Retrospective penalty satisfaction amendment required merits-based review of section 271(1)(c) penalty, with remand.

Retrospective insertion of section 271(1B) by the Finance Act, 2008 was treated as affecting the objection that no satisfaction had been recorded in the assessment order for penalty under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal had cancelled the penalty only on that preliminary ground without examining the merits. In light of the amendment, that objection could not conclude the matter, and the penalty issue had to be considered substantively. The matter was therefore remitted to the Tribunal for fresh decision on penalty under section 271(1)(c).

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Issues: Whether, in view of the retrospective amendment to section 271 by insertion of sub-section (1B), the question of penalty under section 271(1)(c) of the Income-tax Act, 1961 had to be decided on merits and the matter remitted to the Tribunal.

Analysis: The appeal arose from an order of the Tribunal which had set aside the penalty solely on the ground that no satisfaction was recorded in the assessment order. Section 271 of the Income-tax Act, 1961 was amended by the Finance Act, 2008 by insertion of sub-section (1B) with retrospective effect from 01.04.1989. In view of that amendment, the preliminary objection based on absence of recorded satisfaction could not be treated as concluding the issue, and the Tribunal had not examined the penalty question on merits.

Conclusion: The matter was required to be decided on merits and was remitted to the Tribunal for fresh consideration of penalty under section 271(1)(c) of the Income-tax Act, 1961.

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