These are two appeals filed by Revenue against orders of learned CIT(A) cancelling penalty of Rs. 25,000 and Rs. 1,10,000 for asst. yrs. 2000- 01 and 2004-05 respectively, levied by AO under s. 271(1)(c) of Act. Revenue has raised following grounds in asst. yr. 2000-01: "1. That learned CIT(A)-I, Kanpur has erred in law and on facts in deleting penalty of Rs. 25,000, without appreciating facts of case. That in doing so, learned CIT(A)-I, Kanpur has erred in law and on facts in holding that, there was no mens rea in this case, without appreciating fact that mens rea is proved by fact that advance tax, on income of Rs. 60,000 offered as cash found short in return filed under s. 153A, had not been paid and additional income was offered without any evidence only to cover up low income declared in return filed earlier. Further, learned CIT(A)-I, Kanpur has erred in law and on facts, in observing that assessment was passed without jurisdiction, which is no more valid in view of amendment proposed in Finance Bill, 2008 with retrospective effect that if notice is not challenged before AO. It cannot be challenged afterwards. That order of learned CIT(A)-I, Kanpur being erroneous in law and on facts be vacated and order of AO be restored." Similar grounds have been raised for asst. yr. 2004-05. facts of case are that search and seizure operation under s. 132 o f Act was carried out on 13th Aug., 2004 at business and residential premises of one Shri Paramjeet Singh and his family members. assessee, Smt. Surinder Kaur is wife of Shri Paramjeet Singh and has been declaring her income from business of trading in battery spare parts and from other sources. AO issued notice under s. 153A to assessee, who filed return of income on income of Rs. 2,05,950 against original returned income of Rs. 1,49,950 which was filed on 31st March, 2001. return in response to notice under s. 153A was filed on 17th July, 2005. AO accepted returned income of Rs. 2,05,950, but initiated penalty proceedings under s. 271(1)(c) of Act. During course of search, cash shortage of Rs. 60,000 was noted which was attributed to assessee and accordingly, assessee had declared that shortage of cash as her income in return filed in response to notice under s. 153A. In response to penalty notice, assessee furnished following reply: "......The original return was filed on 31st March, 2001 showing total income of Rs. 45,950 and IT return was revised on 17th July, 2006 showing total income at Rs. 2,05,950. This included sum of Rs. 60,000 which was added in income by assessee herself and that too before assessment proceedings started. When assessee was preparing cash flow chart of IT return she found that certain expenses were not covered by income declared then suo motu she added sum of Rs. 60,000 in total income and paid tax accordingly and filed revised IT return. learned AO did not deduct any defect on income which was concealed during assessment proceedings question of concealment of income does not arise. Keeping above facts in view penalty proceedings initiated may kindly be dropped." AO did not consider reply as acceptable. He noted that no surrender was made during course of search under s. 132. AO considered this case to be covered by Expln. 5 to s. 271(1)(c) of Act and levied penalty of Rs. 25,000 for asst. yr. 2000-01. For asst. yr. 2004-05, assessee filed return on income of Rs. 4,10,465 on 31st March, 2006 in response to notice under s. 153A. AO made addition of Rs. 14,860 on ad hoc basis in declared trading results and assessed income at Rs. 4,25,324 vide his order dt. 29th Dec., 2006. He also initiated penalty proceedings under s. 271(1)(c) of Act. In response to penalty notice, assessee furnished following reply: "......That return was filed on 31st March, 2006 showing total income of Rs. 4,10,465 and assessment was completed by adding Rs. 14,860 on ad hoc basis in declared trading income. Though few entries were written in pencil but trading results had been worked out. learned AO did not point out any particular entry which was escaped from income. entire income was shown and nothing was hidden or concealed. assessee had part-time accountant who could not complete books in time." AO rejected explanation on ground that assessee has not maintained books of account on regular basis, sales and purchase register has been written in pencil. No surrender was made during course of search under s. 132 and therefore, Expln. 5 to s. 271(1)(c) is attracted. He accordingly, levied penalty of Rs. 1,10,000. learned CIT(A) cancelled penalty for asst. yr. 2000-01 on ground that no concealment of income has been found and secondly that no search warrant was issued in name of assessee and therefore, assessment under s. 153A could not be made. No evidence has been found in search for making alleged additions. In this regard we refer to paras 5 and 6 from order of learned CIT(A) for asst. yr. 2000-01 as under: "5. I have considered submissions of appellant. I also find that no search warrant was issued in name of appellant and no statement of appellant was ever recorded either at time of search action or thereafter. levy of penalty is governed by classic observations made by Hon ble Supreme Court in case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC). In aforesaid judgment, Supreme Court has laid down that order imposing penalty for failure to carry out statutory obligation is result of quasi criminal proceedings and penalty will not ordinarily be imposed unless party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will also not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform statutory obligation is matter of discretion of authority to be exercised judiciously and on consideration of all relevant circumstances. Besides, recently, Supreme Court in case of K.C. Builders vs. Asstt. CIT (2004) 186 CTR (SC) 721: (2004) 265 ITR 562 (SC) explained that "concealment" inherently carry with it element of mens rea and mere omission from return of item of receipt does not amount to concealment nor to deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances are found from which it can be gathered amount was attributable to intention or desire on part of appellant to or conceal income so as to avoid imposition of tax thereon. In light of above, facts of present case are required to be examined. It is observed that no search warrant was issued in name of appellant and no statement of appellant was ever recorded at time of search action or thereafter. In spite of it, notice under s. 153A of IT Act has been issued to appellant. In turn, appellant has complied with notice and filed return of income in response to notice under s. 153A of IT Act, declaring therein total income of Rs. 2,05,950. In assessment framed thereafter, no further additions have been made. Courts have consistently held that mens rea is essential ingredient for purpose of levy of concealment penalty under s. 271(1)(c) of IT Act. Since no statement of appellant was ever recorded, there was no occasion for appellant to make any surrender of income. appellant has surrendered amount of Rs. 60,000 in return filed response to notice under s. 153A of IT Act. There is no evidence to hold that amount of Rs. 60,000 was ever detected by AO or by authorised officers, who conducted search action under s. 132 of IT Act. sequence of events clearly illustrates complete absence of mens rea on part of appellant or deliberate intention on her part to evade payment of taxes on income of Rs. 60,000. As such, imposition of penalty under s. 271(1)(c) is not considered justified. penalty order is cancelled." learned CIT(A) has taken similar view for asst. yr. 2004-05 cancelling penalty. Before us, learned Departmental Representative submitted that assessment framed under s. 153A should be read as one framed under s. 153C/153A. Evidence in form of shortage of cash for asst. yr. 2000-01 and unverifiable expenses in asst. yr. 2004-05 were found which compelled assessee to declare same in return of income filed in response to notice under s. 153A and disclosed that sum. He submitted that Expln. 5 to s. 271(1)(c) of Act is clearly attracted in this case. Entries are not found in accounts of assessee. Therefore, additions so made would be treated as assessee s undisclosed income and therefore, penalty is clearly attracted. On other hand, learned Authorised Representative for assessee submitted that once no search warrant is issued and no satisfaction is drawn by AO as required under s. 153C, assessment under s. 153A/153C could not be made by AO. Even if such assessment is made then penalty could not be initiated and levied on assessee because no evidence as such has been found in search, which could have shown that assessee has concealed any income. learned Authorised Representative also submitted that Expln. 5 to s. 271(1)(c) of Act could not be attracted because firstly, there is no search carried out against assessee and secondly, assessee is not found to be owner of any money, bullion, jewellery or other valuable article or thing. Once assessee is not found be owner of any of these assets during course of search then provisions of Expln. 5 to s. 271(1)(c) could not be invoked. We have considered rival submissions and perused material on record. In our considered view, levy of penalty is ill-founded in both years. Firstly, no search warrant is admittedly issued against assessee. It was issued only against husband of assessee and other family members. In any case, learned Departmental Representative could not bring on record any search warrant issued against assessee in spite of learned CIT(A) s giving clear finding to this effect. Once there is no search warrant in case of assessee then provisions of s. 153A could not be invoked against assessee. In this regard, we refer to s. 153A as under: "153A. Assessment in case of search or requisition. Notwithstanding anything contained in s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153, in case of person where search is initiated under s. 132 or books of account, other documents or any assets are requisitioned under s. 132A after 31st day of May, 2003, AO shall (a) issue notice to such person requiring him to furnish within such period, as may be specified in notice, return of income in respect of each assessment year falling within six assessment years referred to in cl. (b), in prescribed form and verified in prescribed manner and setting forth such other particulars as may be prescribed and provisions of this Act shall, so far as may be, apply accordingly as if such return were return required to be furnished under s. 139; (b) assess or reassess total income of six assessment years immediately preceding assessment year relevant to previous year in which such search is conducted or requisition is made." first requirement for invoking this section against person is that search is initiated against him under s. 132 or books of account, other documents or any assets are requisitioned under s. 132A after 31st May, 2003. Therefore, issuance of notice under s. 153A on face of it is clearly invalid. AO does not get jurisdiction to issue this notice. For sake of argument if it is considered that this notice under s. 153A is issued r/w s. 153C, then still we are of considered view that issuance of notice under s. 153A r/w s. 153C is also invalid. Sec. 153C reads as under: "153C. Assessment of income of any other person. Notwithstanding anything contained in s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153, where AO is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to person other than person referred to in s. 153A, then books of account or documents or assets seized or requisitioned shall be handed over to AO having jurisdiction over such other person and that AO shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with provisions of s. 153A." condition for invoking provisions of s. 153C are that firstly, AO should be satisfied. Secondly, he should be satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents (which, we refer later as tangible assets/documents) seized or requisitioned belongs or belong to person other than person referred to in s. 153A. Thirdly, tangible assets/documents seized or requisitioned shall be handed over to AO having jurisdiction over other person; and fourthly, then such other AO will proceed against such other person under s. 153A to assess or reassess income of such other person. Thus, first requirement of invoking s. 153C is that certain positive material or tangible items must be found in search in form of money, bullion, jewellery or other valuable article or thing or books of account or documents (i.e. tangible assets/documents) and they should not belong to person searched. Second requirement is that AO should be satisfied that such tangible assets/documents belong to person other than person searched. In present case, there is no finding that any such tangible assets/documents are found in search. There is also no satisfaction of AO of person who has been subjected to search that such tangible assets or documents belong to assessee. In our considered view, provisions relating to satisfaction of AO for initiating assessment proceedings after search are pari materia with s. 158BD. So far as conditions required to be satisfied before invoking s. 153C are concerned, they are same which are required to be satisfied for initiating block assessment proceedings against "other person" as per s. 158BD. recording of satisfaction of AO of person searched for coming to belief that tangible assets/documents found in search of person against whom search warrant was issued is necessary for giving jurisdiction to AO of such other person to whom such tangible assets/documents are required to be handed over. Since in present case, neither there was any seizure of any tangible assets/documents which could belong to assessee nor there is any satisfaction of AO of Shri Paramjeet Singh, husband of assessee or any other person who was subjected to search, question of invoking provisions of s. 153C does not arise. For this, we derive support from decision of Hon ble Supreme Court in case of Manish Maheshwari vs. Asstt. CIT (2007) 208 CTR (SC) 97: (2007) 289 ITR 341 (SC). Therefore, issuance of notice under s. 153A against assessee could not be said to be one issued as read with s. 153C. Once basic premise for initiating provisions of s. 153A is incorrect, question of levying penalty on basis of such assessment does not arise. Even if penalty was levied, it cannot be sustained. For levy of penalty under s. 271(1)(c) of Act, there should be legally valid assessment order. Even though such assessment order has not been challenged and has been accepted by assessee, but that cannot be ground to hold that it is valid platform for levy of penalty. It is true that unless assessment order apparently invalid will continue to hold field and determine rights and liabilities of parties so long as it is not vacated by higher forum, but determination of rights and liabilities would come to end upto stage of that order only. It cannot be extended further to build up case for levy of penalty or for launching prosecution, particularly when at penalty stage it is challenged that assessment order, which is basis for levy of penalty is not valid and it is found that AO could not have passed order either under s. 153A or under s. 153A r/w s. 153C for reasons discussed above. Notwithstanding we find that even Expln. 5 to s. 271(1)(c) is not attracted. For sake of convenience, we reproduce Expln. 5 to s. 271(1)(c) as under: "Explanation 5 Where in course of search under s. 132, assessee is found to be owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income, (a) for any previous year which has ended before date of search, but return of income for such year has not been furnished before said date or, where such return has been furnished before said date, such income has not been declared therein; or (b) for any previous year which is to end on or after date of search, then, notwithstanding that such income is declared by him in any return of income furnished on or after date of search, he shall, for purposes of imposition of penalty under cl. (c) of sub-s. (1) of this section, be deemed to have concealed particulars of his income or furnished inaccurate particulars of such income, unless, (1) such income is, or transactions resulting in such income are recorded, (i) in case falling under cl. (a), before date of search; and (ii) in case falling under cl. (b), on or before such date, in books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to Chief CIT or CIT before said date; or (2) he, in course of search, makes statement under sub-s. (4) of s. 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before expiry of time specified in sub-s. (1) of s. 139, and also specifies in statement manner in which such income has been derived and pays tax, together with interest, if any, in respect of such income." (Emphasis, italicized in print, supplied) Thus, first requirement for invoking Expln. 5 is that in valid search, some tangible assets/documents must have been found which would reflect concealed income of assessee and which have become basis for making addition of concealed income. It is admitted position that there has not been any seizure of tangible assets/documents in search which could be said to b e belonging to assessee. Therefore, it cannot be said that assessee has been found to be owner of tangible assets and that such tangible assets have been acquired by her by utilizing her undisclosed income earned before date of search, and also there is no claim by assessee that she has acquired any such asset out of income not disclosed before Department. We, therefore, uphold order of learned CIT(A) in cancelling penalty which had been levied by AO on basis of apparently invalid assessment order and by invoking provisions of Expln. 5 which, on face of it, are not applicable, as no tangible asset belonging to assessee has been of it, are not applicable, as no tangible asset belonging to assessee has been seized. As result appeals filed by Revenue are dismissed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. SMT. SURINDER KAUR