Payment of house rent to wife residing with assessee in the same house is a colourable devise to avoid legitimate payment of the taxes – ITAT
ABCAUS Case Law Citation:
ABCAUS 2917 (2019) (05) ITAT
The assessee was an individual and deriving income from salary. He filed the return of income declaring NIL income.
The case was selected for scrutiny. The AO issued statutory notices for completion of the assessment which remain un-complied with.
The AO issued show cause notice u/s 144 of Income Tax Act, 1961 (the Act) and asked for the reply of the assessee and supporting documents on the points specified in the notice.
The AO noted that assessee had filed return of income at NIL. However, as per 26AS Statement the assessee had received large amount of salary which should have been shown in the return of income.
In the absence of any supporting documents, the AO made addition of the amount of salary appearing in Form 26AS under the head “Income from Salary” and completed the assessment.
The assessee preferred appeal before the CIT(A).
The assessee submitted that he was an employee of Multinational Company and his case had not been properly handled by his tax council. The assessee also submitted that he was inter alia entitled to the deduction under section 10 of the Act being the rent paid by assessee in respect of the house taken on rent.
The CIT(A) noted that assessee had claimed to have paid rent to his wife who in turn had been residing with the assessee in the same house. The CIT(A), therefore, observed that it have rise to humorous circumstance i.e. the Landlord of the house was using it for her residence while at the same time claiming to have let it out to a tenant.
The CIT(A) held that the said arrangement was nothing but a collusive arrangement and a colourable exercise to reduce the tax payable by the assessee. Therefore, the claim of assessee for deduction under section 10 of the Act was denied.
The assessee challenged the order of the CIT(A) before the Tribunal.
The Tribunal however refuged to interfere in the Order of the CIT(A). The Tribunal also rejected the contention of the assessee that the rent paid to his wife had been shown as income in her return of income stating that this itself was not justified to make a claim of deduction under section 10 of the Act.
The Tribunal noted that the CIT(A) had given a clear finding of fact that assessee had paid the rent to his wife who was residing with the assessee in the same house.
The Tribunal opined that when the Landlord/owner had been residing in the rented house, there was no question of paying any rent by the assessee to the Landlord. The CIT(A), therefore, correctly held that it was a colourable devise to avoid legitimate payment of the taxes.
The appeal was accordingly dismissed.