Section 271(1B) retrospective deeming fiction preserved penalty proceedings; Tribunal orders were remitted for merits-based reconsideration.

Where assessment orders were passed after 01.04.1989, the absence of an express recording of satisfaction for initiation of penalty under Section 271 did not by itself invalidate the proceedings because Section 271(1B), inserted by the Finance Act, 2008, applied through its retrospective deeming fiction. The Tribunal had confined its decision only to the recording-of-satisfaction issue and had not examined the merits of the penalty matters, so its orders could not stand on that limited basis alone. The Tribunal's orders were set aside and the matters were remitted for fresh on merits.

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Issues: Whether the absence of an express recording of satisfaction for initiation of penalty under Section 271 of the Income-tax Act, 1961 vitiated the penalty proceedings in cases where the assessment orders were passed after 01.04.1989, and whether the Tribunal's orders confined to that question could stand after insertion of Section 271(1B).

Analysis: The reference before the Full Bench had been answered only for assessment orders made prior to 01.04.1989. For the present batch, the assessment orders were passed after 01.04.1989, and they fell within the scope of the retrospective deeming fiction introduced by Section 271(1B) of the Income-tax Act, 1961 by the Finance Act, 2008. As the Tribunal had limited itself to the question of recording of satisfaction and had not examined the merits of the penalty matters, the Tribunal's orders could not be sustained on that limited basis alone.

Conclusion: The Tribunal's orders were set aside and the matters were remitted to the Tribunal for decision on merits.

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