MEKAN JETHALAL GALA FAMILY TRUST,MUMBAI vs. ITO 14(2)(3), MUMBAI

Brief facts of the case are that the assessee a Family Trust, filed its return of income for the A.Y. 2007-08 declaring the total income of Rs. 59,678/-. The return was processed u/s 143 (1) of the Act and after scrutiny

Aggrieved by the order of Ld. CIT (Appeals), the assesse preferred this appeal before us on the following effective ground:-

Before us the Ld. Counsel for the assessee submitted that the Ld. CIT(A) has wrongly upheld the order of the AO. The addition made by the AO is not based on any evidence and the same has been made on the basis of the amount shown received by the assessee during the previous assessment year. Moreover, the assessment order was passed by the AO without hearing the assessee. Moreover, the addition is based on estimation the Ld. CIT(A) ought to have deleted the penalty levied by the AO.

On the other hand, the Ld. Departmental Representative (DR) relying on the concurrent findings of the authorities below submitted that the since the assessee failed to explain as to why the rent received was shown Rs. 48,000/- during the assessment year under consideration against the income of 7,17,930/- shown during the previous assessment year, the AO has rightly levied penalty u/s 271(1)(c) of the Act. Hence, there is no infirmity in the order of the Ld. CIT(A).

We have heard the rival submissions and also gone through the material placed before us. Assessee was owner-in-possession of four ‘Galas’ at Bhiwandi. The assessee in his return of income for the assessment year under consideration had shown rental income from the said Galas as Rs. 48,000/- as against the income of Rs. 7,17,930/- shown in the previous assessment year. Show cause notice was accordingly issued as to why the difference should not be taken as undisclosed rental income. The assessee was asked to furnish explanation if any on or before 21.12.2009. Since, no response was received from the assessee, the AO completed the assessment order making addition in question. The contention of the assessee before the AO was that due to floods and other reasons the Ghalas remain unoccupied during the previous year. In the first appeal the Ld. CIT(A) confirmed the action of the AO holding that the assessee has failed to produce any material or evidence before the AO as well as before him.

Since, the assessee had furnished the reasons for the substantial decreased in rental income of the assessee, it was the duty of AO to verify the facts and collect certain evidence to rebut the contention of the assessee. It is apparent from the record that no enquiry was conducted by the AO to ascertain the factual position or to falsify the contention of the assessee. As per the settled law assessment proceedings and penalty proceedings are different and independent proceedings and confirmation of an addition made during the assessment proceeding does not ipso facto make the assessee liable for penalty u/s 271(1)(c) of the Act. The standard of proof required for imposition of penalty is different from that on which an addition of an income on the quantum side could be sustained. In order to impose penalty under the said section, satisfaction of the AO that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income is necessary and the satisfaction must be based on evidence. But in 4 Assessment Year: 2007-2008