Transitional savings preserved penalty exposure under the successor tax law, and pre-assessment notice validly initiated penalty proceedings.

Penalty under the Income-tax Act, 1961 was held leviable for failure to comply with a notice issued under section 22(2) of the repealed 1922 Act, because the transitional saving provision preserved penalty proceedings where the relevant assessment year ended on or before 31 March 1962 and the assessment was completed on or after 1 April 1962. The court also upheld the initiation of penalty proceedings, treating a notice issued before completion of assessment as sufficient where it was referable to the jurisdiction that validated the action. Both referred questions were answered in favour of the revenue.

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Issues: (i) Whether penalty under section 271(1)(a) of the Income-tax Act, 1961, could be levied for non-compliance with a notice issued under section 22(2) of the Indian Income-tax Act, 1922; and (ii) whether the penalty proceedings had been validly initiated.

Issue (i): Whether penalty under section 271(1)(a) of the Income-tax Act, 1961, could be levied for non-compliance with a notice issued under section 22(2) of the Indian Income-tax Act, 1922.

Analysis: The applicable transitional provision saved proceedings for penalty in respect of assessments for years ending on or before 31 March 1962 if the assessment was completed on or after 1 April 1962. Read with the penalty provision, the later Act governed the imposition of penalty for such defaults, even though the default notice had been issued under the earlier Act.

Conclusion: The answer was in the affirmative and against the assessee.

Issue (ii): Whether the penalty proceedings had been validly initiated.

Analysis: The notice issued before completion of assessment was treated as sufficient initiation, and the exercise of power was held to be referable to the jurisdiction that conferred validity rather than to one that would render it nugatory. The notice was therefore regarded as validly issued for the purpose of initiating penalty proceedings.

Conclusion: The answer was in the affirmative and against the assessee.

Final Conclusion: Both referred questions were answered in favour of the revenue, and the assessee was saddled with costs.

Ratio Decidendi: Where a transitional saving provision so permits, penalty for a default committed under the repealed income-tax law may be imposed under the successor Act, and a notice initiating penalty proceedings will be sustained if it can be referable to the jurisdiction that validates the action.

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