Pending tax proceedings under a repealed law can continue, and penalties cannot rest on an invalidity premise.

A pending assessment validly initiated under the Indian Income-tax Act, 1922 could be completed after 1 April 1962 where the notice had been issued before repeal and the proceedings remained pending, because section 297(2) of the 1961 Act did not show a contrary intention sufficient to displace section 6 of the General Clauses Act, 1897. An appellate authority in section 27 proceedings could not invalidate that assessment on the basis that the old Act had ceased to apply. Penalties cancelled under section 271(1)(a) and section 273(a) could not stand where the cancellation rested solely on the mistaken view that the assessment was invalid, though the merits of penalty imposition remained to be examined according to law.

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Issues: (i) Whether a pending assessment initiated under the Indian Income-tax Act, 1922, could be completed after 1 April 1962 under section 23(4) of that Act in view of section 6 of the General Clauses Act, 1897 and section 297(2) of the Income-tax Act, 1961; (ii) whether the appellate authority could examine the validity of the assessment in an appeal against the order under section 27 of the Indian Income-tax Act, 1922; and (iii) whether the cancellation of penalties under section 271(1)(a) and section 273(a) of the Income-tax Act, 1961 was justified.

Issue (i): Whether a pending assessment initiated under the Indian Income-tax Act, 1922, could be completed after 1 April 1962 under section 23(4) of that Act in view of section 6 of the General Clauses Act, 1897 and section 297(2) of the Income-tax Act, 1961

Analysis: A notice under section 22(2) of the 1922 Act had been validly issued before the repeal, and the assessment proceedings were still pending when the 1961 Act came into force. The statutory scheme of section 297(2) did not disclose a contrary intention sufficient to exclude the normal operation of section 6 of the General Clauses Act, 1897. Pending proceedings were therefore capable of continuation and completion under the repealed Act, and the mere availability of a separate reopening provision under the new Act did not destroy that power.

Conclusion: The assessment could validly be completed under section 23(4) of the Indian Income-tax Act, 1922. This issue is decided in favour of the Revenue.

Issue (ii): Whether the appellate authority could examine the validity of the assessment in an appeal against the order under section 27 of the Indian Income-tax Act, 1922

Analysis: Since the assessment itself remained legally sustainable under the repealed Act, the appellate authority was not competent, in the section 27 proceedings, to strike down the assessment on the ground that the old Act had ceased to apply. The validity of the power to complete the pending assessment could not be questioned in that manner, though the section 27 appeal itself still required consideration on its own merits.

Conclusion: The appellate authority was not justified in invalidating the assessment in the section 27 appeal. This issue is decided in favour of the Revenue.

Issue (iii): Whether the cancellation of penalties under section 271(1)(a) and section 273(a) of the Income-tax Act, 1961 was justified

Analysis: The cancellation of penalties rested on the erroneous premise that the assessment proceedings were invalid. Once the assessment under the 1922 Act was held to be valid, the penalty orders could not be cancelled on that ground alone. At the same time, the merits of imposition and the quantum of penalty had not been fully examined below and required consideration in accordance with law.

Conclusion: The cancellation of penalties was not justified on the grounds adopted below. This issue is decided in favour of the Revenue.

Final Conclusion: The reference was answered by upholding the Revenue's position that the pending assessment under the repealed Act could be completed, the appellate authority could not set aside the assessment on the stated ground in the section 27 proceedings, and the penalty cancellations could not stand on that basis.

Ratio Decidendi: Where a proceeding validly commenced under a repealed fiscal statute remains pending on the date of repeal, it may be continued and completed under the repealed law unless the new enactment evinces a contrary intention; the existence of a separate reopening mechanism in the new law does not, by itself, terminate the power to complete the pending proceeding.

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