Penalty order must specify exact sum recoverable before demand notice can validly stand under income-tax law

A penalty for default in payment of income-tax under Section 46(1) of the Income-tax Act, 1922 is invalid unless the recovery order itself specifies the exact sum recoverable. A notice of demand under Section 29 can operate only where it follows a valid order under the Act, so a demand notice consequential to an incomplete penalty order is also invalid. The appeal framework under Section 30 reinforces that the penalty order must be complete and state the amount payable. On this reasoning, the penalty assessment and the consequential notice of demand could not be sustained.

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Issues: Whether a penalty for default in payment of income-tax could be sustained where the order under Section 46(1) of the Income-tax Act, 1922 did not specify the amount of penalty and the notice of demand was issued consequentially under Section 29.

Analysis: Under Section 46(1), the Income-tax Officer was required to pass a formal order directing recovery of a sum not exceeding the arrears and that order had to state the specific amount recoverable as penalty. A notice of demand under Section 29 could be served only when tax, penalty, or interest became due in consequence of an order passed under the Act, so the validity of the notice depended upon a valid underlying order. The scheme of the Act also showed that the statutory appeal under Section 30 lay against the penalty order itself, which reinforced that the order had to be complete and specify the amount payable.

Conclusion: The penalty order was invalid because it did not specify the amount of penalty, and the consequential notice of demand was also invalid. The answer was in favour of the assessee.

Ratio Decidendi: A penalty under Section 46(1) of the Income-tax Act, 1922 is not valid unless the assessing authority passes a proper order specifying the exact sum recoverable, and a notice of demand under Section 29 cannot stand without such a valid order.

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