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Issues: (i) Whether penalty under section 271(1)(a) of the Income-tax Act, 1961 could be levied in respect of defaults relating to assessment years 1960-61 and 1961-62, where the original default arose under the Indian Income-tax Act, 1922 but reassessment was made under the Income-tax Act, 1961. (ii) Whether, for computing the quantum of penalty, the period of default prior to 1 April 1962 could be taken into account.
Issue (i): Whether penalty under section 271(1)(a) of the Income-tax Act, 1961 could be levied in respect of defaults relating to assessment years 1960-61 and 1961-62, where the original default arose under the Indian Income-tax Act, 1922 but reassessment was made under the Income-tax Act, 1961.
Analysis: Reassessment proceedings taken under section 147 of the Income-tax Act, 1961 attracted section 297(2)(d)(ii), under which the provisions of the new Act applied to the reassessment. The expression "all the provisions" included section 271. The Court relied on the principle that penalty under the 1961 Act could be imposed for defaults relating to assessment years preceding 1962-63, and rejected the contention that the earlier default stood wiped out merely because reassessment notice was issued. The default in not responding to the public notice under section 22(1) of the 1922 Act remained actionable in the reassessment proceedings.
Conclusion: The levy of penalty under section 271(1)(a) of the Income-tax Act, 1961 was valid and was held against the assessees.
Issue (ii): Whether, for computing the quantum of penalty, the period of default prior to 1 April 1962 could be taken into account.
Analysis: Once the default in failing to comply with the public notice under section 22(1) of the 1922 Act was found to subsist, there was no warrant in section 271(1)(a) for restricting the computation of default only to the period after 1 April 1962. The Court held that the penalty had to be assessed with reference to the full period of default and not merely from the commencement of the new Act.
Conclusion: The pre-1 April 1962 period of default could be taken into account and the issue was decided against the assessees.
Final Conclusion: Penalty under the 1961 Act was upheld for defaults arising under the 1922 Act in reassessment proceedings, and the entire default period was relevant for quantification.
Ratio Decidendi: Where reassessment is made under section 147 of the Income-tax Act, 1961, section 297(2)(d)(ii) applies so that the penalty provisions of the 1961 Act govern the reassessment, and an earlier default in complying with a notice under the 1922 Act remains punishable for the full period of default.
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