Notice to assessee is essential when a successor income-tax officer continues penalty proceedings, or the order fails.

A successor income-tax authority may continue pending quasi-judicial penalty proceedings only if the assessee is informed of that continuation, because the statutory right to seek reopening or rehearing can be exercised only after such notice. The requirement of a reasonable opportunity of hearing under the penalty provision is not satisfied where the assessee is left unaware that the successor officer intends to proceed. In the absence of intimation, the continuation of proceedings is treated as contrary to the statutory scheme and the penalty order is vitiated.

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Issues: Whether the levy of penalty by a succeeding Income-tax Officer, without giving notice to the assessee of the intention to continue the proceedings, was valid.

Analysis: Section 28(3) of the Income-tax Act, 1922 required that no penalty order be made unless the assessee was heard or given a reasonable opportunity of being heard. Section 5(7C) empowered a succeeding authority to continue pending proceedings from the stage left by the predecessor, but that power was subject to the first proviso, which gave the assessee a right to demand reopening of the earlier proceedings or rehearing before an order was passed. The Court held that this statutory right could not be exercised unless the assessee was informed that a successor officer intended to continue the matter. Since the proceedings under the Act were quasi-judicial, the statute necessarily implied notice as a condition for valid continuation of the proceedings. Without such intimation, the assessee was deprived of the opportunity to invoke the proviso and the requirement of fair hearing was not satisfied.

Conclusion: The levy of penalty by the succeeding officer without notice to the assessee was invalid and the answer to the reference was in the negative, in favour of the assessee.

Ratio Decidendi: When a successor income-tax authority continues pending quasi-judicial penalty proceedings under section 5(7C), the statute implicitly requires notice to the assessee so that the assessee may exercise the statutory right to seek reopening or rehearing; absence of such notice vitiates the penalty order.

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