Transitional penalty proceedings under the Income-tax Act may continue under the new Act despite an earlier notice under the old regime.

Penalty proceedings for defaults under the 1922 Act were held to be governed by the transitional scheme in section 297(2)(g) of the Income-tax Act, 1961 where the assessment was completed after 1 April 1962, so that action could proceed under the new Act. Section 275 was treated as regulating the time limit for passing the penalty order, not the commencement of proceedings. A prior notice issued under the old Act did not bar a fresh notice under sections 274 and 271(1)(a) of the new Act after assessment, and later issuance of the new notice did not invalidate the proceedings merely on that ground.

---

---

Issues: Whether the penalty order under section 271(1)(a) of the Income-tax Act, 1961 was rightly sustained when the default arose under the Indian Income-tax Act, 1922 and the penalty notice under the new Act was issued after completion of assessment.

Analysis: The transitional scheme under section 297(2)(g) of the Income-tax Act, 1961 required penalty proceedings for assessments completed after 1 April 1962 to be dealt with under the new Act even where the default occurred under the old Act. The Court also treated section 275 as governing the time for making the penalty order, not as prescribing the point of commencement of the penalty proceedings. The earlier notice issued under the old Act did not prevent a fresh notice under sections 274 and 271(1)(a) of the new Act after assessment, and the proceedings were therefore not invalid merely because the notice under the new Act was later in time.

Conclusion: The penalty proceedings were validly initiated and the Tribunal was not justified in quashing the penalty on the ground that they had not been commenced in accordance with law.

---