Pending appeal relief and natural justice bar coercive tax recovery and penalties without prior hearing.

When an appeal was pending, the tax authority's discretion to treat the assessee as not in default had to be consciously considered before coercive recovery under section 46 was pursued; recovery action taken without first addressing the section 45 request was not sustainable. Penalties under section 46(1), which involve civil consequences, also required notice and an opportunity to show cause, and the absence of such hearing rendered the penalty orders unsustainable. The note therefore highlights two core principles: discretionary relief must be considered before recovery is enforced, and natural justice applies to penalty proceedings with civil liability.

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Issues: (i) Whether the Income-tax Officer was bound to consider the assessee's application for discretionary relief before treating the assessee as in default and enforcing recovery while appeals were pending; (ii) Whether penalties imposed under section 46(1) without notice and opportunity to show cause were sustainable.

Issue (i): Whether the Income-tax Officer was bound to consider the assessee's application for discretionary relief before treating the assessee as in default and enforcing recovery while appeals were pending.

Analysis: Section 45 empowered the Income-tax Officer, where an appeal under section 30 was pending, to treat the assessee as not being in default. That discretion had to be consciously applied to the facts of the case before coercive recovery could be pursued under section 46. The record showed no real consideration of the pending appeals, the remand direction, or the request that the assessee should not be treated as a defaulter. In those circumstances, recovery action taken without first deciding the section 45 request could not stand.

Conclusion: The issue was decided in favour of the assessee, and the Income-tax Officer was required to consider the section 45 application before proceeding as if the assessee were in default.

Issue (ii): Whether penalties imposed under section 46(1) without notice and opportunity to show cause were sustainable.

Analysis: Penalty under section 46(1) affected civil liability and could not be imposed without adherence to natural justice. No notice to show cause was issued before the penalties were levied. In the absence of such opportunity, the penalty orders were legally unsustainable.

Conclusion: The issue was decided in favour of the assessee, and the penalty orders under section 46(1) were liable to be quashed.

Final Conclusion: The recovery steps and penalty orders could not be sustained, and the assessee was entitled to relief by mandamus and certiorari.

Ratio Decidendi: Where a statute confers discretion on the tax authority to withhold treatment of an assessee as being in default during the pendency of an appeal, that discretion must be actually considered before coercive recovery is initiated, and a penalty imposing civil consequences cannot be sustained without notice and an opportunity of hearing consistent with natural justice.

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