Penalty satisfaction during assessment and acknowledged notice upheld, so the income tax penalty challenge failed.

For penalty under the Income Tax Act, 1922, the requisite statutory satisfaction must be formed during the assessment proceedings themselves, and a contemporaneous assessment record noting clear default was sufficient to meet that timing requirement. The later date of the penalty order did not invalidate the satisfaction already recorded. On notice and hearing, the assessee's own letters acknowledging receipt of notice under the penalty provision and asking for time to explain showed that notice had been served and an opportunity to respond was available. The challenge to penalty on both grounds therefore failed, and the penalty order as reduced in revision was left undisturbed.

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Issues: (i) whether the Income Tax Officer had formed the requisite satisfaction in the course of proceedings so as to sustain the penalty under section 28(1) of the Indian Income Tax Act, 1922; (ii) whether the penalty order was invalid for want of notice and reasonable opportunity of being heard under section 28(3) of the Indian Income Tax Act, 1922.

Issue (i): whether the Income Tax Officer had formed the requisite satisfaction in the course of proceedings so as to sustain the penalty under section 28(1) of the Indian Income Tax Act, 1922.

Analysis: The assessment record showed that, on the date of assessment, the officer recorded that there was a clear default and that the assessee had neither filed a valid return nor complied with the notice under section 22(4). That contemporaneous entry established that the statutory satisfaction was reached during the assessment proceedings themselves. The later date of the penalty order did not affect the existence of that satisfaction. The timing requirement in section 28 was therefore met.

Conclusion: The challenge to the penalty on the ground that the statutory satisfaction was absent failed and the issue was decided against the petitioner.

Issue (ii): whether the penalty order was invalid for want of notice and reasonable opportunity of being heard under section 28(3) of the Indian Income Tax Act, 1922.

Analysis: Although the original penalty notice could not be produced from the file, the petitioner's own letters referred to and acknowledged receipt of a notice under section 28(3). Those letters also sought time to submit an explanation and requested that no penalty be imposed meanwhile. On that material, the Court found that notice had in fact been served and that the petitioner had an opportunity to respond. The statutory requirement of hearing was thus satisfied.

Conclusion: The objection based on absence of notice and denial of opportunity of hearing was rejected and the issue was decided against the petitioner.

Final Conclusion: The writ petition failed, and the penalty order as reduced in revision remained undisturbed.

Ratio Decidendi: For penalty under section 28 of the Indian Income Tax Act, 1922, the authority must form the requisite satisfaction during the course of the assessment proceedings, and compliance with section 28(3) can be established from the assessee's own acknowledgment of notice and request for time to explain.

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