Statutory discretion during pending tax appeal must be exercised before treating assessee as in default and imposing penalty.

Penalty for non-payment of assessed tax cannot be sustained where an appeal against the assessment is pending and the Income-tax Officer has not consciously exercised the statutory discretion to decide whether the assessee should be treated as in default during that pendency. The governing scheme required payment within the prescribed time, but pending appeal and a request for time to pay made it necessary for the officer to apply his mind before invoking penal consequences. On the stated facts, the record showed no material that this discretion had been considered before the penalty order was passed, so the penalty was invalid and set aside in favour of the assessee.

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Issues: Whether penalty imposed for non-payment of assessed tax was valid when an appeal against the assessment was pending and the Income-tax Officer had not exercised the discretion required before treating the assessee as in default.

Analysis: Under the statutory scheme, tax demanded under the notice of demand had to be paid within the prescribed time and default would normally follow non-payment. Where an appeal had been presented against the assessment, however, the Income-tax Officer was required to apply his mind and decide whether the assessee should be treated as in default while the appeal remained undisposed of. The existence of a pending appeal and a contemporaneous request for time to pay made it necessary for that discretion to be exercised one way or the other before any penal action under the penalty provision could be taken. The record showed no material indicating that this statutory discretion had in fact been considered before the penalty order was made.

Conclusion: The penalty order was invalid for want of the required exercise of discretion and was set aside in favour of the assessee.

Ratio Decidendi: Where the statute confers discretion on the Income-tax Officer to treat an assessee as not in default during the pendency of an appeal, a penalty for default cannot be sustained unless that discretion has been consciously exercised before the penalty is imposed.

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