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TMI Blog1972 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of income-tax due from him. The amount was not paid by the petitioner within the stipulated time. The petitioner was later informed that if he did not pay the tax before the end of February, 1962, a penalty would be imposed on him. As the petitioner failed to comply with this last notice also, the Income-tax Officer, on a consideration of the facts and circumstances of the case, levied a penalty of Rs. 6,500 under section 46(1) of the Income-tax Act by his order dated March , 1962. Against the order of assessment, the petitioner preferred an appeal to the Appellate Assistant Commissioner objecting to the inclusion of an amount of Rs. 1,05,130 as income from other sources. He claimed that the amount represented a debt borrowed by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a demand is made under the Act, a person to whom the demand is addressed is bound to comply with it. If he does not comply with the demand, he becomes a defaulter and it is then open to the Income-tax Officer to levy a penalty in accordance with the provisions of section 46(1) of the Act. Once the default merges into an order levying penalty, the assessee cannot take advantage of the later result of an appeal against the assessment proceedings reducing the demand. The assessment proceedings and the penalty proceedings are two distinct matters. The incurring of a liability to the levy of penalty is independent of the correctness of the demand. It is a statutory liability for failure to comply with the statutory requirement that a demand mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manner provided by section 46 even after the appeal against the order of assessment was disposed of, subject to adjustment of the amount to be recovered in the light of the orders of the Appellate Assistant Commissioner. His Lordship held that a person who failed to comply with a notice of demand would continue to be a defaulter notwithstanding the reduction of his liability by an order of the appellate authority. All that the Income-tax Officer was expected to do was to give information to the recovering authority about the reduction in the liability for tax, penalty or interest made by the appellate authority and to request such authority to adjust his proceeding to the modified demand. From the facts of the case, it is clear that their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tax. It would again be absurd if the penalty could be recovered for the full original amount. The only sensible view to take in such a case would be that the order of penalty falls to the ground and the only logical way to support that conclusion would be to say that the original default has disappeared. Hidayatullah J. (as he then was), who delivered a separate judgment, agreed with the view of Sarkar J. that a fresh notice of demand was necessary but his Lordship did not consider the question of the effect of the appellate order reducing tax liability on an order levying penalty. Shah J., as we already pointed out, did not agree with the majority view. The observations of Sarkar J. are, therefore, clearly obiter. Subsequent to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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