Strict proof of statutory notice service required for penalty; notice on unauthorised employee was invalid and penalty failed.

Penalty under section 271(1)(a) was not sustainable because valid service of the statutory notice under section 22(2) was not proved. Service on an employee who was not shown to be authorised to receive notice for the firm did not amount to legal service, and the manager's awareness of the notice was insufficient to cure that defect. In penalty proceedings, strict proof of statutory service was required. Continuation of proceedings after repeal of the old Act did not validate the defective notice, since continuation under section 297(2)(g) depended on the underlying notice and default being legally sustainable.

---

---

Issues: Whether the penalty under section 271(1)(a) of the Income-tax Act, 1961 was exigible on the footing that notice under section 22(2) of the Indian Income-tax Act, 1922 had been duly served on the assessee.

Analysis: The statutory notice under section 22(2) was treated as essential for sustaining penalty. The service shown was on an employee who was not found to be authorised to accept notice on behalf of the firm, and mere awareness of the notice by the manager was held insufficient to amount to legal service. In penalty matters, the statutory requirement of service had to be strictly proved. The continuation of proceedings after repeal of the old Act did not cure the defect in service, because section 297(2)(g) permitted continuation of penalty proceedings only where the underlying notice and default were otherwise legally sustainable.

Conclusion: The notice was not legally valid service on the assessee, and the penalty was not exigible.

---