A.K. DAS, J.M. These appeals by Department are directed against two orders cancelling penalties under s. 18(1)(c) and 18(1)(a) of WT Act, 1957 (hereinafter referred to as Act). appeals are opposed by legal representative of assessee. 2 . assessee filed returns for assessment years under consideration on 28th Aug., 1974 though these were due on 30 th June, 1971 n d 30 th June, 1972. In these returns he showed wealth as nil. assessments made on these returns were reopened on basis of discussion held between assessee on one hand and CIT and IAC on other hand. terms arrived at between parties are incorporated in WTO's letter dt. 2nd Aug., 1977. In pursuance to this agreement assessee filed returns showing Rs. 5 lakh for asst. yr. 1971-72 as share of fixed deposit in M/s Bhattacharjee & Co. plus value of other assets and Rs. 2,40,000 for asst. yr. 1972-73 as share of fixed deposit plus value of asset. assessee, however, claimed relief under s. 5(1A) of Act. WTO did not grant exemption under s. 5(1A) of Act and completed assessments on net wealth of Rs. 5,02,000 and Rs. 2,41,000 for these two assessment years. assessee, however, appealed to AAC in respect of refusal of relief under s. 5(1A) of Act and AAC set aside assessments to WTO for fresh assessment. During such fresh assessment proceeding WTO again declined to allow exemption under s. 5(1A) of Act. He also initiated proceedings under s. 18(1)(a) and 18(1)(c) of Act on plea that assessee did not honour agreement dt. 2nd Aug., 1977 between assessee and Department by filing appeals before AAC. In response to show cause notice it was claimed on behalf of assessee that in view of agreement between assessee and Department, penalty could not and should not be imposed. WTO did not accept this contention because he was of opinion that agreement became nullified for assessee's action in filing appeals before AAC. He therefore, imposed penalties of Rs. 76,380 and Rs. 19,055 under s. 18(1)(a) of Act for asst. yrs. 1971-72 and 1972-73 respectively. He also imposed penalties of Rs. 5,02,000 and Rs. 2,41,000 under s. 18(1) (c) of Act for these two assessment years respectively. On appeal, AAC cancelled penalties imposed under s. 18(1)(a) of Act and CIT(A) cancelled penalties imposed under s. 18(1)(c) of Act. Being aggrieved, department preferred these appeals which were heard together with consent of parties. 3 . departmental representative contended that under agreement dt. 2nd Aug., 1977 evidenced by letter of ITO of same date, assessee agreed to submit returns for amounts stated therein and also not to prefer any appeal. He further contended that department undertook not to initiate penalty proceedings if these two conditions were fulfilled by assessee. He contended that assessee violated terms of this agreement by preferring appeals and as such department was absolved from its part of agreement agreeing not to initiate penalty proceedings. He also contended that AAC and CIT(A) both were not justified in holding that penalties should not have been imposed while making fresh assessments after order of AAC when such proceedings were not initiated in assessments which were set aside on appeals by AAC. These contentions were opposed by Authorised Representative for assessee who contended that there was no agreement by which assessee undertook not to file any appeal against assessment orders. He contended that Department took obligation not to initiate penalty proceedings if assessee filed returns as agreed upon. He submitted that admittedly, assessee filed returns for amounts of wealth agreed upon between parties. So he contended that penalties were rightly cancelled by appellate authorities. 4 . We have carefully considered contentions of Authorised Representatives for parties and examined materials on records, facts and circumstances of case. We agree with Departmental Representative that appellate authorities were not justified in their opinion that "as no penalty proceedings were initiated at stage of primary assessment, present assessments framed on basis of same return could not and should not attract penalty proceedings." There is no such well-defined law that penalty proceedings cannot be initiated during making assessment after earlier assessment is set aside. On appeal when no penalty proceedings were initiated assessment is set aside. On appeal when no penalty proceedings were initiated during such earlier assessment proceedings. We are however unable to find in this letter dt. 2nd Aug., 1977 any term undertaken by assessee not to file appeal. letter runs as follows: "Sub: WT assessment for 'the asst. yrs. 1971-72 and 1972-73 under s. 17 of WT Act, 1957. Please refer to above. above assessments have been reopened on basis of discussion held between you and CIT and IAC. There it was agreed by you to get assessment completed on net wealth as below : 1971-72 : Rs. 5,00,000 as share of fixed deposit and M/s. Bhattachajee & Co. plus value of other assets. 1972-73: Rs. 2,40,000 as share of fixed deposit plus value of other assets. You are therefore requested to file return on aforesaid basis. It is clarified that on your filing return no penalty proceedings will be initiated ". 5 . Nowhere in above letter it has been stated that assessee undertook not to file any appeal against assessment order to be made on basis of return agreed upon between him and Department. He only undertook to file returns for amounts of Rs. 5 lakhs and Rs. 2.4 lakhs. agreement did not relate to any other aspect of assessment or other matter. On other hand, Department undertook not to initiate penalty proceedings on assessee's filing returns as agreed upon. It is not case of Department that assessee did not file returns for amounts agreed upon. So it is apparent that assessee performed his part of duty under this agreement. As such, Department was under obligation to perform its part of duty in not initiating penalty proceedings. action of assessee in filing appeals against assessments could not absolve Department from its obligation undertaken under this agreement dt. 2nd Aug., 1977. When returns were filed by assessee as agreed upon under agreement dt. 2nd Aug., 1977, we are of opinion that Department could not initiate penalty proceedings. As such we do not think that orders cancelling penalties should be interfered with. As result, all appeals are dismissed. *** WEALTH-TAX OFFICER v. SMT. BIMALA BHATTACHARJEE