Where source of funds is clearly established, clubbing provisions do not apply

3 Abhay Kumar Mittal vs. DCIT
[TS-152-ITAT-2022 (Delhi)]
A.Y.: 2013-14; Date of order: 8th February, 2022
Sections: 10(13A), 64

Where source of funds is clearly established, clubbing provisions do not apply

FACTS
The assessee, an individual, in his return of income, claimed exemption of HRA in respect of rent of Rs. 5,34,000 paid by him to his wife. The Assessing Officer (AO), in the course of assessment proceedings, asked the assessee to explain the capacity of the assessee’s wife to purchase the property giving details of sources of funds for the same. The assessee explained that the property was worth Rs. 1.15 crore of which amount of Rs. 87.50 was funded by the assessee himself, and the balance was invested out of her own sources. The AO noticed that the assessee’s wife, in fact, had no independent source of income to make the investment in FDRs and a major share of Rs. 87.50 lakh was funded by the assessee. The AO held that rental income earned by the assessee’s wife is liable to be clubbed in the hands of the assessee since the investment to have purchased the property was made by her without having an independent source of income. The AO clubbed the rental income of Rs. 5,34,000 after allowing deduction u/s 24 and made an addition of Rs. 3,73,800 in the hands of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO by holding that the contention tha