Disqualification for tax return defaults applies only to penalties under the 1961 Act, not deemed penalties for earlier defaults.

Section 288(4) of the Income-tax Act, 1961 was construed as applying only where a penalty had been imposed for a default under the 1961 Act itself. The provision in section 297(2)(g) could deem a penalty under the new Act for an earlier default under the Indian Income-tax Act, 1922, but that legal fiction was confined to the penalty and did not extend the disqualification. The expressions "such penalty" and "penalty has been imposed under this Act" were read to exclude penalties attributable only to pre-1961 defaults. On that basis, disqualification was not attracted to the petitioner.

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Issues: Whether the disqualification under section 288(4) of the Income-tax Act, 1961 could be applied where the underlying default related to a return filed under the Indian Income-tax Act, 1922 and the penalty was imposed only because of section 297(2)(g) of the Income-tax Act, 1961.

Analysis: The relevant scheme distinguished between penalty proceedings completed before 1 April 1962 and those completed on or after that date. The provision in section 297(2)(g) enabled a penalty to be imposed under the new Act for a default committed under the old Act, but the legal fiction was confined to the penalty itself. The disqualification in section 288(4) was held to be attracted only where a penalty had been imposed for an actual infringement of the 1961 Act, not where the penalty arose by deeming fiction in respect of an earlier default. The words "such penalty" and "penalty has been imposed under this Act" were construed as referring only to defaults under the 1961 Act.

Conclusion: The disqualification under section 288(4) was not attracted to a pre-1961 default penalised under section 297(2)(g), and the disqualification imposed on the petitioner was quashed.

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