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Issues:
Assessment for years 1944-45 and 1945-46, validity of penalty imposed by Income-tax Officer under Section 46(1), requirement of a formal order specifying penalty amount, validity of notice of demand under Section 29, right of appeal under Section 30. Analysis: The High Court of Bombay heard a case where the assessee was assessed for the years 1944-45 and 1945-46 but failed to make full payment, leading the Income-tax Officer to order a penalty notice. The key contention was the validity of the penalty imposed under Section 46(1) of the Income-tax Act. The court highlighted that the direction by the Income-tax Officer must be in the form of a formal order specifying the penalty amount, not exceeding the arrears. The court rejected the argument that a mere departmental direction suffices, emphasizing the need for a specific order under Section 46(1) before a notice of demand under Section 29 can be served. The court clarified that the notice of demand is consequential to an order passed under the Act, making the validity of the notice dependent on a valid order. Moreover, the court noted that the right of appeal under Section 30 is against a formal order imposing a penalty that specifies the penalty amount. Therefore, the absence of a specific penalty amount in the order rendered it invalid, consequently making the notice of demand equally invalid. The court concluded that the penalty imposed by the Income-tax Officer was not legally valid, leading to a negative response to the question referred. The Commissioner was directed to pay the costs of the reference. The judgment underscores the importance of a formal order specifying penalty amounts under Section 46(1) for the validity of subsequent notices of demand and appeals under the Income-tax Act.
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