D.C. Agrawal, A.M.: This is appeal filed by assessee against confirmation of penalty under s. 271(1)(c) for concealment for addition of Rs. 1,73,126 in total income. In assessment order, AO had made following additions: "(i) PF debited twice of Rs. 1,73,126 (ii) Training expenses of (in respect of payment to M/s Surekha Decorators and M/s Grumore Caterers) Rs. 3,00,000 (iii) Amount debited in foreign travel expenses Rs. 8,69,120" first addition was about claim of deduction on account of debiting PF amount twice. facts were that sum of Rs. 3.56 lakhs was claimed as payment towards Family Pension Scheme (for short FPS ). AO called for details. assessee submitted to AO that by inadvertent mistake, claim has been made twice. Actual claim is only Rs. 1,73,126 to which he accepted addition. second issue was about addition out of training expenses debited in respect of M/s Surekha Decorators and M/s Grumore Caterers. assessee could not prove expenditure, it was claimed before AO that payment was through account payee cheque. CIT(A) confirmed this addition, as assessee could not establish genuineness of expenditure. third addition was about amount debited in foreign travel expenses. total claim under this head was to extent of Rs. 22.07 lakhs. scrutiny of accounts indicated that sum of Rs. 8.69 lakhs was claimed on basis of estimated liability. According to AO, expenditure had not crystallised before 31st March, 1992. It was only provision and not actual. details thereof were mentioned in penalty order passed by AO on 31st March, 1995. It was mentioned by AO in assessment order that he initiated penalty proceedings for all three additions. total amount of addition considered for purpose of levy of penalty was Rs. 5,87,096 being Rs. 1,73,126 on account of FPS debited twice, Rs. 3 lakhs for unproved trading expenses and Rs. 1,13,970 being excess claim of foreign travel expenses. Tax sought to be evaded including surcharge was Rs. 3,37,580 and hence minimum penalty of Rs. 3,37,580 being 100 per cent of tax sought to be evaded was levied vide order dt. 29th Aug., 1996. In appeal, CIT(A) accepted assessee s explanation about sum o f Rs. 3 lakhs and Rs. 1,13,970 as bona fide and cancelled penalty. He, however, sustained penalty on sum of Rs. 1,76,126. While cancelling penalty in respect of two amounts, CIT(A) held that payments to parties, viz., M/s Surekha Decorators and M/s Grumore Caterers were made through account payee cheques, payments were not doubted, similar payments were made in earlier years in similar way, these amounts were submitted before Settlement Commission for taxation on ground that due to misplacement of records arising out of labour unrest, claim could not be substantiated. Settlement Commission accepted offer and did not levy penalty under s. 271(1)(c) in respect of these incomes in earlier year. On same ground, assessee offered sum of Rs. 3 lakhs in asst. yr. 1992-93 with request that penalty should not be levied. Following decision of Hon ble Settlement Commission, CIT(A) cancelled penalty in respect of Rs. 3 lakhs. He also relied on decision of Hon ble Bombay High Court in CIT vs. Kiran & Co. (1996) 217 ITR 326 (Bom) and CIT vs. Haji Gaffar Haji Dada Chini (1987) 63 CTR (Bom) 130: (1988) 169 ITR 33 (Bom). In respect of foreign travel expenses, out of total addition of Rs. 8,69,120, CIT(A) sustained addition of Rs. 1,13,970 only, which was accepted by assessee. During penalty proceedings before CIT(A), said sum of Rs. 1,13,970 was offered for taxation in asst. yr. 1993-94 by assessee. Thus, CIT(A) inferred that assessee has not furnished inaccurate particulars in respect of this sum. However, in respect of sum of Rs. 1,73,126, which was addition for double deduction of FPS amount, CIT(A) was not convinced that it arose from inadvertent error committed by assessee. Hence, he confirmed penalty in respect of addition of Rs. 1,73,126. Department appealed before Tribunal against cancellation of Rs. 3 lakhs and Rs. 1,13,970 while assessee filed appeal against sustaining penalty in respect of sum of Rs. 1,73,126. appeal filed by Department was dismissed by Tribunal in ITA No. 911/Mum/1998 vide its order dt. 29th April, 2005. operating portion of order is as under: "3. We have duly considered rival contention. We find that penalty has been deleted by learned CIT(A) because addition qua foreign tour expenses has been retained marginally and major portion of expenses has been allowed to assessee. Therefore, it shows that element of concealment was not available. Partial disallowance of expenses could be confirmed because of appreciation of facts, and not because of conduct of assessee. Similarly for training expenses learned CIT(A) accepted contention of assessee that payment was made through account payee cheques. Nothing contrary was brought to our notice. Therefore, we do not see any good reason to interfere in order of learned CIT(A). Since on facts, we are satisfied that assessee has not concealed or furnished inaccurate particulars of income and learned CIT(A) has rightly deleted penalty, we do not deem it necessary to consider legal proposition propounded by learned counsel for assessee." present appeal relates to sustenance of penalty by CIT(A) for concealment in respect of addition of Rs. 1,73,126. Before us, learned counsel for assessee submitted that: "(i) AO has not spelt out his satisfaction that assessee has concealed income or furnished inaccurate particulars of income attracting levy of penalty under s. 271(1)(c) before finalising assessment proceedings. Reliance is placed on following: (a) CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321: (2000) 246 ITR 568 (Del); (b) Diwan Enterprises vs. CIT (2001) 167 CTR (Del) 324: (2000) 246 ITR 571 (Del); and (c) CIT vs. Super Metal Re-rollers (P) Ltd. (2003) 185 CTR (Del) 349: (2004) 265 ITR 82 (Del). (ii) In case of CIT vs. Ram Commercial Enterprises Ltd. (supra) Tribunal cancelled penalty holding that assessment order did not record satisfaction as warranted by s. 271 for initiating penalty proceedings. Hon ble High Court upheld decision of Tribunal and held as under: (1) satisfaction as to assessee having concealed particulars of income or furnished inaccurate particulars of such income is to be arrived at by AO during course of any proceedings under Act, which would mean that very jurisdiction to initiate penalty proceedings is not conferred on assessing authority by reference to cl. (c) of sub-s. (1) of s. 271 of IT Act, 1961. (2) bare reading of provisions of s. 271 and law laid down by Hon ble Supreme Court makes it clear that it is assessing authority which has to form its own opinion and record its satisfaction before initiating penalty proceedings. Merely because penalty proceedings have been initiated, it cannot be assumed that such satisfaction was arrived at in absence of same being spelt out by order of assessing authority. (iii) Hon ble High Court held "The law is clear and explicit. Merely because this Court, while hearing application, may be inclined to form opinion that material available on record could have enabled initiation of penalty proceedings that cannot be substitute for requisite finding, which should have been recorded by assessing authority in order of assessment but has not been so recorded." (iv) Following above judgment of Hon ble Delhi High Court, Hon ble Allahabad (sic-Delhi) High Court has laid down said principle in Diwan Enterprises vs. CIT (supra). This principle has also been followed in CIT vs. Super Metal Re-rollers (P) Ltd. (supra). (v) appellant respectfully submits that AO has not recorded in his order as to his satisfaction as to assessee having concealed particulars of his income or furnished inaccurate particulars of such income before initiation of penalty as required under provisions of law. Therefore, in absence of such recording, which is sine qua non before initiation of penalty under consideration, order levying penalty is liable to be quashed. appellant, therefore, prays that penalty proceedings be quashed." main crux of arguments of learned counsel for assessee is that AO has not recorded his satisfaction about initiation of penalty in assessment order. Therefore, order is bad in law and should be quashed. In addition to this, learned counsel for assessee submitted on merits that there was labour unrest, strike/lock out and hence entire staff had to be sacked. This fact has also been noted by Settlement Commission while waiving penalty under s. 271(1)(c) for earlier assessment year. accountant committed mistake while presenting account in horizontal form as required in Companies Act. He added figures of last year as well as current year of FPS payments and debited them into P&L a/c. Further, there was no intention to conceal income or submit any false account as noted by AO. There were 15 branches and all payments had to be compiled, accountant was inexperienced and mistake had occurred. As soon as AO asked for details of FPS payments, we discovered mistake and offered same for taxation. Thus, relying on decision in Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC), it was submitted that there is no case for levy of penalty. Vide letter dt. 13th April, 2005, learned Departmental Representative counsel for assessee sought to raise following additional ground: "That on facts and in circumstances of case, AO has not spelt out his satisfaction that appellant has concealed income or furnished inaccurate particulars of income attracting levy of penalty under s. 271(1)(c) before finalising assessment proceedings. appellant submits that levy of penalty is ab initio void in absence of spelling out such satisfaction by AO. appellant, therefore, prays that penalty under s. 271(1)(c) be deleted." It was submitted that all facts relating to this ground are already on record, no further facts are necessary to be culled out after investigation, said ground be admitted. Finally, learned counsel for assessee submitted that his explanation is bona fide and Department has not proved it to be false. Therefore, by virtue of Expln. 1B to s. 271(1)(c), no penalty is leviable. As Tribunal has confirmed cancellation in respect of other amounts similarly added, there is no case for confirming penalty in respect of this amount. Against this, learned Departmental Representative submitted that AO has made addition and separately initiated penalty proceedings for each addition. It is not case that at end of assessment order, he has initiated penalty without application of mind. Therefore, technical objection raised by assessee is not sustainable. On merits, he supported order of CIT(A) on ground that mistake was not inadvertent and assessee had filed inaccurate particulars with return. Since all facts relating to additional ground are on record, following decision of Hon ble Supreme Court in case of National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249: (1998) 229 ITR 383 (SC), we admit additional ground. We have heard rival submissions and considered facts and materials on record. We are not convinced with technical objection raised by assessee by raising additional ground that assessment is bad in law because AO has not initiated penalty proceedings after taking conscious decision after satisfying himself that there is concealment of income. There is no doubt that assessment proceedings and penalty proceedings are independent. This is evident from fact that law permits passing of two orders, one for assessment and other for penalty. Separate channel for appeal has been provided for two types of orders. Hence, what is expected in penalty order cannot be expected to be done in assessment order. In assessment order, AO has only to comply with requirement as laid down by decisions of Hon ble Delhi High Court in Diwan Enterprises vs. CIT (2001) 167 CTR (Del) 324: (2000) 246 ITR 571 (Del), CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321: (2000) 246 ITR 568 (Del) and CIT vs. Super Metal Re-rollers (P) Ltd. (2003) 185 CTR (Del) 349: (2004) 265 ITR 82 (Del). requirement is that he must record satisfaction about concealment of income for initiating penalty. This satisfaction is only prima facie. There is no requirement that concealment has to be proved in assessment order. What is to be seen is whether AO has applied his mind before initiating penalty or that he has routinely initiated penalty after making several additions in assessment order and not satisfying as to in respect of which addition, there is element of concealment of particulars of income or of filing of inaccurate particulars. Where there are certain disallowances for want of evidence or there are certain claims, assessee was not able to establish and there may be other additions, where there may not be any charge of filing inaccurate particulars of income or concealing particulars of income, it becomes very difficult to know as to in respect of which item AO has applied his mind before initiating penalty. In present case, things are entirely different. After every addition, AO has mentioned that penalty is initiated on this account. In other words, while making addition either on account of double claim of FPS account or unexplained payment to distributors or unexplained claim in foreign travel expenses, AO was specific after each addition and he initiated penalty proceedings thereafter. It was not case where AO had without application of mind initiated penalty at end of assessment order. Therefore, we are unable to accept contention of learned counsel for assessee that there was no satisfaction of AO before initiating penalty proceedings. We infer from conduct of AO apparent from manner in which assessment order has been drafted wherein factum of initiation of penalty proceedings has been mentioned after every addition that he has applied his mind and he was satisfied about concealment of income and only thereafter penalty proceedings were initiated. another point to be noted that he has not left it to office staff to initiate penalty proceedings by simply mentioning "to initiate penalty proceedings". He has mentioned penalty proceedings "initiated" after each amount of addition. We are satisfied that AO has followed basic requirement of application of mind before initiating penalty proceedings. Accordingly, this ground of assessee is rejected. Regarding merits, we are of view that assessee has reasonable case. It is fact accepted by Hon ble Settlement Commission that there was labour unrest in business of assessee. staff was sacked. CIT(A) has also accepted this fact. It is reasonable to believe that there would be disruption in sorting out papers. Further, there was no discovery made by AO about concealment of income. When asked for details about FPS payments, it was discovered by assessee and he himself surrendered double claim. We also find that Expln. 1B to s. 271(1)(c) is applicable on facts of present case for levy of penalty under s. 271(1)(c). Under Expln. 1B, there are three requirements to be satisfied simultaneously. They are (1) assessee offers explanation which was not substantiated; (2) he fails to prove that such explanation is bona fide; (3) all facts relating to same and material to computation of total income have been disclosed by him. Here, assessee has offered explanation, all facts relating to computation of income are on record and in fact, they were disclosed by assessee and explanation of assessee is bona fide in sense that labour unrest and disruption have been accepted by Settlement Commission and he himself offered sum for taxation, when mistake was discovered by them. We also find that Tribunal in assessee s own case confirmed cancellation of penalty in respect of other two amounts made on similar grounds. Thus, we do not find any justification in confirming penalty. Hence, order of CIT(A) is reversed and penalty for concealment in respect of sum of Rs. 1,73,126 is hereby cancelled. In result, appeal of assessee is allowed. *** LOTUS LEARNING (P) LTD. v. DEPUTY COMMISSIONER OF INCOME TAX