Penalty initiation depends on assessment-stage satisfaction; later notice and mistaken statutory reference did not invalidate proceedings.

Penalty for failure to file a return could be initiated under the Income-tax Act, 1961 where the Income-tax Officer recorded satisfaction during the assessment proceedings, even if the penalty notice was issued later. The notice was treated as a consequential step, not a condition precedent to completion of the assessment. Where the de novo assessment was completed after 1 April 1962, section 297(2)(g) governed the penalty proceedings for the earlier assessment year, so the new Act applied. A mistaken reference to the old Act in the notice did not invalidate the proceedings where the substantive power to levy penalty otherwise existed.

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Issues: Whether penalty proceedings for default in filing the return could validly be initiated and completed under the Income-tax Act, 1961 where the assessment for the relevant year was completed after 1 April 1962, and whether the Income-tax Officer's satisfaction during the assessment proceedings was sufficient even though the notice for penalty was issued later.

Analysis: The decisive requirement for imposing penalty was the Income-tax Officer's satisfaction in the course of the assessment proceedings that the assessee had committed the default attracting penalty. The issue of notice was only a consequential step and need not precede completion of assessment. Since the de novo assessment was completed on 15 June 1963, section 297(2)(g) of the Income-tax Act, 1961 governed the penalty proceedings for an assessment year ending on 31 March 1962 or earlier year completed after 1 April 1962. On that construction, the proceedings had to be initiated and penalty imposed under the new Act, and the mistaken reference to the old Act in the notice did not invalidate the action where the power otherwise existed.

Conclusion: The initiation and levy of penalty were valid, and the question referred was answered in the affirmative.

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