CBDT defends Budget move on penalty provision amendments

New Delhi
March 22, 2008

The Finance Ministry has defended the move to give retrospective effect to a Budget proposal relating to “recording of satisfaction” by an assessing officer for initiating penalty under the income-tax law for concealment of income.

The proposed amendment seeks to provide that the assessing officer is not required to separately record the satisfaction before initiating penalty proceedings under Section 271 (1). The amendment will take effect retrospectively from April 1, 1989, the Finance Bill 2008 has proposed.

The retrospective effect has been given in order to protect the revenue’s contention on this issue in pending cases, the Central Board of Direct Taxes (CBDT) said in a release here.

The CBDT has now said the retrospective effect would not prejudice taxpayers’ right to agitate the levy of penalty on merits. Although the assessing officer is not required to separately record the satisfaction before initiating penalty proceedings, it is however incumbent on the officer to record his satisfaction before levying the penalty.

Accordingly, there is neither violation of the principle of natural justice nor any prejudice caused to the taxpayer as a result of the retrospective amendment, the CBDT has said.

There was considerable variance in the judicial opinion on the issue of whether the assessing officer was required to record his satisfaction before issue of penalty notice under Section 271(1). Some judicial authorities have held that such a satisfaction need not be recorded. However, the Delhi High Court in the case of CIT vs Ram Commercial Enterprises Ltd had held that such a satisfaction must be recorded by the assessing officer.

In view of the conflicting judicial opinion on this issue, the Government had decided to make legislative intervention and settle the matter.

Budget 2008-09 introduced a separate provision to unambiguously provide that where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment, and such orders contain a direction for initiating of penalty proceedings under Section 271(1), such an order would be deemed to constitute satisfaction of the assessing officer for initiating penalty proceedings.