Tax default penalty upheld where valid demand remained unpaid and later appellate hearing cured any initial notice defect.

An assessee remains in default for penalty purposes where a valid tax demand is not paid within the time allowed, and the filing of an appeal does not suspend that liability. Pending appeals over earlier accounting periods did not alter the default position when the assessed amounts remained unpaid after adjustments, so penalty under section 46(1) of the Income-tax Act read with section 21 of the Excess Profits Tax Act was upheld. The absence of prior statutory notice did not invalidate the penalty, because the core requirement was an effective opportunity to explain the defence, which was satisfied through full hearing before the appellate authorities.

---

---

Issues: (i) Whether the assessee was in default so as to attract penalty under section 46(1) of the Income-tax Act as applied to excess profits tax proceedings. (ii) Whether the penalty was invalid for want of prior notice or show-cause opportunity.

Issue (i): Whether the assessee was in default so as to attract penalty under section 46(1) of the Income-tax Act as applied to excess profits tax proceedings.

Analysis: Filing of an appeal against an assessment does not suspend the assessee's liability to pay a valid demand within the time allowed. Where demand notices were validly issued, the assessed amounts remained unpaid even after adjustments, and no request was made that the assessee should not be treated as in default, the assessee continued to be in default. Pending appeals in respect of earlier chargeable accounting periods did not alter that position.

Conclusion: The assessee was liable to penalty under section 46(1) of the Income-tax Act read with section 21 of the Excess Profits Tax Act.

Issue (ii): Whether the penalty was invalid for want of prior notice or show-cause opportunity.

Analysis: No express provision required a notice before penalty under section 46(1), and absence of prior notice did not make the proceedings void ab initio. The requirement was only that the person affected should have an opportunity to explain the defence. Any procedural defect at the initial stage was cured when the assessee was fully heard in appeal before both the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, which could have granted complete relief or remitted the matter if necessary.

Conclusion: The penalty was not invalid on the ground of absence of prior notice.

Final Conclusion: The question referred was answered in the affirmative and the penalty under section 46(1) of the Income-tax Act as applied to the excess profits tax proceedings was upheld.

Ratio Decidendi: Liability to penalty for tax default may be sustained without prior statutory notice where the assessee was in default of a valid demand and any initial procedural lapse was cured by a full appellate hearing affording an effective opportunity of defence.

---