1966 (4) TMI 4 - HC - Income Tax

Undisclosed Income - no payments were made even after adjustments - assessee was clearly in default - penalty under s. 46(1) of the IT Act as applied to the Excess Profits Tax Act was legally imposed

Summary

Issues:
- Legality of penalty under section 46(1) of the Income-tax Act as applied to the Excess Profits Tax Act.
- Imposition of penalty without issuing a notice to the assessee.

Analysis:

1. Legality of Penalty:
The case involved the recovery of excess profits tax for three chargeable accounting periods. The Excess Profits Tax Officer imposed penalties under section 46(1) of the Income-tax Act on the assessee for not paying the outstanding demands. The assessee contended that they were not in default due to pending appeals challenging the assessments. However, the court held that the mere filing of an appeal does not absolve the assessee from default if the demand notices were validly issued and the amounts were not paid. In this case, the demand notices were valid, and the assessee remained in default by not making any payments even after adjustments were made. The court emphasized that the assessee could have requested not to be treated as in default, but no such request was made. Therefore, the imposition of the penalty was deemed legal under the Income-tax Act.

2. Imposition of Penalty without Notice:
The second ground of challenge was the absence of a notice before imposing the penalty. While there was no specific requirement in the Income-tax Act for issuing a notice before penalty imposition, the assessee relied on a previous decision emphasizing the principles of natural justice. The court noted that the absence of a notice did not invalidate the penalty. It highlighted that the principles of natural justice required the person affected to have an opportunity to defend themselves. In this case, the Excess Profits Tax Officer did not provide a specific opportunity to the assessee before imposing the penalty. However, the court found that the assessee had been informed of the outstanding arrears and given time to comply, which implied a potential penalty. The subsequent appeals before the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal provided the assessee with opportunities to defend against the penalty. As both appellate authorities heard the assessee, any procedural defect in the penalty imposition process was considered curable. Therefore, the court concluded that the penalty imposition was valid despite the initial lack of a specific notice.

In conclusion, the court answered the question in the affirmative, affirming the legality of the penalty imposition under section 46(1) of the Income-tax Act as applied to the Excess Profits Tax Act. The assessee was directed to pay the costs of the department, with the counsel's fee fixed at Rs. 200.