Recorded satisfaction is essential for penalty initiation; section 271(1B) cannot cure a Principal Commissioner's jurisdictional defect.

Penalty under section 271(1)(c) was held unsustainable because the Principal Commissioner's revisional order did not record clear satisfaction that the assessee had furnished inaccurate particulars of income. Section 271(1B) was held to cure only cases where penalty is initiated by an Assessing Officer, and not where initiation is by a Principal Commissioner, who is outside the definition of Assessing Officer under section 2(7A). In the absence of the requisite recorded satisfaction, the initiation of penalty suffered from a jurisdictional defect and was quashed in favour of the assessee, with the same reasoning applied to the connected assessment years.

---

---

Issues: Whether penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 was invalid for want of recorded satisfaction by the Principal Commissioner and whether section 271(1B) could cure that defect.

Analysis: The penalty proceedings were initiated by the Principal Commissioner in the revisional order, but the order did not record a clear satisfaction that the assessee had furnished inaccurate particulars of income. The deeming provision in section 271(1B) was held to operate only where the initiation is by an Assessing Officer and not where the penalty is initiated by a Principal Commissioner, who is outside the definition of Assessing Officer in section 2(7A). In the absence of the requisite satisfaction, the initiation and consequent penalty were treated as suffering from a jurisdictional defect.

Conclusion: The penalty under section 271(1)(c) was held unsustainable and was quashed, in favour of the assessee.

Final Conclusion: The appeals were allowed because the penalty proceedings lacked valid jurisdictional foundation, and the same reasoning applied to all connected assessment years.

---