If you get salary of 25K and housing allowance (of whatever amount) which is spent entirely on housing then your salary for tax purposes is 27.5K (25K+10%). See
http://www.ird.gov.hk/eng/pdf/pam44e.pdf for details.
Scenario 2 your salary for tax purposes is 40K.
I used flat rate tax (17%) to come up with the difference between the two, but in fact you aren't earning enough to be on flat rate tax, which makes the two scenarios a bit closer.
Doing the calculation using the tax calculator here:
http://www.ird.gov.hk/eng/ese/ind_stc.htm
Tax on 27.5K (320K/year) is 31.3K.
Tax on 40K (480K/year) is 61.7K
Cash in hand after rent:
Scenario 1: 320K - 31.3K = 288.7K
Scenario 2: 480K - 120K - 61.7K = 298.3K
So you are 10K per year better off in Scenario 2.
Of course, if your rent (and housing allowance) was 11K or more without any change in salary then you'd be better off under Scenario 1.