Joginder Pall, A.M.: By this consolidated order, I shall dispose of these two appeals of assessee filed against two orders of CIT(A), Jalandhar, for asst. yr. 1988-89 as issues involved in both appeals are common and arise from same orders of CIT(A) and I find it convenient to do so. issue raised in ITA No.270 of 2006 relates to sustaining penalty of Rs. 93,060 imposed by AO under s. 271(1)(a) for late filing of return and in ITA No. 269 of 2006 relates to sustaining penalty of Rs. 94,000 imposed by AO under s. 271(1)(c) of Income-tax Act, 1961 (In short Act ). facts of case are that assessee had disclosed jewellery weighing 955 gms under VDIS Scheme, 1997 for asst. yr. 1988-89. declaration was accompanied by affidavit dt. 3rd Dec., 1997 before CIT, Jalandhar. However, assessee did not pay tax on income disclosed under VDIS. Therefore, CIT treated declaration under VDIS as never to have been made in view of provisions of s. 67(2) of VDIS Scheme, 1997 and certificate under s. 68(2) of said VDIS Scheme was not issued to assessee. Subsequently, CIT, Jalandhar, passed on information to AO vide his letter dt. 4th Sept., 1998. Relying on such information, AO initiated proceedings under s. 147 by issue of notice under s. 148 of Act on 23rd Sept., 1998. In response to such notice, assessee filed return declaring therein nil income. Relying on declaration made under VDIS Scheme, 1997 n d affidavit filed along with said declaration, AO completed assessment under s. 143(3) r/w s. 147 on total income of Rs. 2,19,650 vide his order dt. 29th Sept., 2000. At end of order, AO initiated penalty proceedings under s. 271(1)(c) by recording as under: "Penalty proceedings under s. 271(1)(c) are also initiated. Assessed, issue demand notice, challan, notice under s. 271(1)(c) and copy of order." Penalty proceedings under s. 271(1)(a) of Act for late filing of return were not initiated. assessee filed appeal against said assessment order before CIT(A). assessee challenged jurisdiction of ITO, Ward-2(6), Jalandhar. This submission of assessee was rejected by CIT(A) on ground that AO has followed proper procedure in referring issue of jurisdiction to CIT, Jalandhar, under s. 124 of Act. other grievance of assessee was that AO had completed assessment without allowing proper opportunity of being heard. Though learned CIT(A) did not find much force in such submissions, yet assessment was set aside to be made afresh after allowing one more opportunity to assessee of being heard. relevant findings recorded by CIT(A) for setting aside assessment in para 4.2. of his order dt. 26th Dec., 2000 (copy placed at pp. 4 to 9 of paper book) are as under: "4.2. I have considered arguments from both sides. I do not agree that any case has been made out for quashing order as illegal. AO had issued notices under s. 143(2)/142(1) in May, 1999 which were followed up in June, 1999, July, 2000 and September, 2000. issue was also discussed with counsel of assessee on 27th Sept., 2000. There is nothing on record to show that learned counsel had requested for further time to make his submissions or to produce any material before AO. However, in view of submissions made during appellate proceedings by both sides, assessment is set aside to be made afresh after allowing one more opportunity to assessee of being heard." In pursuance of order of CIT(A), AO completed set aside assessment vide his order dt. 27 Nov., 2001 (copy placed at pp. 10 to 14 of paper book). During course of set aside assessment proceedings, assessee was allowed opportunity to explain source of jewellery disclosed under VDIS Scheme, Since assessee could not furnish any explanation to satisfaction of AO, assessment was made on same income as assessed in original assessment order. While doing so, AO also observed that despite opportunity allowed to assessee to appear before him to verify contentions submitted, however, assessee failed to do so. While completing set aside assessment, AO recorded at end of assessment that notices under s. 274 r/w s. 271 for concealment of income and for late filing of return have already been issued. It would be more appropriate to for late filing of return have already been issued. It would be more appropriate to reproduce hereunder concluding paras towards end of assessment order as under: "Penalty notices under s. 274 r/w s. 271 for concealment of income and for late filing of return have already been issued. Charge interest under ss. 139(8) and 215/217." assessee filed appeal against said assessment order before CIT(A), whereagain issue regarding jurisdiction of AO to make assessment in this case was questioned. This plea of assessee was rejected by CIT(A). As regards merits of addition, learned CIT(A) upheld same by recording following findings: "Regarding second ground, I do not think there is any infirmity with proceedings invoked under s. 147 when appellant failed to file return within stipulated time. It definitely will come under income escaping assessment since it has got out of purview of VDIS after non-deposition of tax within stipulated time. Hence, second ground of appeal is also dismissed. Now, regarding main issue of explanation offered by appellant about amount invested in jewellery, in question, AO has observed that: ... .the assessee herself has admitted in her affidavit dt. 31st Dec., 1997 submitted before CIT, Jalandhar, that investment in jewellery is not disclosed earlier to IT Department and same is being offered under VDIS 1997 which goes to show that jewellery in question was obtained/purchased from undisclosed sources of assessee. assessee s assertion that three gold Karas of 105 gms. each was purchased from her savings out of money received from father-in-law, husband and petty gifts received from her parents side is unbelievable and cannot be relied upon for reasons, firstly, that no such explanations were offered at time of original assessment, secondly, she has not produced any documentary evidence to effect that her father-in-law was man of means or he had ever given any money to assessee enabling her to save huge amount to invest on purchase of gold Karas as alleged. Presuming but not admitting that her father-in-law had been giving certain amounts during his lifetime that was hardly sufficient to meet household expenses of family specially in view of fact that neither assessee nor her husband had any regular source of income as admitted in explanation offered by assessee. explanation offered by assessee is nothing but cooked up story and afterthought only to avoid proper taxation on investment on purchase of jewellery which she had already admitted as explained in her application submitted under VDIS 97. Whatever arguments of learned counsel, fact remains that despite summons under s. 131 appellant did not present herself to clarify doubts. line of argument taken up by learned counsel as stated in para 4 of grounds of appeal is not proper, to my mind. What AO implies is that relatives from whom she is supposed to have taken money were not in position to lend her that much from their regular income. This is reason why these funds have been labelled as undisclosed by AO. I do not find any contradiction in assessment order. As such, I fully agree with AO that entire argument presented was afterthought. As such, appeal on this ground is also dismissed." assessee has not filed any further appeal before Tribunal against quantum addition and, therefore, addition so made has become final. As regards penalty proceedings initiated by AO, assessee had submitted reply vide letter dt. 6th Feb., 2002 (a copy placed at p. 19 of paper book). It was submitted before AO that penalty proceedings under s. 271(1)(a) had not been initiated by AO at time of completing first assessment under s. 143(3) r/w s. 147. It was, therefore, contended that penalty under s. 271(1)(a) could not be imposed. As regards penalty under s. 271(1)(c), it was submitted that Department has not brought any material on record or evidence to show that assessee had earned income except relying on declaration made under VDIS Scheme, 1997. It was submitted that since assessee had denied that any such income was earned, onus was on Revenue to establish that this was concealed income of assessee. Thus, it was contended that penalty proceedings under s. 271(1)(c) should also be dropped. Subsequently, AO allowed another opportunity by issue of another notice. In response to such notices, assessee submitted that she has filed appeals against first order of CIT(A) before Tribunal and was also filing appeal against second order of AO before CIT(A). Therefore, AO was requested that penalty proceedings may be kept in abeyance till disposal of appeals filed by assessee. However, AO drew adverse inference by observing that reply of assessee shows that she has nothing to say in matter. He, therefore, imposed penalty of Rs. 93,530 for delay in filing return of income. AO also held that assessee concealed her income by furnishing inaccurate particulars thereof and accordingly imposed penalty for Rs. 93.530 @ 100 per cent of tax sought to be evaded which was rounded of to Rs.94,000. Being aggrieved, assessee impugned levy of penalty in appeals before CIT(A). In regard to penalty proceedings under s. 271(1)(a), it was submitted that AO had not recorded satisfaction at time of completing original assessment. Therefore, no penalty under s. 271(1)(a) could be imposed. learned CIT(A) rejected such submission on ground that AO had highlighted default committed under s. 271(1)(a) of Act. Relying on judgment of Hon ble Supreme Court in case of Gujarat Travancore Agency vs. CIT (1989) 77 CTR (SC) 174: (1989) 177 ITR 455 (SC), learned CIT(A) held that for purpose of levy of penalty under s. 271(1)(a), it was not necessary to establish element of mens rea on part of assessee. Thus, she upheld penalty imposed for late filing of return. As regards penalty under s. 271(1)(c), it was submitted before CIT(A) that AO had not recorded proper satisfaction during course of completing assessment. Relying on judgment of Hon ble Punjab & Haryana High Court in case of CIT vs. Munish Iron Store (2004) 186 CTR (P&H) 159: (2003) 263 ITR 484 (P&H), it was submitted that order for imposing penalty was illegal and bad in law. It was also submitted that mere fact addition has been made by AO on basis of preponderance of probability, same does not justify imposition of penalty under s. 271(1)(c). However, none of these submissions found favour with CIT(A), who upheld levy of penalty by recording following findings: "4. I have considered facts on record and submissions of appellant. I hold that AO is justified in imposing penalty under s. 271(1)(c) of IT Act, 1961 for following reasons: (i) appellant filed sworn affidavit showing purchase/acquisition of gold jewellery on 1st April, 1987 of Rs. 2,19,650. contents of this affidavit are true and correct and appellant has not led any evidence or cited any circumstances to retract from his sworn statement. (ii) affidavit filed by appellant was supported by valuation certificate issued by Shri Vijay Kumar Jain, Registered Valuer. In his valuation report, Shri Vijay Kumar Jain, Registered Valuer, gave description and valuation of jewellery purchased by appellant on 1st April, 1987. items of jewellery valued by him are: (i) 2 Rani Har (ii) 3 Rangullui (iii) 3 Kare (iv) 2 Jhumke valuation report by reflecting different pieces proves purchase of jewellery by appellant on 1st April, 1987 by investing sum of Rs. 2,19,650. (iii) order of assessment passed by AO highlights default committed by appellant punishable under s. 271(1)(c) of Act. Thus, satisfaction of AO is apparent and obvious from record. (iv) It is not for Department to prove source of income of appellant to purchase jewellery. very act of purchase of jewellery by appellant of Rs. 2,19,650 raises presumption that appellant earned income of Rs. 2,19,650 in asst. yr. 1988-89. This presumption was never rebutted by appellant. Thus, appellant knew that she had earned this income in asst. yr. 1988-89 but she did not file return of income. (v) assessment of Rs. 2,19,650 is based on affidavit of appellant and valuation report of Registered Valuer showing purchase of jewellery b y appellant. It is neither based on probability nor any estimation. concealed income is equivalent to purchase of jewellery by appellant. She neither declared income to justify investment nor showed investment in jewellery thereby clearly revealing her intent to conceal income with motive of evading tax liability." assessee is aggrieved with orders of CIT(A). Hence, these appeals before us. learned Authorised Representative, J.S. Bhasin, filed written submissions on 26th Feb., 2007 stating therein that AO completed original assessment under s. 143(3) r/w s. 147 on 29th Sept., 2000 (a copy placed at pp. 1 and 2 of paper book), where no proceedings under s. 271(1)(a) have been initiated in assessment order. Thereafter, said assessment was set aside by learned CIT(A) and restored to AO vide CIT(A) s order dt. 26th Dec., 2000 (a copy placed at pp. 4 to 9 of paper book). He submitted that in pursuance of order of CIT(A), AO completed set aside assessment vide his order dt. 7th Dec., 2001 (a copy placed at pp. 10 to 14 of paper book), where penalty proceedings under s. 271(1)(a) had been initiated for first time. He submitted that it was argued before CIT(A) that if penalty proceedings had not been initiated at time of completing original assessment, AO could not have initiated such proceedings at time of completing set aside assessment. However, this aspect was not considered by CIT(A). He, therefore, contended that penalty imposed by AO under s. 271(1)(a) without initiating proceedings in assessment order is without jurisdiction and such order is liable to be quashed on this ground itself. He submitted that levy of penalty is not mandatory, but purely discretionary as expression used in section May . He relied on judgment of Hon ble Delhi High Court in case of CIT vs. Maya Rani Punj (1973) 92 ITR 394 (Del), Orissa High Court in case of CIT vs. Prafulla Kumar Mallik 1976 CTR (Ori) 428: (1976) 104 ITR 648 (Ori), Madhya Pradesh High Court in case of Todarmal Safarishmal Lashkar vs. CIT 1976 CTR (MP) 105: (1979) 118 ITR 759 (MP) and Karnataka High Court in case of M.P. Laxman vs. Agrl. ITO & Anr. (1986) 51 CTR (Kar) 189: (1986) 157 ITR 1 (Kar). Relying on judgment of Hon ble Supreme Court in case of Modi Industries Ltd. & Ors. vs. CIT (1995) Hon ble Supreme Court in case of Modi Industries Ltd. & Ors. vs. CIT (1995) 128 CTR (SC) 361: (1995) 216 ITR 759 (SC), learned Authorised Representative submitted that set aside assessment completed by AO on 27th Nov., 2001 was not "regular assessment". It was only consequential order passed by AO to give effect to appellate order of CIT(A). Therefore, initiation of penalty proceedings should not be considered on basis of such order. He submitted that if AO omitted to initiate penalty proceedings at time of completing assessment, CIT cannot exercise revisionary powers under s. 263 to initiate such proceedings. In support of such proposition, he relied on following judgments: (i) CIT vs. Nihal Chand Rekyan (1999) 156 CTR (Del) 59: (2000) 242 ITR 45 (Del) (ii) Addl. CIT vs. J.K. D Costa (1981) 25 CTR (Del) 224: (1982) 133 ITR 7 (Del) (iii) P.C. Puri vs. CIT (1985) 151 ITR 584 (Del) (iv) CIT vs. Keshrimal Parasmal (1985) 48 CTR (Raj) 61: (1986) 157 ITR 484 (Raj) (v) Surendra Prasad Singh & Ors. vs. CIT (1988) 71 CTR (Gau) 125: (1988) 173 ITR 510 (Gau) (vi) Decision of Tribunal, Chandigarh Bench, in case of Sangrur Vanaspati Mills Ltd. vs. Dy. CIT (2002) 74 TTJ (Chd)(TM) 857: (2002) 80 ITD 143 (Chd)(TM). Thus, he submitted that for purpose of initiation of penalty proceedings, basis could only be regular assessment completed by AO which in this case would be first assessment itself. He further stated that AO has not recorded proper satisfaction even in second assessment order passed by AO to give effect to CIT(A) s order. Relying on judgment of Kerala High Court in case of CIT vs. Smt. P.M. Celine (1998) 149 CTR (Ker) 317: (1999) 236 ITR 988 (Ker), learned Authorised Representative submitted that even for purpose of initiating penalty proceedings under s. 271(1)(a), satisfaction must be recorded in assessment order itself. He further submitted that neither in first assessment order nor in second assessment order, AO has recorded valid satisfaction for initiating penalty proceedings under s. 271(1)(c). He relied on judgment of Hon ble Punjab & Haryana High Court in case of CIT vs. Munish Iron Store (supra). He submitted that in present case such satisfaction has not been recorded by AO. Therefore, penalty proceedings under s. 271(1)(a) are liable to be quashed on this ground itself. He further submitted that assessee had filed reply on 6th Feb., 2002 (copy placed at p. 19 of paper book) in reply to show-cause notice issued by AO, where it was stated that no penalty proceedings under s. 271(1)(a) had been initiated at time of completing original assessment on 29th Sept., 2000. Therefore, penalty proceedings under s. 271(1)(a) required to be dropped. As regards penalty proceedings under s. 271(1)(c), assessee had submitted that appeal filed against order of assessment was pending and, therefore, penalty proceedings may be kept pending. He submitted that provisions of Act as these stood at relevant time provided that order for imposing penalty could be passed within period of one year from end of month in which order of CIT(A) or Tribunal was received. However, AO proceeded to impose penalty without waiting for decision of appellate authorities. He submitted that even assessee was not informed that such request could not be acceded to and he proposed to levy penalty without waiting for order of CIT(A) and Tribunal before whom appeals were pending. He submitted that even reply submitted by assessee on 6th Feb., 2002 was not taken into account. Thus, he submitted that AO imposed penalty under s. 271(1)(a) and 271(1)(c) without allowing effective opportunity and thereby violated principles of natural justice. Relying on judgment of Hon ble Madras High Court in case of CIT vs. G.R. Rajendran (2003) 259 ITR 109 (Mad) and two judgments of Hon ble Gujarat High Court in cases of CIT vs. Textile & General Engineering Co. (2002) 178 CTR (Guj) 539: (2003) 259 ITR 735 (Guj) and CIT vs. Scientific Chemicals (2005) 198 CTR (Guj) 665: (2005) 278 ITR 199 (Guj), learned Authorised Representative submitted that orders for imposing penalty without considering explanation of assessee are liable to be quashed on this ground itself. He further stated that assessee neither in past nor in future was being assessed to tax. She did not have any regular source of income. She was totally unaware of her obligation to file return under bona fide belief that she was not required to do so. This according to learned Authorised Representative constituted reasonable cause for default under s. 271(1)(a) for which no penalty could be imposed. Thus, learned Authorised Representative concluded arguments by saying that orders for imposing penalty under s. 271(1)(a) and 271(1)(c) may be quashed after setting aside impugned orders of CIT(A). learned Departmental Representative, on other hand, heavily relied on orders of authorities below. He also filed written submissions by his letter dt. 20th March, 2007 stating therein that it was within competence of t h e AO to initiate penalty proceedings under s. 271(1)(a) at time of completing set aside assessment because original assessment order was set aside by CIT(A). He has also stated that orders for imposing penalty under ss. 271(1)(a) and 271(1)(c) had been passed after allowing reasonable opportunity to assessee. He further submitted that judgment of Hon ble Supreme Court in case of Modi Industries Ltd. vs. CIT (supra) is not applicable to facts of present case because that relate to charging of interest under s. 214. He also stated that AO has recorded satisfaction at time of initiation of proceedings. As regards merits of penalty under s. 271(1)(c), learned Departmental Representative submitted that she herself declared such income under VDIS Scheme, 1997. However, neither she paid tax due thereon nor filed return. Such income declared under VDIS was supported by affidavit of assessee and was represented by specific investment in jewellery. assessee could not explain with any evidence that investment in jewellery was made out of income disclosed in earlier assessment years. Thus, he submitted that AO has rightly imposed penalty under s. 271(1)(c) and 271(1)(a). I have heard both parties at some length and given my thoughtful consideration to rival submissions, gone through facts, evidence and material placed on record as well as orders of authorities below. I have also referred to relevant pages of paper book to which my attention has been drawn. undisputed facts of case as detailed above are that assessee declared jewellery valuing at Rs. 2,19,650 under VDIS Scheme, 1997 and did declared jewellery valuing at Rs. 2,19,650 under VDIS Scheme, 1997 and did not pay tax on same. AO initiated proceedings under s. 147 on receipt of information from CIT, completed first assessment on 29th Sept., 2000 at income of Rs. 2,19,650 i.e. value of jewellery declared in VDIS Scheme, learned CIT(A) set aside assessment vide his order dt. 26th Dec., 2000 with direction to make fresh assessment after allowing one more opportunity to assessee. AO completed set aside assessment i n pursuance of directions of CIT(A) on 7th Dec., 2001 at same income of Rs. 2,19,650 as determined in original assessment order and addition made by AO has been upheld by CIT(A) vide her order dt. 16th April, 2004. order of CIT(A) for sustaining addition has already become final as no further appeal to Tribunal was filed. Now, material question that requires to be decided by this Bench is whether for purpose of considering levy of penalty under s. 271(1)(a) and 271(1)(c), satisfaction recorded by AO in first order dt. 29th Sept., 2000 is to be considered or satisfaction recorded in second order dt. 27th Nov., 2001 is to be considered? I do not find any merit in submissions of learned counsel for assessee that for purpose of considering initiation of proceedings, only regular assessment made by AO has to be considered. He has drawn support from judgment of Hon ble Supreme Court in case of Modi Industries Ltd. vs. CIT (supra) which is on issue of interest under s. 214 of Act. Sec. 214 itself provides that Central Government shall pay simple interest at 15 per cent per annum on amount by which aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under ss. 207 and 213 exceeds amount of assessed tax from 1st day of April next following said financial year to date of regular assessment for assessment year immediately following said financial year (emphasis in italicized, in print, supplied). Sub-s. (5) of s. 215 which is also applicable to s. 214 defines assessed tax as to mean tax determined on basis of regular assessment reduced by amount of tax deducted at source. Therefore, judgment of Hon ble Supreme Court in case of Modi Industries Ltd. vs. CIT (supra) which is in context of interest payable by Central Government is not applicable to initiation of penalty proceedings under Chapter XXI of Act. In this context, I consider it appropriate to reproduce hereunder provisions of ss. 271(1)(a) and 271(1)(c) of Act: "271 (1) If AO or CIT (A) or CIT in course of any proceedings under this Act, is satisfied that any person (a) has failed to furnish return of total income which he was required to furnish under sub-s. (1) of s. 139 or by notice given under sub-s. (2) of s. 139 or s. 148 or has failed to furnish it within time allowed and in manner required by sub-s. (1) of s. 139 or by such notice as case may be, or (b) has failed to comply with notice under sub-s. (1) of s. 142 or sub-s. (2) of s. 143 or fails to comply with direction issued under sub-s. (2A) of s. 142 or (c) has concealed particulars of his income or furnished inaccurate particulars of such income." bare reading of above section shows that IT authorities mentioned therein are required to initiate such proceedings in course of any proceedings under Act, if they are satisfied that any person has failed to furnish return of total income within time allowed under s. 139(1) or in response to notice issued under sub-s. (2) of s. 139, or s. 148 and has concealed particulars of his income or furnished inaccurate particulars of such income. expression used in section is "in course of any proceedings under this Act". Such expression has very wide connotation and is not confined to regular assessment alone. Such expression cannot be given restrictive meaning so as to confine only to regular assessment. What is required to be seen is when factum of particular default came to knowledge of AO and at what point of time authority concerned assumed jurisdiction to initiate such proceedings. If such default came to notice of AO at time of completing first assessment and AO assumed jurisdiction by issue of notices under s. 271(1)(a) and 271(1)(c) material order would be first assessment. issue whether initiation of penalty proceedings and assumption of jurisdiction by AO were valid or not has to be determined with reference to first assessment order. However, there can be situation where such default comes to notice of AO during course of completing set aside assessment. For example, there could be case where AO completed assessment under s. 144 on estimate basis because of failure on part of assessee to produce books of account and other supporting evidence. AO did not initiate penalty proceedings under s. 271(1)(c) because act of concealment did not come to notice of AO at time of completing ex parte assessment, supposing that such assessment was set aside by appellate authority with direction to AO to reframe same after allowing proper opportunity to assessee. During course of set aside assessment proceedings, assessee produced books of account and AO found that there is credit entry of Rs. 1 lac in books. When assessee is confronted with same, he explained that it represented sale proceeds of agricultural produce and in support of such contention assessee filed copies of Revenue record indicating certain extent of land owned by assessee. However, on further enquiry made by AO it is found that Revenue records produced before him were forged and fabricated as there was no Revenue official by name who signed records produced before AO and assessee did not own any land. Based on such evidence, AO can initiate penalty proceedings under s. 271(1)(c) at time of completing set aside assessment because factum of concealment came to his knowledge during course of completing set aside assessment. In such case, legality of action of AO for initiating penalty proceedings under s. 271(1)(c) is to be seen from set aside assessment order irrespective of fact that such proceedings were not initiated at time of completing original assessment. However, in case where AO also initiated penalty proceedings under s. 271(1)(a) or 271(1)(c) at time of completing set aside assessment, though these already stood initiated at time of first assessment, subsequent action of AO would be redundant. action of AO for initiating penalty proceedings would be judged from first order i.e. when AO assumed jurisdiction and issued penalty notices under relevant sections. However, AO would be free to make use of results of his subsequent investigation made during course of set aside assessment at time of levying penalty under s. 271(1)(c) of Act. above position would not be applicable to case where assessment is quashed by appellate authority. In such case, entire proceedings including action of AO for initiating proceedings under relevant sections becomes non est. AO would not be justified for imposing penalty under s. 271(1)(a) or 271(1)(c) on basis of assessment order which has since been quashed by appellate authority. If he does so, such order would also be illegal and bad in law. Now, in present case, we find that learned CIT(A) has not quashed first assessment. He has only set aside assessment and restored to file of AO for making it afresh after allowing one more opportunity to assessee. It is settled law that both penalty proceedings and assessment proceedings are separate and independent proceedings, although findings recorded in assessment order may constitute base for imposition of penalty. Now, when we see order of CIT(A) for setting aside assessment, it only means that quantum addition made by AO was set aside and restored to file of AO. action of AO for initiating penalty proceedings under s. 271(1)(c) remained intact, even though quantum of penalty leviable would depend on tax ultimately determined on completion of set aside assessment. Now, in this case, basis of addition in both first and set aside assessment remains same i.e. income disclosed under VDIS, 1997 .There is no change in facts and conclusions drawn by AO in both orders. Besides, factum that assessee had filed return late also remains same as in first assessment order. Therefore, for purpose of deciding whether AO had initiated valid penalty proceedings under s. 271(1)(a) and 271(1)(c) first order has to be considered. This is also clear from second order passed by AO where AO has merely recorded towards end of order that "penalty notices under s. 274 r/w s. 271 for concealment of income and for late filing of return have already been issued". This means that AO has referred to notices issued at time of completing first assessment when AO assumed jurisdiction for levy of penalty under s. 271(1)(c) and 27l(1)(a). Therefore, in light of these facts and circumstances of case and legal position discussed above, I am of opinion that for purpose of levy of penalty under s. 271(1)(a) and 271(1)(c), one has to refer to satisfaction recorded by AO in first assessment order on 29th Sept., 2000 (a copy of assessment order is placed at pp. 1 and 2 of paper book). In this order AO has recorded following satisfaction at time of initiating penalty proceedings under s. 271(1)(c) at end of assessment order: "Penalty proceedings under s. 271(1)(c) are also initiated. Assessed. Issue demand notice, challans and notice under s. 271(1)(c) and copy of order." From above, it is clear that AO had not at all initiated penalty proceedings under s. 271(1)(a) though he has initiated penalty proceedings under s. 271(1)(c) of Act. It is also fact that AO was aware of fact that assessee had not filed return of income within time allowed under s. 139(1). This was reason that AO issued notice under s. 148 on 23rd Sept., 1998. Still, however, AO did not initiate penalty proceedings under s. 271(1)(a). Sec. 271 of Act mandates recording of satisfaction in assessment order before initiating penalty proceedings under any of sub- sections mentioned therein. This is mandatory requirement of law without which AO cannot assume jurisdiction. If satisfaction is not recorded by AO or same is not proper, proceedings initiated under this section would be invalid and without jurisdiction. recording of satisfaction means that assessment order must apparently show that there was application of mind by AO. application of mind can only be gathered by reasons stated in assessment order. This view finds support from judgments of Delhi High Court in cases of CIT vs. Auto Lamps Ltd. (2005) 196 CTR (Del) 454, CIT vs. Super Metal Re-Rollers (2003) 185 CTR (Del) 349: (2004) 265 ITR 82 (Del), Diwan Enterprises vs. CIT (2001) 167 CTR (Del) 324: (2000) 246 ITR 571 (Del), CIT vs. B.R. Sharma (2005) 196 CTR (Del) 454: (2005) 275 ITR 303 (Del) and CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321: (2000) 246 ITR 568 (Del). Besides, in case of CIT vs. Munish Iron Store (supra), Hon ble Punjab & Haryana High Court has also held that jurisdiction to impose penalty flows from recording of satisfaction of AO regarding concealment of income. In case, there is defect in assumption of jurisdiction i.e. if satisfaction has not been recorded, such defect cannot be cured. Hon ble Punjab & Haryana High Court, apart from relying on two judgments of Delhi High Court in cases of CIT vs. Ram Commercial Enterprises Ltd. (supra) and Diwan Enterprises vs. CIT (supra) has also relied Enterprises Ltd. (supra) and Diwan Enterprises vs. CIT (supra) has also relied on two judgments of Hon ble Supreme Court in cases of Jain Bros. vs. Union of India (1970) 77 ITR 107 (SC) and D.M. Manasvi vs. CIT 1972 CTR (SC) 437: (1972) 86 ITR 557 (SC). Even for purpose of initiation of penalty proceedings under s. 271(1)(a), it was mandatory on part of AO to record satisfaction in assessment order itself. In present case, AO has failed to record such satisfaction at time of completing first assessment. Therefore, order for imposing penalty under s. 271(1)(a) is illegal and without jurisdiction. Accordingly, order of CIT(A) is set aside and penalty imposed by AO under s. 271(1)(a) is quashed on this ground itself. As regards penalty imposed by AO under s. 271(1)(c), I find that AO has merely mentioned towards end that penalty proceedings under s. 271(1)(c) are also initiated. There are two limbs of s. 271(1)(c) i.e. concealing particulars of income or furnishing inaccurate particulars of income. Nowhere, AO has mentioned whether assessee was guilty of concealing particulars of income or furnishing of inaccurate particulars of income. This only shows lack of application of mind by AO at time of initiating penalty proceedings. judgment of jurisdictional High Court of Punjab & Haryana in case of CIT vs. Munish Iron Store (supra) supports view that order for imposing penalty without recording valid satisfaction is illegal and bad in law. other judgments referred to in preceding para 9.2. are also directly applicable to present case. On identical facts, Tribunal, Amritsar Bench, vide its orders dt. 24th Nov., 2006 and 5th March, 2007 in cases of Shere Punjab Agricultural Works vs. ITO and Sh. Jaswant Rai vs. AO, in ITA No. 87(ASR)/2006 and ITA Nos. 430 & 431/(ASR)/2006 for asst. yrs. 1989-90 & 2002-2003 and 2003-2004 has quashed penalty orders on ground that same were invalid and without jurisdiction. facts of present case are also similar. Therefore, respectfully following various judgments cited above and decisions of Tribunal, Amritsar Bench, I hold that learned CIT(A) was not justified in sustaining order for imposing penalty under s. 271(1)(c) of Act. Accordingly, I set aside order of CIT(A) and quash order under s. 271(1)(c) being invalid and without jurisdiction. grounds of appeal of assessee are allowed. Since orders for imposing penalty have been quashed, I do not consider it necessary to decide grounds relating to merits of penalty imposed under s. 271(1)(a) and 271(1)(c) of Act. These grounds of appeal are disposed of in these terms. In result, both appeals filed by assessee are allowed. *** SMT. KAVITA KAPOOR v. INCOME TAX OFFICER