PANKAJ KAYATHWAL,FARIDABAD vs. ITO, WARD- 2(4), NOIDA

O R D E R PER KUL BHARAT, JM:

This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals)-1, Noida, dated 25.09.2017, pertaining to the assessment year 2014-15. The assessee has raised following grounds of appeal:

“1. The impugned Order is against bad in law, passed against the natural rule of justice, without giving proper opportunity of being heard and is liable to be quashed. 2. The Ld. AO have erred in law and on facts in making addition of Rs.25,41,859 under the head salaries without considering the facts of the appellant's case. 3. The Ld. AO have erred in law and on facts in making addition of Rs.25,41,859 under the head salaries merely based on Form No. 26AS.

Pankaj Kayathwal Vs. ITO 4. Ld. CIT(Appeals) have also The Ld. AO have erred in law and on facts in determining the total income of Rs.25,02,107 by adopting figure of gross salary of Rs.26,26,187 and by reducing deduction of Rs.1,24,080 under Chapter VI-A of the Act.

5. The Ld. ITO as well the Ld. CIT(A) have erred in law and on facts in not giving the benefit of Sec. 10 and thereby not allowing the deduction of House rent paid by him of Rs.4,04,060 claimed by the appellant.

6. Your appellant craves a leave to add, amend or alter the grounds of appeal, if occasion demands.”

Thereafter the case was selected for scrutiny under CASS to examine salary income. While framing the assessment u/s 143(3) of the income-tax Act, 1961 (in short “the Act”), the Assessing officer assessed the income at Rs. 25,41,860/-.

Aggrieved against this the assessee preferred appeal before the learned CIT(Appeals), who after considering the submissions determined the total income at Rs. 25,02,107. Aggrieved against this the assessee preferred appeal before this Tribunal.

Pankaj Kayathwal Vs. ITO 4. Learned Sr. DR submitted that there is no infirmity into the order of the learned CIT(Appeals). The Assessing Officer has rightly assessed the income at Rs. 25,41,860/-.

The only grievance of the assessee in this appeal is regarding declining the claim of deduction u/s 10 of the Act regarding house rent paid by him of Rs. 4,04,060/-.

It is submitted by the assessee in the application filed before this Tribunal that the precedents of the Division Bench of this Tribunal and the High Courts have not been considered. The Tribunal in in the case of Bajrang Prasad Vs. ACIT 60 SOT 66 has held as under:

“7. We have heard the rival submissions, perused the material available on record and the orders of the authorities below. We find that the AO disallowed the claim of the assessee on the ground that the assessee has not given details of payment and evidences and also on the basis that the assessee and his wife are living together, hence the claim of payment of rent is just to avoid payment of taxes and to reduce the tax liability. Ld.CIT(A) confirmed the addition on the ground that the rent is paid by the assessee as a tenant to his wife who is a landlord and he found that the landlord and tenant are living together in the same house- property and the very fact that the landlord and tenant are staying together which indicates that the whole arrangement is of the nature of colourable device as pointed out by the AO. He observed that since it is evidently a colourable device, even though the amount purportedly paid as a rent will not qualify for exemption u/s.10(13A). The AO and CIT(A) have disallowed the claim of the assessee on the ground that assessee and his wife are living together but not on the ground that in return of income a house owned by him is declared as a self- occupied, however, we find a mention in the remand report (annexed at page-61), where the AO has commented that it is not ascertainable whether the Bajrang Prasad Ramdharani vs. Asst.CIT Asst.Year - 2009-10 assessee stayed with his wife's house or at his own

Pankaj Kayathwal Vs. ITO house which he claimed self occupied and claimed the relief u/s.24 of the Act. Under these circumstances, we have to only examine whether the assessee is entitled for exemption u/s.10(13A) or not. For the sake of clarity, section 1o(13A) is reproduced hereinbelow:- Section l0(13A):- (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;

7.1. From the reading of the above section, it is clear that the requirement of the section is that any allowance (by whatever name called) granted to an assessee by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed. However, the exemption is not available in case the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him. Admittedly, the AO has given a finding of fact that the assessee and his wife are living together as a family. Therefore, it can be Bajrang Prasad Ramdharani vs. Asst.CIT Asst.Year - 2009-10 inferred that the house owned by wife of the assessee is occupied by the assessee also and in remand report it has been submitted that the assessee has submitted the rent receipt(s) of Rs.15,000/- dated 3.7.2008 and Rs.1,65,000/- dated 31.3.2009 and stated that the payments have duly been paid through bank transfer entry. A verification of the said entry shows the Pankaj Kayathwal Vs. ITO transfer on the given dates but the receipts date and amount of Rs.1,65,000/- not reflecting as transfer. Therefore, in our considered opinion, the assessee has fulfilled twin requirements of the provision, i.e. occupation of the house and the payment of rent. Under these circumstances, the assessee is entitled for exemption u/s.10(13A) of the Act. Since we have observed that the ld.CIT(A)’s chose not to make enhancement and disallow the relief u/s.24 of the Act, therefore we cannot comment upon this aspect of the matter. In this view of the matter, we delete the addition and direct the AO to allow exemption u/s.10(13A) of the Act to the assessee. This ground is also allowed as indicated above.”

“3. A similar question came up for consideration before this court in CIT v. Justice S. C. Mittal [1980] 121 ITR 503 and CIT v. Shri B. R. Tuli (I.T.R, Nos. 58 to 61 of 1979) [1980] 125 ITR 460 (P & H) and this court, vide Bench judgments dated 21st November, 1979, answered the question against the revenue and in favour of the assessees. It was held in Justice S. C. Mittal's case [1980] 121 ITR 503 (P & H) as under (at p. 505): “The provisions of Section 10(13A) of the Act have been enacted to compensate the assessee regarding the expenditure incurred on payment of rent in respect of residential accommodation occupied by him. The main object for enacting this provision appears to be that in case an assessee actually suffers monetary loss by way of expenditure or otherwise in respect of residential accommodation occupied by him and if he is compensated by his employer in that case, subject to the limitations imposed under the Act and the Rules, the allowance paid to him by the employer, shall be exempt from income-tax. An assessee, who occupies his own house, has disentitled himself from the rent which he would have been entitled to if he had not occupied the same himself, and in that sense he suffered expenditure in that regard. In that sense, an assessee occupying his own house, if compensated by the employer by payment of a special allowance (HRA), subject to the restrictions as imposed under the Act and the Pankaj Kayathwal Vs. ITO Rules, the compensation paid to the assessee by his employer, cannot be subjected to tax. The Tribunal accepted the interpretation of the relevant provisions of the Act and we do not find any reason to take a different view than the one taken by the Tribunal." 4. The Bench further recorded a finding in the following terms (p. 506) :

The matter can be looked at from another angle also. The provisions of Section 10(13A) of the Act and Rule 2A of the Rules have to be given effect to. The Rules and the section are not in conflict with each other. Rather, the Rules are supplementary to the section. Even if the assessee's case is covered by the Rules, the assessee will be entitled to exemption. The Rules impose the maximum limit to the extent of Rs. 400 per month. Admittedly, the house rent allowance paid to Mr. Justice S. C. Mittal during all the four relevant assessment years was below the maximum prescribed limit. It is equally well settled that even if two interpretations of a particular provision are possible, in that case, the IT. Act, being a taxing statute, one favourable to the assessee would be preferred. The view taken by the Tribunal in this regard is unexceptional.

5. In view of the Bench decision in Justice S. C. Mittal's case [1980] 121 ITR 503 (P & H), we answer the question referred to us in the negative, i.e., against the revenue and in favour of the assessee. However, there will be no order as to costs.”

7. Further, the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Justice S.C. Mittal (1980) 121 ITR 503 (P&H) held as under:

“6. After hearing the learned counsel for the parties and taking into consideration the provisions of law, we are of the opinion that the question referred to us has to be answered in the negative, i.e., against the revenue and in favour of the assessee. The provisions of Section 10(13A) of the Act have been enacted to compensate the assessee regarding the expenditure incurred on payment of rent in respect of residential accommodation

Pankaj Kayathwal Vs. ITO occupied by him. The main object for enacting this provision appears to be that in case an assessee actually suffers monetary loss by way of expenditure or otherwise in respect of residential accommodation occupied by him and if he is compensated by his employer in that case, subject to the limitations imposed under the Act and the Rules, the allowance paid to him by the employer, shall be exempt from income-tax. An assessee, who occupies his own house, has disentitled himself from the rent which he would have been entitled to if he had not occupied the same himself, and in that sense he suffered expenditure in that regard. In that sense, an assessee occupying his own house, if compensated by the employer by payment of a special allowance (HRA), subject to the restrictions as imposed under the Act and the Rules, the compensation paid to the assessee by his employer, cannot be subjected to tax. The Tribunal accepted the interpretation of the relevant provisions of the Act and we do not find any reason to take a different view than the one taken by the Tribunal.

8. In the light of the above binding precedents, I am of the considered view that Pankaj Kayathwal Vs. ITO the assessee is entitled for deduction u/s 10(13A) in respect of expenditure made towards rent. The appeal of the assessee is partly allowed. Rest of the action of learned CIT(Appeals) is sustained. Hence the grounds raised in this appeal are partly allowed.