Para 63 of Karanatka High Court in Manju Nath Cotton & Ginning factory 359 ITR 565 on Penalty followed by Banglore Tribunal in H.LakshmiNarayan [2015] 61 taxmann.com 373 (Bangalore - Trib.)

63. In the light of what is stated above, what emerges is as under :

(a)		Penalty under section 271(1)(c) is a civil liability.
(b)		Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.
(c)		Willful concealment is not an essential ingredient for attracting civil liability.
(d)		Existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty proceedings under section 271.
(e)		The existence of such conditions should be discernible from the assessment order or the order of the appellate authority or revisional authority.
(f)		Even if there is no specific finding regarding the existence of the conditions mentioned in section 271(1)(c), at least the facts set out in Explanation 1(A) and 1(B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.
(g)		Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the Assessing Officer to initiate the proceedings because of the deeming provision contained in Explanation 1(B).
(h)		The said deeming provisions are not applicable to the orders passed by the Commissioner of Income-tax (Appeals) and the Commissioner.
(i)		The imposition of penalty is not automatic.
(j)		Imposition of penalty even if the tax liability is admitted is not automatic.
(k)		Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by the authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order.
(l)		Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed.
(m)		If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed.
(n)		The direction referred to in Explanation 1(B) to section 271 of the Act should be clear and without any ambiguity.
(o)		If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the assessing authority.
(p)		Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income.
(q)		Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law.
(r)		The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.
(s)		Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.
(t)		The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings.
(u)		The findings recorded in the assessment proceedings in so far as 'concealment of income' and 'furnishing of incorrect particulars' would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings."