Law:

Section:

Section 156, read with section 221 of the Income-tax Act, 1961 [Corresponding to section 29, read with section 46(1) of the Indian Income-tax Act, 1922] - Notice of demand - Assessment years 1944-45 and 1945-46 - Assessee made a default in making payment of income-tax - Consquently, ITO passed an order under section 46(1) of 1922 Act wherein penalty was levied from assessee - However, said order did not mention amount of penalty to be levied - Pursuant to said order a demand was made for payment under section 29 of 1922 Act - Whether since order passed by ITO under section 46(1) of 1922 Act did not specify amount of penalty, said order was bad and notice of demand was equally bad as it followed upon an invalid order of ITO - Held, yes - Whether, consequently, penalty imposed by ITO was not valid in law - Held, yes FACTS The assessee were partners in the registered firm. The assessment orders in the cases of the assesses for the relevant assessment years were passed. In response to the demand for tax, some of the assesses made a part payment of the tax, while others failed to make any payment. Thereupon, the ITO passed an order under section 46(1) of 1922 Act to the effect: 'Tax not paid. Issue penalty notice.' Pursuant to that order a demand was made for payment under section 29 of 1922 Act and the notice of demand mentioned what was the amount of penalty that the assessee had to pay. The assessees' contention was that the penalty imposed was contrary to law inasmuch as the order passed by the ITO was not a proper and valid order under section 46(1) of 1922 Act, in as much as it did not specify either the amount of the penalty directed to be levied or the manner in which the penalty was to be calculated. On reference: HELD Section 46(1) of 1922 Act provides that when an assessee is in default making payment of income-tax the ITO may in his discretion direct that in addition to the amount in arrears a sum not exceeding that amount shall be recovered from the assessee. It is clear that the direction that the ITO has to give under section 46(1) of 1922 Act must be a direction which must take the form of an order and that order must state the specific sum which the…

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