessee has shown apartment at 301, Tropicana, 7 Bungalow, Near nana-nani Park, Andheri(W), Mumbai as self occupied property and deduction u/s 80C of 1961 Act was claimed towards the housing loan repayment for loan borrowed for purchase of residential flat at ‘Tropicana’. The learned DR submitted that residential flat owned by the assessee at ‘Tropicana’ is a joint property with her husband and was declared as self occupied property by the assessee and benefit of interest payments were also availed by the assessee to claim loss under the head ‘income from house property’. It was submitted by learned DR that no reply was filed against the issue of notice u/s 133(6) of the Act to Mrs P B Dorwani which was duly served on Mrs P B Dorwani. The assessee did not produce her mother before the authorities below was the contention of learned DR.. It was submitted by learned DR that whereas now the assessee has filed before the tribunal an affidavit executed by Mrs P B Dorwani which is to be rejected as the same is filed for the first time before ITAT after 4 years. It was submitted that this constitute additional evidence which should not be admitted by tribunal. The learned DR submitted that Ward Inspector had made detailed enquiry with Secretaries and watchman of both the societies which clearly reveals that the assessee is not staying with her mother at ‘Neha Apartments’ rather the assessee is staying in her own flat at ‘Tropicana’ . It is also submitted by learned DR that the contention of the assessee that the unmarried daughter Ms Vimla is staying in Bhayender and not with her mother at ‘Neha Apartments’ is not supported by any evidence on record . It was submitted that rent receipts are self serving documents as both the assessee and her mother to whom rent was paid are closely related to each other being daughter and mother. The assessee is a qualified chartered accountant and she was fully aware of the legal requirements for availing exemption of HRA u/s 10(13A) of 1961 Act and also that mother of the assessee has pension income and if rent is included then she will have income exceeding minimum amount not chargeable to tax and she will be liable to file return of income with Revenue and pay due taxes which was not done by mother of the assessee. It was submitted that no such return of income was filed by said Mrs P B Dorwani for the last six assessment years.The learned DR relied upon orders of the learned CIT(A).
10. In the rejoinder, the ld. Counsel for assessee submitted that there is no bar to the rent being paid in cash. There is no requirement imposed by law on the assessee to inform Society of ‘Neha Apartments’ that the assessee is staying with her mother at her mother’s flat at ‘Neha Apartment’. The assessee’s mother is a senior citizen who is drawing meager pension of Rs. 8000 per month and her taxable income will be less even if rental income is included.It was submitted that there is no finding by lower authorities that income of mother of the assessee exceeded minimum amount not chargeable to tax and is having an taxable income. Ward Inspector’s report cannot be relied upon. It was submitted that no evidence was called for by the authorities below to prove that the unmarried daughter of Mrs P B Dorwani namely Ms. Vimla stays at Bhayander.
11. We have considered rival contentions and perused all the materials placed on record. We have observed that the assessee is an individual being a qualified chartered accountant working with East India Hotels Limited as Senior Finance and Accounts Executive. The assessee husband incidentally is also qualified chartered accountant. The couple had one daughter. The assessee owned a 2BHK residential flat at ‘Tropicana’ which is jointly owned by the assessee with her husband. The assessee has claimed deduction u/s 80C of 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. The assessee has 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 of 400 square feet at ‘Neha Apartments’ which is just five minutes walking distance from ‘Tropicana’. Smt P B Dorwani has three daughters namely assessee who is married , Ms Kamla who is staying at Thane and one unmarried daughter Ms Vimla. The assessee has received HRA of Rs.2,52,000/- from her employer as a part of her remuneration which was claimed as exempt u/s 10(13A) of the Act on the ground that she had paid rent of Rs. 31,500/- per month to her mother Mrs. P B Dorwani towards renting of her residential flat situated at ‘Neha Apartments’ , wherein assessee has claimed that she was staying with her mother at ‘Neha Apartments‘ instead of staying in her own flat at ‘Tropicana’ which is only five minute walking distance. It is also observed that no leave and license agreement was entered into by the assessee with her mother for renting of ‘Neha Apartment’. The rent receipts issued by Mrs P B Dorwani were however duly produced before the authorities below and rent was stated to be paid regularly in cash. It is undisputed that no cheque has been issued by the assessee to Mrs P B Dorwani towards rent. The assessee also could not produce any document showing the intimation given by her to the society of ‘Neha Apartments’ regarding her stay with her mother. It is also an undisputed position that the assessee could not produce proof of cash withdrawals from her bank account to substantiate that the payment have been made by her to her mother towards rent which were made out of withdrawals by her from her bank account. The assessee in-fact admitted that household expenses were met by her husband and withdrawal from her bank account is minimum as cheques were issued only for mobile bill payments. The assessee has produced the rent receipt to substantiate that the rent has been paid by the assessee. It is also noticed that the mother of the assessee has not filed return of income with Revenue disclosing the said rental income received from the assessee. No return of income has been filed by the mother of the assessee since last six assessment years. The ward inspector was deputed by the AO to verify the contentions of the assessee who has reported that the assessee is staying at ‘Tropicana’ and not at ‘Neha Apartments’ . The report was submitted by Inspector after personally visiting both the residential flats at ‘Tropicana’ and ‘Neha Apartments’ and after making due enquiries from Secretaries and watchman of the two societies of ‘Tropicana’ and ‘Neha Apartments’ .It was also stated by the inspector in his report that flat at ‘Neha Apartment’ is one BHK flat of 400 square feet wherein mother of the assessee namely Mrs P B Dorwani lives with her unmarried daughter Ms Vimla. Notices u/s 133(6) of 1961 Act were served on mother of the assessee Mrs P B Dorwani but no replies were submitted by said Mrs. P B Dorwani to the said notice. The assessee also did not produce Smt. P.B. Dorwani, mother of the assessee before the AO. No cogent reasons are brought on record for non-compliance of notices u/s 133(6) of 1961 Act nor any reasons were forthcoming for non production of Mrs P B Dorwani before the authorities below, more so opportunities were accorded to the assessee by the AO and even at the stage of appellate proceedings before learned CIT(A) to substantiate its claim. The assessee has now filed affidavit of her mother Mrs P B Dorwani for the first time before the tribunal stating that the assessee has paid rent of Rs. Rs.31,500/- to her mother during the previous year relevant assessment year and residential flat at ‘Neha Apartment’ was taken on rent by the assessee from her mother Mrs. P B Dorwani . The said affidavit filed by the assessee of her mother as well an affidavit of her ( both placed in file ) constitute additional evidences for which no application has been made by the assessee for admission of additional evidences as contemplated u/r 29 of Income-tax(Appellate Tribunal) Rules, 1963 nor any reasons have been specified for non furnishing of the same before authorities below. However, on perusal of the content of the two affidavits it is seen that the reiteration is made of the contentions of the assessee before lower authorities which were already on record. The assessee has also submitted that inspector report was not provided to the assessee by the AO and no opportunity was given for cross examination of the incriminating information provided to the ward inspector by the Secretary and Watch man of the two societies of the residential apartments situated at ‘Tropicana’ and ‘Neha Apartments’. We have observed that the assessee as well her husband both are qualified chartered accountants and are well versed with the law. The assessee is contemplating paying rent to her mother for taking her premises on rent for her residential purposes. The assessee did not produce any evidence except rent receipts to substantiate that there was actual hiring of premises by the assessee for which rent is paid. The rent is paid in cash against which there are no withdrawal of cash from bank shown by the assessee. The assesse herself admitted that there are minimal withdrawal from her bank account as household expenses are incurred by her husband. The assessee could not explain and reconcile said cash payments of rent with known sources of cash as the cash was not withdrawn from bank. This rent receipt prepared by her mother does not inspire confidence. There are no other evidences available which relate to the period when the transaction of hiring of the premises by the assessee in the normal course of renting of premises was progressing . The evidences at the time of transactions which are normal to are relevant and cogent evidence to substantiate the assessee’s contentions. These facts are especially in the knowledge of the assessee and burden is on the assessee to bring out these evidences to substantiate her contentions that rent paid was genuine but such evidences are not forthcoming . The assessee did not come forward with any evidence to substantiate its contentions except rent receipt which is not backed by any known sources of cash held by the assessee as there were no cash withdrawal from bank account of the assessee
Section 106 of Indian Evidence Act, 1872 is relevant which stipulates as under:
“Section 106 in The Indian Evidence Act, 1872
106. Burden of proving fact especially within knowledge.—When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him. Illustrations
(a) ****
(b) A is charged with travelling on a railway without a ticket. The burden of proving that he had a ticket is on him.”
Section 6 of Indian Evidence Act, 1872 is also relevant in this context which is reproduce hereunder:
“Section 6 in The Indian Evidence Act, 1872
6. Relevancy of facts forming part of same transaction.—Facts which, though not in issue, are so connected with a fact in issue as to form part of the same transaction, are relevant, whether they occurred at the same time and place or at different times and places. Illustrations
(a) to (c) ****
(c) A sues B for a libel contained in a letter forming part of a correspondence. Letters between the parties relating to the subject out of which the libel arose, and forming part of the correspondence in which it is contained, are relevant facts, though they do not contain the libel itself.”
(d) The question is, whether certain goods ordered from B were delivered to A. The goods were delivered to several intermediate persons successively. Each delivery is a relevant fact.”
The doctrine of Res gestae will set in. 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. In-fact we have observed that no such cogent evidence has been brought on record which could substantiate that the assessee had taken the said premises on rent from her mother as no evidence of her actually staying at the said premises were produced on record. The assessee was in-fact staying in her own flat at ‘Tropicana’ with her husband which is emanating from various evidences which are on record such as ration card, bank statements, return of income filed with Revenue etc which is also in consonance with normal human conduct of Indian married women living with her husband and daughter in a residential flat owned by the assessee jointly with husband , the assessee also did not bring any cogent evidence to substantiate that she had taken the residential flat at ‘Neha Apartment’ on rent from her mother. The mother of the assessee has also not filed return of income since last six assessment years and said rental income was not brought to tax in the hands of mother of the assessee . The assessee could also not able to bring on record any cogent evidence to prove that her un-married sister Ms Vimla was living at Bhayander. Even on touchstone of preponderance of human probabilities , it is quite improbable that the assessee was living with her mother at ‘Neha Apartments’ and paying her substantial rent of Rs. 31,500/- per month for a small flat of 1 BHK of 400 square feet while her own house was at just five minute walking distance at ‘Tropicana’ . It is also improbable that the assessee being a married lady will leave her husband and daughter and start living with mother at another residential flat which is just five minute walking distance and pay huge rent per month. It is different matter that the assessee may look after her old and sick mother by frequent visits but this theory of rent as set out by the assessee did not inspire confidence keeping in view material produced before us. It is also probable that the assessee may contribute towards looking after her old and ailing mother out of salary but the same is not sufficient to claim exemption u/s 10(13A) of 1961 Act. Looking into all these factual matrix of the case before us, we are of considered view that the whole arrangement of rent payment by the assessee to her mother is 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 in our considered view, exemption u/s 10(13A) of the Act cannot be allowed to the assessee as the payments towards rent are not genuine payment . The evidences on record are speaking loudly which is just opposite to what the assessee is contending. Even if we eschew report of inspector , then also material on record do not inspire confidence that the transaction of rent was a genuine transaction as discussed by us in detail above. The right of cross examination is not absolute. The assessee has to first discharge its primary onus cast under law and if the same stood duly discharged which is not rebutted by authorities , but despite that then also the authorities proceed to put assessee to prejudice solely relying on the basis of incriminating statement recorded of third party at the back of the assessee, then certainly the right to cross examination the said third party whose incriminating statement recorded at the back of the assessee is relied upon by authorities to prejudice the assessee will become absolute. But in the instant case , primary onus cast on the assessee itself did not stood discharged by the assessee as discussed above. The assessee could not prove the genuineness of the rent paid by the assessee to her mother Mrs. P B Dorwani for alleged renting of ‘Neha Apartments’ and usage of the said premises ‘Neha Apartments’ by the assessee. Under these circumstances, we find no infirmity in the order of the ld. CIT(A) and we confirm the same and dismiss the appeal of the assessee. We order accordingly.
12. In the result, appeal of the assessee in ITA no. 1984/Mum/2015 for assessment year 2010-11 is dismissed.
13. Our above decision in ITA No. 1984/Mum/2015 for assessment year 2010-11 shall apply mutatis mutandis to the assessee’s other appeals in ITA No. 1983/Mum/2015 for assessment year 2009-10 and ITA No. 1985/Mum/2015 for assessment year 2011-12 wherein the facts are identical.
14. In the result, appeals filed by the assessee in ITA No. 1983/Mum/2015 to 1985/Mum./2015 for assessment years 2009-10 to 2011-12 are dismissed.
Order
pronounced in the open court on 30th March, 2017.
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(C.N. PRASAD)
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(RAMIT KOCHAR)
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JUDICIAL MEMBER
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ACCOUNTANT MEMBER
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