HRA Claim Restricted to 50% as Rent Agreement in Joint Name with Brother, rules ITAT Despite Assessee Bearing Entire Rent [Read Order]
Despite the assessee’s submission that the entire rent of ₹1,26,500 was paid by him and that his brother had not claimed any HRA benefit, the AO restricted the deduction to 50%, resulting in a disallowance of ₹66,516.
HRA - rent - Taxscan.
HRA - rent - Taxscan.
In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Pune Bench, held that an assessee is entitled to claim only 50% deduction of House Rent Allowance (HRA) where the rent agreement stands jointly in the names of the assessee and his brother, particularly when the assessee fails to substantiate having borne the entire rent payment by producing supporting evidence such as Form 16.
The assessee, Pavan Gopal Chotiya had claimed HRA deduction of ₹1,29,766 on rent paid to his landlord. The Assessing Officer (AO), after examining the rent agreement, found that the agreement was jointly executed in the names of the assessee and his brother.
Despite the assessee’s submission that the entire rent of ₹1,26,500 was paid by him and that his brother had not claimed any HRA benefit, the AO restricted the deduction to 50%, resulting in a disallowance of ₹66,516. This finding was confirmed by the Commissioner (Appeals) and later upheld by the Tribunal.
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The Tribunal observed that since the agreement was in joint names, the payment was effectively on behalf of both tenants, and therefore, only half of the rent could be considered for HRA deduction.
The bench observed that “During the course of hearing before this Tribunal, when ld. Counsel for the assessee was asked to demonstrate as to whether the assessee has mentioned the total amount of rent or half of the rent paid by him in Form No.16 submitted to his Employer to which there was no reply. Under these given facts and circumstances and since in the Rent Agreement name of the assessee and his brother is appearing, therefore, even though assessee had made the payment, such payment is held to be made on behalf of his brother but for claiming the HRA deduction, only 50% of the rent paid is to be considered.”
On the issue of unexplained investment in shares of ₹4,14,590, the Tribunal granted relief to the assessee. It noted that the AO had erred in computing the available funds by excluding allowances such as conveyance, medical reimbursements, and amounts received from relatives, while at the same time reducing corresponding expenses.
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After rectifying clerical errors in the AO’s calculations, the Tribunal accepted the assessee’s explanation that funds amounting to ₹10,87,170 were available, thereby deleting the addition.
Similarly, the Tribunal also deleted the addition of ₹89,218 towards alleged unexplained amounts received from relatives. The assessee furnished confirmation of a loan from his brother and clarified that part of the repayment related to loans received in earlier years. The Tribunal accepted the explanation and held that the addition was unjustified.
Accountant Member Dr. Manish Borad partly allowed the assessee’s appeal by sustaining the disallowance of ₹66,516 towards HRA, restricting the deduction to 50% on account of the joint rent agreement with his brother.
At the same time, the Tribunal granted relief by deleting the addition of ₹4,14,590 relating to unexplained investment in shares after correcting computational errors in the Assessing Officer’s working and accepting the assessee’s explanation of available funds. Further, the addition of ₹89,218 towards loans received from relatives was also deleted, as the Tribunal found the transactions duly confirmed and substantiated.
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