2012 (7) TMI 494 - AT - Income Tax

Dis allow the claim of exemption of HRA u/s 10(13A) - the assessee has not paid the rent directly to the landlord - CIT(A)allowed the claim - Held that - Assessee is getting twin benefit from the employer, first is of rent free accommodation provided by the employer to the assessee employee for which the employer is incurring rental expenditure of Rs. 1.70 lacs per month in addition to providing interest free deposit of Rs. 40 lacs with the land lord and 2nd being received by the assessee is this that he is getting HRA of Rs.3 lacs approximately per month including special HRA of Rs.1.70 lacs per month and out of these two benefits the assessee is making one payment i.e. reimbursement of rentals to the employer company @ Rs.1.70 lacs per month, thus this reimbursement is considered against the free housing accommodation provided by the employer company to the employee assessee, then this reimbursement of house rent to employer is no more available to be considered for exemption u/s 10(13A). Once, the housing perquisite value is worked out as nil after considering this rental payment of Rs.1.70 lacs per month to the employer company, there is no rental payment made by the assessee employee for the purpose of working out exemption of HRA u/s 10(13A)and, therefore, the disallowance made by the A.O. regarding the claim of the assessee for exemption u/s 10(13A) is in order - against assessee.

Summary

Issues:
1. Claim of exemption of House Rent Allowance (HRA) under section 10(13A) of the Income Tax Act.
2. Disallowance of HRA exemption by Assessing Officer (AO) due to indirect payment of rent by the employee.
3. Appeal against AO's decision by the assessee.
4. Decision of the Commissioner of Income Tax (Appeals) [CIT(A)] in favor of the assessee.
5. Appeal by the revenue before the Appellate Tribunal ITAT Ahmedabad.
6. Arguments presented by the revenue and the assessee before the Tribunal.
7. Tribunal's analysis of the case, including the employer-employee rental arrangement.
8. Consideration of dual benefits received by the assessee from the employer.
9. CIT(A)'s decision based on rental agreement between employer and landlord.
10. Tribunal's reversal of CIT(A)'s decision and restoration of AO's disallowance.
11. Applicability of a previous judgment cited by the assessee.
12. Final decision of the Tribunal allowing the revenue's appeal.

The case involved a dispute over the claim of exemption of HRA under section 10(13A) of the Income Tax Act. The AO disallowed the exemption due to the indirect payment of rent by the employee to the employer, resulting in an appeal by the assessee before the CIT(A), who ruled in favor of the assessee. The revenue then appealed to the ITAT Ahmedabad. The revenue argued that the employee was receiving dual benefits from the employer, including free accommodation and HRA, against which the reimbursement of rent should not be considered for exemption. The CIT(A) based his decision on the rental agreement between the employer and the landlord. However, the Tribunal reversed the CIT(A)'s decision, stating that the reimbursement of rent to the employer nullified the rental payment for HRA exemption purposes. The Tribunal found that the previous judgment cited by the assessee was not applicable to the current case. Ultimately, the Tribunal allowed the revenue's appeal, overturning the CIT(A)'s decision and restoring the AO's disallowance of the HRA exemption.