Premature penalty proceedings under income-tax law were stayed while appeals and stay petitions remained pending.

Penalty proceedings under Section 221(1) of the Income-tax Act were treated as premature where the assessment orders were already under challenge in pending appeals and connected stay petitions remained undecided. The proper course was to consider the stay petitions expeditiously after notice to the petitioner and to avoid coercive recovery in the interim. Recovery pursuant to the penalty notice was stayed until the stay petitions were decided.

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Issues: Whether the penalty notice issued during the pendency of the appeals and stay petitions was premature, and whether recovery pursuant to the notice should be stayed until the stay petitions were decided.

Analysis: The assessment orders were already under challenge in pending appeals, and the connected stay petitions were also pending consideration. In that situation, issuance of penalty proceedings under Section 221(1) of the Income-tax Act was treated as premature. The appropriate course was to have the stay petitions considered expeditiously after notice to the petitioner, and to protect the petitioner from recovery action in the meantime.

Conclusion: The penalty notice was held to be premature, and recovery proceedings pursuant to it were stayed until the stay petitions were decided.

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