Per Sunil Kumar Yadav, Judicial Member: This appeal is filed by assessee against order of CIT(A) confirming penalty levied under section 271(1)(c) of Income-tax Act. 2. brief facts borne out from record in this regard are that assessee-company has filed its return of income for assessment year 1998-99 declaring total income at Nil. assessment was made at total income of Rs. 4,13,70,580. One of additions was made for amount of Rs. 4,22,96,966 which is crucial to present penalty proceedings. This addition was confirmed by CIT(A) by holding that assessee has departed from well-accepted method of determining income of business for this year by way of claiming loss on account of valuation of work-in-progress. assessee preferred appeal before Tribunal but addition was confirmed. assessee was builder and was following completed project method of accounting. At that relevant point of time assessee was carrying out two different projects; one is commercial project known as 'Centre Point' situated at S.V. Road, Santacruz (W), Mumbai and another residential project at 14th Road, Khar West, Mumbai. Besides following completed project method of accounting, assessee has been consistently valuing work-in-progress at cost since very beginning. During assessment proceedings Assessing Officer has examined tax audit report and notes from accounts pertains to 1998-99. In tax audit report column No. 2 regarding method of accounting employed, auditors states as 'Accrual basis. There is no change in method of accounting as employed in preceding previous year'. However, in column No. 3, regarding method of valuation of opening and closing stock in trade tax auditor states, 'At cost or market value whichever is lower'. Assessing Officer observed that in tax audit report pertains to earlier previous years, i.e., 1997-98, 1996-97 and 1995-96 auditors, regarding method of valuation of opening and closing stock in trade, have consistently stated 'At cost'. It was also mentioned in notes by auditor that due to change in method of valuation, profit has decreased by Rs. 4,22,96,966. In report of auditors to shareholders, at Sr. No. 6, auditors have, inter alia, mentioned 'that closing stock which was valued at cost in preceding year has been valued at cost or market value whichever is lower. If basis of valuation had not been changed, closing stock and profit for year would have been higher by Rs. 4,22,96,966.' Assessing Officer has further observed that method of valuation of stock hitherto employed by company was at 'Cost'. For this year onwards company has decided to value stock at cost or net realizable value whichever is lower. Assessing Officer, however, observed that during previous year relevant to assessment year 1998-99, commercial project, i.e., Centre Point was completed and assessee had earned huge profit of Rs. 5,17,81,188 on part sale of said project. So far as residential project is concerned, it was still in progress and was far from completion. It was completed only to extent of 34 per cent by end of previous year under consideration. Assessing Officer observed that since assessee has been following project completion method, it should have offered profit of Rs. 5,17,81,188, which itself is part of commercial project, to tax. But assessee for obvious reasons did not do so. Rather he got stock in trade work-in-progress relating to residential project revalued at market value. Accordingly value of work-in-progress was reduced from Rs. 10,83,96,966 to Rs. 6,61,00,000 and loss of Rs. 4,22,96,966 arising on account of such revaluation was adjusted against profit of completed commercial project. This method of accounting was not acceptable to revenue and he discarded same and recomputed profit resulting into addition of Rs. 4,22,96,966 which was later confirmed by Tribunal. On this addition Assessing Officer has initiated penalty proceedings under section 271(1)(c) of Income-tax Act and after invoking Explanation 1 to section 271(1)(c) Assessing Officer imposed penalty at maximum, i.e., 300 per cent of tax evaded at Rs. 4,34,39,109. Against this penalty order assessee preferred appeal before CIT(A) but did not find favour with him. 3. Now assessee has preferred appeal before Tribunal with submission that assessee has made full disclosure and has not concealed anything from Revenue authorities. disallowance was made on account of legal issue, which is subject-matter of litigation, and not on account of any fact that was concealed by assessee from revenue. In these circumstances it cannot be held that assessee has ever concealed any income or filed inaccurate particulars. He further placed reliance upon judgment of Apex Court in case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 in which it has been held that 'an order imposing penalty for failure to carry out statutory obligation is result of quasi-criminal proceedings and penalty not ordinarily be imposed unless party obliged either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation. Penalty will also not be imposed merely because it is lawful to do so. assessee has raised claim under bona fide belief that amount claimed as loss is allowable expenditure. He further placed reliance upon judgment of Burmah Shells Oil Storage & Distribution Co. of India Ltd. v. ITO [1978] 112 ITR 592 (Cal.) in support of his contention that rejection of legal plea raised by assessee cannot give rise to concealment. He further placed reliance upon judgment of Apex Court in case of CIT v. Anwar Ali [1970] 76 ITR 696 in which it has been held that merely because of explanation offered by assessee in respect of given item is rejected it does not amount to concealment of income. Similar view was further expressed by Apex Court in case of CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369. 4. learned counsel for assessee further contended that assessee's residential project which was under construction, suffered huge loss on account of slump in market and proposed buyers who have booked flats started claiming refunds. This project was completed in assessment year 2000-01. loss suffered by it was also accepted by Assessing Officer. Assessing Officer has observed that only 34 per cent of project was completed whereas fact is otherwise. If cost of land is included project was completed at 82 per cent though assessee has claimed it at 65 per cent. Before valuing this work-in-progress at market rate project under construction was got valued by valuer and on his report value of work-in-progress was reduced. 5. learned counsel for assessee further contended that assessee has not concealed any facts from revenue nor did he furnish assessee has not concealed any facts from revenue nor did he furnish inaccurate particulars. He simply calculated work-in-progress after having project valued by valuer under bona fide belief that work-in-progress can be valued at market rate by making necessary change in method of valuation for this year. Assessing Officer has invoked Explanation 1 to section 271(1)(c) but has not approved that assessee has either failed to furnish explanation or explanation furnished by it is false or assessee is not able to substantiate it or failed to prove that such explanation is bona fide. Since revenue cannot prove these ingredients which are necessary to invoke Explanation 1, penalty under section 271(1)(c) cannot be levied. In support of this contention he placed reliance upon following judgments:(i) Rupam Mercantile Ltd. v. Dy. CIT [2004] 91 ITD 237 (Ahd.) (TM). (ii)H.P. State Forest Corpn. Ltd. v. Dy. CIT [2005] 93 ITD 442 (Chd.). (iii)Southern Gas Fittings (P.) Ltd. v. Dy. CIT [2002] 80 ITD 202 (Chennai). Mr. Y.P. Trivedi, Sr. Advocate for assessee has also invited our attention to fact that he has made valuation of closing stock on basis of opinion rendered by Chartered Accountant/Tax Professionals. Our attention in this regard was invited to para 6 of report of auditors to shareholders prepared by J.D. Pandya & Co., Chartered Accountants, in which he has stated that in their opinion valuation of closing stock is fair and proper in accordance with accepted accounting principles. These facts were also explained in notes on accounts to Profit & Loss Account. Before preparing Balance Sheet for impugned assessment year assessee has also obtained opinion from Tax Consultant Mr. G.S. Sabins on this issue and he has advised assessee that assessee can claim loss arising on account of fall in value of work-in-progress against other income for current year. He has also pointed out that assessee was always able to prove that market value of stock is correctly adopted by it. Assessing Officer cannot legally challenge method adopted by assessee. opinion given by Tax Consultant is placed on record at page Nos. 28 - 32 of compilation. assessee has also taken further opinion from P.D. Desai & Co. in this regard and they have advised him to claim loss suffered in valuation of work-in-progress against other income of assessee. As such assessee has claimed loss in valuation of work-in-progress on basis of legal advise received from Tax Consultants. learned counsel for assessee has also placed reliance upon order of Tribunal in case of Arts Module v. ITO [IT Appeal No. 9302 (Bom.) of 1992]. learned counsel for assessee has also invited our attention to Accounting Standard VII according to which change in accounting policy is permissible and provision for foreseeable loss can be made. Our attention was also invited to Accounting Standard VII dealing with Recognition of Expected Losses, according to which, when it is probable that total contract cost will exceed total contract revenue, expected loss should be recognized as expense immediately. Since assessee has revalued work-in-progress and made change in valuation of stock on basis of legal opinion its claim cannot be called to be mala fide and since it is raised under bona fide belief Explanation 1 to section 271(1)(c) cannot be invoked. 6. learned counsel for assessee further contended that before initiating penalty proceedings Assessing Officer has not recorded his satisfaction with regard to concealment of income by assessee or furnishing of inaccurate particulars or with regard to Explanation 1 to section 271(1)(c). In absence of any record of satisfaction, penalty cannot be levied as repeatedly held by various High Courts in following judgments: (i) CIT v. Shri Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi). (ii)CIT v. Munish Iron Store [2003] 263 ITR 484 (Punj. & Har.). (iii)CIT v. Ganesh Prasad Badri Prasad & Co. [1998] 231 ITR 951 (MP). (iv)CIT v. Super Metal Re-Rollers (P.) Ltd. [2004] 265 ITR 82 (Delhi). (v)CIT v. Dajibhai Kanjibhai [1991] 189 ITR 41 (Bom.). 7. learned DR, on other hand, besides placing reliance upon orders of lower authorities has invited our attention to judgment of Apex Court in case of CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 and judgment of Allahabad High Court in case of Shyam Biri Works (P.) Ltd. judgment of Allahabad High Court in case of Shyam Biri Works (P.) Ltd. v. CIT [2003] 259 ITR 625 in support of his contention that satisfaction is not required to be recorded specially in assessment order as action to initiate penalty itself is satisfaction of Assessing Officer. learned DR further contended that assessee has changed method of valuation only in this year to reduce profit earned on commercial project. In succeeding years he reverted back to old method of accounting. Assessee has been following project completion method and under that method there is no requirement to revalue cost of project prior to its completion and more so when project is only 34 per cent complete. Accounting Standard VII does not provide for any adjustment of estimated loss against profit of any other project. foreseeable loss may be estimated on basis of 'total contract cost and revenue' of same project. As such estimation of loss of Khar Project adjusted against Centre Point project is against Accounting Standards. learned DR also commented on expert opinion and has stated that expert opinion were not properly considered by assessee before revaluing work-in-progress. On point of satisfaction it was contended that order of Assessing Officer contained detailed discussion of facts and position of law and reasons for penalty under section 271(1)(c). With regard to clause (b) of Explanation 1 to section 271(1) it was contended that onus is upon assessee to prove his explanation to be bona fide and if he fails to do so penalty under section 271(1)(c) is attracted. 8. Having heard rival submissions and from careful perusal of record we find that undisputedly assessee had been following project completion method and during year under account its commercial project was completed and residential project at Khar was in progress. If cost of land is excluded from project 34 per cent construction work was done. Assessee had changed method of valuation of closing stock and revalued work-in-progress. In earlier years work-in-progress was valued at cost but in impugned assessment year it was valued at market rate resulting into loss in valuation of work-in-progress. loss suffered in this residential project was adjusted to profit earned in commercial project on its complexion. Assessee has made declaration in this regard by putting note in Balance Sheet and Profit & Loss Account and also in auditors' report to shareholders. Assessee has also given reasons for change in method of valuation of work-in-progress. copy of auditors' report to shareholders is also placed on record and its para 6 reads as under: ' 6. In our opinion valuation of closing stock is fair and proper in accordance with normally accepted accounting principles. However there has been change in basis of valuation of closing stock as compared to preceding year. closing stock which was valued at 'Cost' in preceding year has been valued at 'Cost or Market Value' whichever is lower. If basis of valuation had not been changed closing stock and profit for year would have been higher by Rs. 42,296,966.' 9. Likewise in Schedule D (Annexure to Balance Sheet) it has been mentioned that work-in-progress was valued at cost or market value whichever is lower. In Schedule K, i.e., Notes on Accounts, specific note in this regard was given by assessee. For sake of reference we extract relevant note as under:2. Change in accounting Policies: method of valuation of stock hitherto employed by company was at 'Cost'. From this year onwards company has decided to value stock at 'Cost or net realisable value whichever is lower'. Had this change not been made valuation of closing stock would have been higher by Rs. 42,296,966 and profit would have been higher by Rs. 42,296,966.' 10. Having carefully examined this disclosure made by assessee while filing return of income we are of view that though assessee has changed method of valuation of closing stock and claimed loss against profit earned in commercial project it cannot be held that assessee is guilty of concealment or furnishing inaccurate particulars. Moreover, this is not case for revenue. They have levied penalty after invoking Explanation 1 to section 271(1)(c), deeming provision, according to which where assessee failed to offer explanation or offers explanation which is found to be false by Assessing Officer or assessee was not able to substantiate and fails to prove such explanation as bona fide, then amount added or disallowed in computing total income shall for purpose of clause (c) of sub- section (1) of section 271 be deemed to represent income in respect of which particulars have been concealed. In order to understand scope of Explanation 1 we extract it as under: Explanation 1 :-Where in respect of any facts material to computation of total income of any person under this Act,(A) such person fails to offer explanation or offers explanation which is found by Assessing Officer to be false, or (B) such person offers explanation which he is not able to substantiate (and fails to prove that such explanation is bona fide and that all facts relating to same and material to computation of his total income have been disclosed by him), then, amount added or disallowed in computing total income of such person as result thereof shall, for purpose clause (c) of this sub-section be deemed to represent income in respect of which particulars have been concealed.' 11. From bare reading of this provision, we are of view that penalty under section 271(1)(c) can be issued where Assessing Officer is satisfied that assessee has concealed particulars of his income or has furnished inaccurate particulars of such income. Explanation 1 to section 271(1)(c) provides that amount added or disallowed in computing total income of person falling under clause (A) or (B) of Explanation 1 shall, for purpose of section 271(1)(c), be deemed to represent income in respect of which particulars has been concealed. Explanation 1 refers to two situations in which presumption of concealment created by Explanation 1 is available. first situation is where assessee, in respect of any facts material to computation of his total income, fails to offer explanation or offers explanation which is found by Assessing Officer or CIT to be false. second situation is where assessee, in respect of any facts material to computation of his total income, offers explanation which he is not able to substantiate and also fails to prove that such explanation is bona fide and that all facts relating to computation of total income have been disclosed by him. It is true that said explanation lays down rule of evidence and it automatically applies to case where penalty proceeding under section 271(1)(c) has been initiated. consequences from application of Explanation 1 follows as matter of law. If assessee fails to offer explanation or his explanation is found to be false or assessee is not able to substantiate explanation, presumption that he has concealed particulars of income, is bound to be drawn. fact, however, remain that presumption available under Explanation 1 cannot be drawn unless case of assessee falls under either of clause, viz. clause (A) or clause (B). 12. During course of hearing learned counsel for assessee has invited our attention to fact that against order of Tribunal in quantum appeal, assessee has preferred appeal before High Court and it was admitted after framing substantial question of law. Since claim of assessee is of legal in nature, penalty under section 271(1)(c) cannot be initiated for rejection of claim of assessee. In this regard our attention was invited to order of Tribunal's Third Member in case of Rupam Mercantile Ltd. (supra) in which it has been held that plea or claim, which has been already admitted by High Court, which give rise to substantial question of law, cannot be treated to be fabulous or mala fide as to attract levy of penalty under section 271(1 )(c) of Act. 13. In case of H.P. State Forest Corpn. (supra) Tribunal examined t h e scope of both part of Explanation 1 and explained how far explanation called to be bona fide. Tribunal has concluded that assessee, having valued its stock of timber lower than cost price on account of considerable deterioration on basis of reports of employees of concerned division, disclosed all material facts in respect of such valuation before authorities. Hence it cannot be said that explanation of assessee was false simply because assessment of deterioration was made on basis of estimates. Since Tribunal has examined scope of Explanation 1 to section 271(1)(c), we prefer to extract same as under:The deeming fiction contained in Explanation that amount added or disallowed, represented income in respect of which particulars have been concealed will apply as per (A) if not Explanation is given by assessee or if explanation has been given, t h e same is found to be false. Under this Explanation, onus is on assessee to show that there is no concealment or furnishing of inaccurate assessee to show that there is no concealment or furnishing of inaccurate particulars of income. However, if assessee has furnished explanation, which has not been found to false, Explanation 1(A) will not apply. Explanation 1(B) will be attracted if assessee furnishes explanation but same is n o t substantiated. presumption under this Explanation, however, is rebuttable and it can be rebutted if assessee is able to establish that all particulars relating to computation of income have been disclosed. Thus, Explanation (1)(B) cease to operate if assessee proves that explanation furnished is bona fide and all particulars relating to computation of income have been disclosed. assessee has given explanation. Therefore, deeming provision as per clause (A) of Explanation 1 to effect that assessee had failed to offer explanation is inapplicable. second part of clause (A) of Explanation would be attracted if explanation offered by assessee is found to be false. Assessee had clearly indicated in trading and P&L A/c about reduction in value. All information regarding claim was furnished by assessee before revenue authorities. It is evident from records that reports about deterioration of old stocks had been received by assessee from concerned divisions during financial year relevant to assessment year under appeal. internal auditors had also advised assessee to work out realizable value in respect of deteriorated stocks. assessee, admittedly, was unable to carry out actual inspection of entire deteriorated stocks spread over several kilometres in radius. reduction in value has been adopted on estimate. If assessee had been able to prepare details of stocks deteriorated at various places, perhaps claim could not have been disallowed at time of assessment. It was mainly because assessee had resorted to estimate in determining value of deteriorated stocks that claim was not accepted by Department. It is also not unknown that Government corporations have to follow set procedure for taking decisions. It is not surprising that Board of Directors of corporation met only in year 1990 to consider report regarding value to be adopted in respect of deteriorated closing stocks. fact remains that decision taken by Board of Directors who do not have any personal interests in corporation was not found defective by internal auditors or by statutory auditors. statutory auditors had audited accounts including valuation in respect of deteriorated stocks. Comptroller and Auditor General of India had also approved accounts of assessee without any blinkers in respect of valuation of closing stock. certificates issued by divisional managers in year 1990 are based on inspection reports and monthly reports received from subordinate staff and not at instance of management. Since matter was to be considered by Board in March, 1990, divisional officers had been summoned to give certificates so that Board of Directors could be apprised and convinced about adoption of lesser value for deteriorated stocks. conduct of assessee is not contumacious in regard to disclosure of facts material for assessment. assessee had made claim on basis of conscious decision by Board of Directors. There was no objection by statutory auditors or by Comptroller General of India. Since as per well-established principles of law, benefit of doubt is bound to be given to assessee, on basis of claims of assessee and counter-claims of Revenue, it cannot be said that explanation furnished by assessee has been proved to be false. word 'false' involves element of deliberateness. Since assessee had made claim, which was open for scrutiny and assessment, mere fact that assessee had estimated deterioration in stocks and had finally taken decision only in year 1990 does not justify inference that explanation of assessee has been proved to be false. On basis of evidence on record and taking totality of facts and circumstances of this case into consideration, explanation offered by assessee cannot be considered to have been found to be false. In this view of matter, Explanation 1(A) is not attracted. assessee had disclosed all material facts. assessee also disclosed that percentage of reduction was on estimate. Nothing was concealed in regard to claim. If all disallowances attract penalty under section 271(1)(c), then taxpayers would not be free to make claims which are perceived to be genuine. revenue has not established beyond doubt that explanation offered by assessee is false. [Paras 20, 21, 26, 28 and 29] second part of Explanation 1(B) to section 271(1)(c) is attracted where explanation is offered by assessee but same is not substantiated and assessee fails to prove that explanation is bona fide and all material facts had been disclosed. It has got to be borne in mind that second part of Explanation 1(B) does not get automatically attracted if explanation offered by assessee is not substantiated unless assessee fails to prove that all material facts have been disclosed. assessee having disclosed all material facts in regard to claim made in respect of valuation of closing stock, onus which is placed by Explanation 1(B) to section 271(1)(c) upon assessee stood discharged. Therefore, penalty under section 271(1)(c) is not warranted.' 14. scope of Explanation 1 has been recently examined by this Bench of Tribunal in case of Asstt. CIT v. Pole Trading Co. (P.) Ltd. [IT Appeal Nos. 5358 and 5683] in which it has been held that where assessee has made disclosures, or relevant facts before Revenue authorities and it is from disclosure made by assessee Assessing Officer has made out case for disallowance/addition after rejecting explanation of assessee, unless explanation proves to be false or mala fide,Explanation 1 cannot be invoked. 15. In light of above legal proposition if we examine facts of case we would find that assessee has made full disclosure to Revenue authorities with regard to its change in valuation of work-in-progress resulting into substantial reduction of profit. valuation was done on basis of legal advice of tax experts, whose opinion are also placed on record at page Nos. 28 to 40 of compilation. valuation was done on basis of valuation report prepared by valuer. While doing so Accountancy Standard was also examined. For levying penalty under section 271(1)(c) of Act by invoking Explanation 1 it is to be seen whether assessee has raised claim under bona fide belief. We have carefully examined expert opinion with regard to change in method of valuation of closing stock and we find that assessee was advised to do so, if he succeeds in establishing that market value of stock is really as adopted by it and for this purpose assessee has obtained valuation report from valuer. He has taken opinion in this regard from two experts and both of them advised that theory of underlying rule that closing stock is to be valued at cost or market price whichever is lower and it is now generally accepted as established rule of Commercial Rule and Accountancy. Loss suffered in this process cannot be disregarded merely because it is based on estimates. disregarded merely because it is based on estimates. 16. Since assessee had made change in method of valuation in this year on basis of expert opinion, Accountancy Standard and valuation report it cannot be held that he was not having bona fide belief while raising claim, though claim may or may not sustain. At this stage we have to see whether assessee has bona fide belief for making change in method of valuation. Taking into account all relevant facts we are of view that assessee had bona fide belief in making change in method of valuation of work- in-progress. Hence Explanation 1 to section 271(1)(c) is not attracted. 17. With regard to another argument of assessee that Assessing Officer did not record satisfaction on concealment of income or furnishing of inaccurate particulars by assessee, we find on careful perusal of assessment order that though Assessing Officer has discussed claim of assessee in this regard and recorded statement of Shri S.G. Nadkarni, registered valuer in his assessment order, and has also given reasons in his order for non-acceptance of explanation of assessee but it did not record any satisfaction regarding concealment of income or furnishing of inaccurate particulars or with regard to invocation Explanation 1 to section 271(1) in assessment order. Whereas according to section 271(1)(c) Assessing Officer must be satisfied that assessee has concealed particulars of his income or furnished inaccurate particulars of such income. Now question comes whether recording of satisfaction in clear terms in order is required or mere mentioning at bottom of assessment order that penalty to be initiated insufficient to hold that Assessing Officer has satisfaction before initiating penalty under section 271(1)(c) of Income-tax Act. assessee has placed reliance upon following judgments in support of his contention that recording of satisfaction should be properly worded in assessment order. Mere writing word that penalty to be initiated does not suffice to hold that Assessing Officer was satisfied with regard to concealment of income or furnishing of inaccurate particulars.(i) Shri Ram Commercial Enterprises Ltd.'s case (supra) (ii)Super Metal Re-Rollers's case (supra) (iii)Munish Iron Store's case (supra) (iv)Ganesh Prasad Badri Prasad & Co.'s case (supra) (v)Dajibhai Kanjibhai's case (supra) (vi)D.M. Manasvi v. CIT [1972] 86 ITR 557 (SC). 18. Since Assessing Officer has not recorded his satisfaction in assessment order initiation of penalty is not valid. 19. learned DR, on other hand, has placed reliance on judgment of Apex Court in case of S.V. Angidi Chettiar (supra) in support of his contention that if it has been written at bottom of assessment order that penalty to be initiated, it amounts to valid satisfaction of Assessing Officer. learned DR has also commented on judgment referred to by assessee in this regard and submitted that Assessing Officer has discussed explanation furnished by assessee in detail and rejection of explanation itself amounts to satisfaction of Assessing Officer that it is deemed concealment by furnishing of inaccurate particulars for purpose of Explanation 1 to section 271(1)(c) of Act. 20. Having heard rival submissions and from careful perusal of record we find that in case of D. M. Manasvi (supra) and S.V. Angidi Chettiar's case (supra) it has been held that satisfaction of Assessing Officer is required for initiating penalty proceedings under section 271(1)(c). But before feeling satisfied for initiating penalty proceedings, Assessing Officer need not issue notice to assessee and it is sufficient if, after being satisfied in course of assessment proceedings that penalty provisions are attracted, ITO issues consequential notice. There was no dispute with regard to record of satisfaction of Assessing Officer before initiating penalty proceedings. 21. sole dispute before us is whether satisfaction is to be properly recorded in clear terms or specifically worded in assessment order or mere mentioning word 'penalty under section 271(1)(c) be initiated' is sufficient to hold that Assessing Officer has satisfaction in initiating penalty proceedings under section 271(1)(c) of Act. This issue was examined by proceedings under section 271(1)(c) of Act. This issue was examined by Delhi High Court in case of Shri Ram Commercial Enterprises (supra). In light of judgment of Apex Court in case of S.V. Angidi Chettiar (supra) their Lordship have categorically held that assessing authority is to confirm its own opinion and record its satisfaction before initiating penalty proceedings. Merely because penalty has been initiated it cannot be assumed that satisfaction was arrived at in absence of same being spelt out by order of assessing authorities. We also examined judgment of Apex Court in case of S.V. Angidi Chettiar (supra) in which Lordship of Apex Court has categorically held that 'The power to impose penalty under section 28 depends upon satisfaction of Income-tax Officer in course of proceedings under Act; it cannot be exercised if he is not satisfied about existence of conditions specified in clause (a), (b) or (c) before proceedings are concluded. proceeding to levy penalty has, however, not to be commenced by Income-tax Officer before completion of assessment proceedings by Income-tax Officer. Satisfaction before conclusion of proceeding under Act, and not issue of notice or initiation of any step for imposing penalty is condition for exercise of jurisdiction. There is no evidence on record that Income-tax Officer was not satisfied in course of assessment proceeding that firm had concealed its income. assessment order is dated 10-11-1951, and there is endorsement at foot of assessment order by Income-tax Officer that action under section 28 had been taken for concealment of income indicating clearly that Income-tax Officer was satisfied in course of assessment proceeding that firm had concealed its income.' 22. Punjab and Haryana High Court have also examined this issue and have expressed similar view in case of Munish Iron Store (supra) by holding that Assessing Officer has finalized assessment on basis of revised return filed by assessee without recording any satisfaction as to concealment of income. Hence Tribunal rightly cancelled penalty under section 271(1)(c) of Act in light of judgment of Apex Court in cases of D. M. Manasvi (supra) and Jain Bros. v. UOI [1970] 77 ITR 107. Madhya Pradesh High Court has also expressed same view in case of Ganesh Prasad Badri Prasad & Co. (supra). Their Lordship had held that Explanation 1 to section 271(1)(c) does not authorise Department just to issue notice for giving false explanation and to proceed against assessee without prima facie recording that assessee is guilty of concealment. Hon'ble Delhi High Court again examined issue in light of its own judgment in case of Shri Ram Commercial Enterprises Ltd. (supra) and judgment of Apex Court in case of S.V. Angidi Chettiar (supra) which has been solely relied by Revenue in case of CIT v. Vikas Promoters (P.) Ltd. [2005] 277 ITR 337 and made it more clear that satisfaction is required to be properly recorded in clear terms in assessment order. Their Lordship have held that Assessing Officer simply gave direction to issue challan for penalty under section 271(1)(c) without recording any satisfaction for levying penalty in assessment order and this order ex facie suffers from vice of non-application o f mind and therefore penalty was rightly set aside. In this judgment their Lordship have also recorded exact wording of assessment order. For sake or reference wordings which were used in assessment order is extracted as 'penalty proceedings under section 271(1)(c) are initiated separately'. Their Lordship have categorically held that this narration is not sufficient. satisfaction is not to be in mind of Assessing Officer but must be reflected from record. Their Lordship have again echoed view taken by court in Shri Ram Commercial Enterprises Ltd. (supra) of which relevant observations are extracted hereunder:A bare reading of provisions of section 271 and law laid down by Supreme Court makes it clear that it is assessing authority which has to form its own opinion and record its satisfaction before initiating penalty proceedings. Merely because penalty proceedings have been initiated, it cannot be assumed that such satisfaction was arrived at in absence of same being spell out by order of assessing authority. Even at risk of repetition we would like to state that assessment order does not record satisfaction as warranted by section 271 for initiating penalty proceedings. As we have already held that question suggested by Revenue does not arise as question of law from order of Tribunal, no fault can be found with Tribunal rejecting Department's application under section 256(1) of Act.' 23. Undisputedly, this issue was not examined recently by jurisdictional High Court. Lordships of Bombay High Court have, however, examined this issue way back in 1991 in case of Dajibhai Kanjibhai (supra) and they were of view that power to impose penalty depend upon satisfaction of ITO in course of proceedings under Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about existence of conditions specified in clauses (a), (b) and (c) before proceedings are concluded. relevant observation of jurisdictional High Court in this regard are abstracted as under: In our judgment, legal position in this regard is now well-settled. In view of Supreme Court's decision in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, power to impose penalty under section 28 of old Act corresponding to section 271 of new Act depends upon satisfaction of Income-tax Officer in course of proceedings under Act, It cannot be exercised if he is not satisfied and has not recorded his satisfaction about existence of conditions specified in clauses (a), (b) and (c) before proceedings are concluded. There is no evidence on record to show that Income-tax Officer, in this case, was satisfied in course of assessment proceedings. Therefore, we must hold that penal provisions of section 271(1)(c) were not attracted in this case.' 24. majority of High Courts, including jurisdictional High Court, have taken view that there should be recording of satisfaction about existence of conditions which attracted penalty under section 271(1)(c) before conclusion of assessment proceedings and in absence of record of satisfaction penalty under section 271(1)(c) cannot be levied. 25. Turning to case in hand we find that in entire body of assessment order no satisfaction regarding any condition which attracts penalty under section 271(1)(c) was recorded though Assessing Officer has discussed veracity of explanation of assessee. Assessing Officer has simply put footnote 'issue penalty notice under section 271(1)(c)'. This narration does not mean to be satisfaction of Assessing Officer about existence of any of conditions which attracts penalty under section 271(1)(c). In case of S.V. Angidi Chettiar in which emphasis was made by Revenue, footnote in assessment order by Assessing Officer state that action under section 28 pari materia to section 271(1)(c) had been taken for concealment of income and this footnote was held to be proper satisfaction by Apex Court. But in this case this type of footnote was not there and Assessing Officer has simply issued direction to issue notice under section 271(1)(c) which cannot be called to be record of proper satisfaction for initiating penalty proceedings. We are, therefore, of considered view that penalty under section 271(1)(c) cannot be levied in absence of proper satisfaction of existence of any of conditions which attract penalty. We, therefore, of view that penalty in instant case cannot be levied either for want of satisfaction or on account of Explanation 1 to section 271(1)(c) of Act. Hence we delete same. 26. In result, appeal of assessee is allowed. *** NARITA INVESTMENTS (P) LTD. v. COMMISSIONER OF INCOME TAX