This is appeal filed by assessee taking following grounds of appeal: "(1) On facts and in circumstances of case, authorities below have erred both on facts and in law in imposing and sustaining illegal levy of penalty of Rs. 7,00,000 under s. 271(1)(c) of IT Act when there can be no allegation of concealment whatsoever against appellant and hence penalty is liable to be set aside and quashed and declared as unsustainable in law. (2) On facts and in circumstances of case, authorities below have erred in drawing adverse inferences against assessee ignoring bona fide nature of conduct of assessee and fact that all legitimate taxes have been duly paid and any point of doubt or debate in regard to interpretation of statutory provision and possibilities of divergence of opinion between assessee and Revenue cannot by themselves justify any allegation of mala fide conduct against assessee nor can factual and legal submissions placed by assessee be disregarded to take negative view and hence orders and observations/findings of authorities below must be set aside and quashed by allowing appeal of appellant. (3) authorities below have erred in taking one sided biased, incomplete and incorrect view of factual and legal aspects and had misled themselves in justifying imposition of penalty and hence orders of lower authority must be set aside and quashed. (4) imposition of penalty on appellant in facts and circumstances of case cannot at all be justified and must therefore be declared unsustainable in law. " At time of hearing, learned counsel for assessee made application requesting for permission to adjudicate two additional grounds of appeal which read as under: "(1) On facts and in circumstances of case, AO did not record satisfaction in assessment order, as mandatorily required by statute, being proceeding to issue notice mechanically and levy penalty on appellant. (2) orders passed by authorities below are clearly unwarranted, both on facts and in law, besides being vitiated by non-application of mind, fairly and objectively, to correct factual and legal position and bona fide conduct of appellant and hence, imposition of penalty on appellant is totally unsustainable." learned Authorised Representative for assessee submitted that both additional grounds are purely legal grounds and should be admitted. learned Departmental Representative opposed this application for admitting additional grounds of appeal filed by assessee. After hearing both parties Bench admitted ground No. 1 of additional ground of appeal as ground involves pure question of law and its adjudication is essential in ends of justice. additional ground No. 2 taken by assessee was rejected. parties were then permitted to make submission on additional ground raised by assessee in this appeal. learned Authorised Representative of assessee submitted that A O has made addition of Rs. 1,49,640 by disallowing out of foreign travel expenses of Rs. 6,58,921 spent on tour to Mauritius for period 20th June, 1993 to 28th June, 1993 of Shri S.K. Arya on ground that assessee has no business contacts in Mauritius and it was not importing any raw material from Mauritius and that total sales made by assessee was to Maruti Ltd. AO further noted that it has not been stated that trip to Mauritius was for any conference or meeting, etc. No export or import orders were procured on basis of visit. learned counsel for assessee argued and submitted that assessee had incurred expenses for purposes of its business. AO has not found expenses to be not genuine or false. It was only opinion of AO that as sales of assessee was to Maruti Ltd. and assessee was not importing or exporting any goods to Mauritius and as journey undertaken was not for any conference or seminar, therefore, expenses were not allowable as deduction as business expenditure of assessee. He submitted that this cannot be case for imposing penalty under s. 271(1)(c) for reason that assessee has concealed its income or had filed inaccurate particulars of its income as disallowance of expenses was due to difference of opinion between assessee and AO. learned Authorised Representative for assessee further argued n d submitted that AO has disallowed deduction under s. 80-I on Rs. 74,85,677 claimed by assessee @ 25 per cent of profit of unit No. 1. A O observed that from P&L a/c it is seen that assessee had interest income and miscellaneous income of Rs. 74,85,677. These incomes were not derived directly from industrial undertaking. It has been held by Hon ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50: (1978) 113 ITR 84 (SC) that term "derived from" in relevant provisions of IT Act indicate restricted meaning given by legislature to cover only profits and amounts directly accruing from conduct of industrial undertaking. Hence he excluded Rs. 74,85,677 while determining deduction allowable under s. 80-I. learned counsel for assessee submitted that in earlier asst. yrs. 1989-90, 1990-91 and 1992-93 and 1993- 94 interest and miscellaneous income of assessee was assessed to tax under head Business profits and gains . So assessee was under bona fide belief on basis of past history that interest and miscellaneous income earned during year under appeal was business income of assessee, deduction under s. 80-I was claimed on said income. It was submission of counsel of assessee that it is first year in which interest and miscellaneous income has been assessed to tax by learned AO under head income from other sources. Thus it was his submission that there was no concealment of income or filing of inaccurate particulars of income by assessee which will make assessee liable to penalty under s. 271(1)(c). Hence it was prayed that penalty levied was not justified and same should be deleted. learned Departmental Representative relied on order of CIT(A). We have heard rival submissions and perused orders of both lower authorities and materials available on record. We find that learned AO h d made disallowance of Rs. 1,49,640 out of foreign travelling expenses incurred for trip to Mauritius on ground that assessee s sales are to M/s Maruti Ltd. and no export or import orders were procured by assessee on its visit to Mauritius and that trip to Mauritius was not to attend any conference or meeting. AO while making addition has not drawn any satisfaction to effect that assessee has concealed its income or it filed inaccurate particulars of its income. Similarly, while disallowing claim for deduction under s. 80-I on interest and miscellaneous income of Rs. 74,85,677 AO has followed decision of Hon ble Supreme Court in 1978 CTR (SC) 50: (1978) 113 ITR 84 (SC) (supra) and had disallowed claim for reason that said interest and miscellaneous income was not derived from conduct of industrial undertaking. We find that learned counsel for assessee has submitted that in earlier years assessment namely, asst. yrs. 1989-90, 1990- 91, 1991-92, 1992-93 and 1993-94 said interest and miscellaneous income has all along been subject to tax under head Business income . This was first year when AO has assessed interest and miscellaneous income as income from other sources. Thus assessee was under bona fide belief that interest and miscellaneous income was assessed to tax as business income of assessee, same was out of conduct of industrial undertaking and, therefore, eligible for deduction under s. 80-I of Act. Moreover, we find that while disallowing claim of assessee under s. 80-I on interest and miscellaneous income, AO has not recorded any satisfaction in assessment order to effect that there was filing of inaccurate particulars of income by assessee or concealment of income. At end of assessment order, learned AO has simply noted that "penalty proceedings under s. 271(1)(c) have been initiated separately." Hon ble Delhi High Court in case of CIT vs. Vikas Promoters (P) Ltd. (2005) 194 CTR (Del) 384 held that "their Lordships of Supreme court have repeatedly emphasized word "satisfaction" and satisfaction is not to be in mind of AO but must be reflected from record. It is settled rule of law that authority performing quasi-judicial or judicial function must give reasons in support of its order so as to provide in order itself ground which weigh with authority concerned for passing order adverse to interest of assessee. Furthermore, provisions of s. 271(1)(c) are penal in nature thus must be strictly construed; element of satisfaction should be apparent from order itself. It is not for Courts to go into minds of authorities or towards reasons from file of such authorities. order ex facie suffers from vice of non-application of mind. We are further of opinion that judgment of this Court in case of CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 is squarely applicable to case." In instant case also we find that no satisfaction has been recorded by AO in assessment order before initiating penalty proceedings against assessee. Hence, order of penalty passed by A O is not valid order and consequently penalty levied by AO was invalid. In that view of matter, appeal of assessee is allowed. Before parting with order we would like to mention that since we have held that penalty proceedings were not validly initiated by AO other grounds of appeal raised by assessee in this appeal have become merely academic in nature and hence are not being adjudicated upon. In result, appeal of assessee is allowed. *** JAY BHARAT MARUTI LTD. v. DEPUTY COMMISSIONER OF INCOME TAX