Valid penalty notice survives procedural defect, allowing tax penalty proceedings to continue from the stage of illegality.

A validly initiated penalty proceeding is not extinguished when the penalty order is later vitiated for failure to afford the statutory hearing; the authority may resume and complete the matter from the stage at which the defect occurred. The absence of an express remand does not prevent continuation of the proceeding where the original notice remained operative and jurisdiction had already been set in motion. The procedural illegality affects the defective order, not the underlying proceeding itself, unless the statute provides otherwise.

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Issues: (i) Whether, after an appellate authority set aside a penalty order for want of hearing, the Income-tax Officer could continue the penalty proceedings from the stage at which the procedural defect occurred; (ii) whether the notice initiating penalty proceedings remained operative despite the defect in the original order.

Issue (i): Whether, after an appellate authority set aside a penalty order for want of hearing, the Income-tax Officer could continue the penalty proceedings from the stage at which the procedural defect occurred.

Analysis: The penalty notice had been validly issued under the penal provision, but the order imposing penalty was vitiated because the assessee had not been afforded the statutory opportunity of being heard. The appellate authority set aside the defective order and directed refund, which was treated as correcting the illegality while leaving the proceeding itself alive from the stage where the defect supervened. The absence of an express remand did not prevent the Income-tax Officer from resuming the matter and completing the statutory process.

Conclusion: The Income-tax Officer could validly continue the proceedings from the stage at which the illegality occurred, and the issue was decided against the assessee.

Issue (ii): Whether the notice initiating penalty proceedings remained operative despite the defect in the original order.

Analysis: The initial notice did not cease to operate merely because the first penalty order was invalid for breach of the hearing requirement. The defect arose during the course of the proceeding and did not extinguish the jurisdiction already set in motion by the notice. The proceeding was therefore capable of being taken forward as part of the same assessment-related process.

Conclusion: The notice remained operative, and the issue was decided against the assessee.

Final Conclusion: The appeal failed because the penalty proceedings were not wiped out by the earlier procedural illegality and could lawfully be continued to their completion.

Ratio Decidendi: Where a validly initiated tax proceeding is vitiated at a later stage by failure to afford the required hearing, the defect does not extinguish the proceeding itself; the authority may continue from the stage where the illegality supervened unless the statute provides otherwise.

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