- (1.)THE question referred by the Income-tax Appellate Tribunal for our opinion is:
"Whether, on the facts and circumstances of the case, penalty under section 46(1) of the Income-tax Act as applied to the Excess Profit Tax Act was legally imposed?"

(2.)THE question arises in connection with recovery of excess profits tax for three chargeable accounting periods ending on 30th April, 1944, 30th April, 1945, and 31st March, 1946. In respect of these chargeable accounting periods, excess profits tax was assessed on 28th February, 1949, 25th March, 1949, and 25th March 1949, bringing into existence demands of Rs. 3,60,324-11-0, Rs. 1,15,034 and Rs. 83,123-5-0. Demand notice were issued on the dates of the assessments. In response to these demand notices, the assessee moved applications on 17th March, 1949 and 31 March, 1949, for stay of recovery of the amounts assessed until the disposal of appeals which had been filed against the assessments. The appeals were actually disposed of by a consolidated order date 26th August, 1950, by the Appeal late Assistant Commissioner who reduced each of the three demands for each of the three chargeable accounting period to some extent. Thereafter, the Excess Profits Tax Officer took into account certain payments which had been made and also set off certain amounts which were refundable to the assessee in connection with other proceeding and determined the final outstanding demands in respect of the three period as remaining after all these adjustments had been made. Having made all these adjustments, the Excess Profits Tax Officer issued letters on 25th October, 1950, and 26th October, 1950, calling upon the assessee to pay these amounts within a week of the receipt of the letters. He also asked the assessee-company to furnish bank guarantee in respect of these outstanding demands, if the assessee was not in a position to clear up the demands. The assessee sent a reply on 9th November, 1950, alleging that no demands were outstanding according to the returns field by it and the question of furnishing bank guarantee did not arise. No payments were actually made nor was any request made for staying the recovery of the demands. The Excess Profits Tax Officer consequently on 26th March, 1951, imposed penalties under section 46(1) of the Income-tax Act as applied to the excess profits tax proceedings by section 21 of the Excess Profits Tax Act.
The assessee appealed before the Appellate Assistant Commissioner who dismissed the appeals and confirmed the imposition of the penalties. A further appeal before the Income-tax Appellate Tribunal under section 66(1) of the Income-tax Act read with section 21 of the Excess profits Tax Act to refer a question of law to this court and it is in pursuance of that application that question quoted above by us has been referred to this court.

(3.)THE statement of the case and the judgment of the Income-tax Appellate Tribunal show that the imposition of the penalties was challenged on two ground before the Income-tax Appellate Tribunal. One ground was that appeals in respect of assessments for earlier chargeable accounting periods were pending when the penalty was imposed and in those appeals the question of determining the standard profits and computation of capital were being challenged and it was urged that, until those appeals were decided, there could be no valid demands in respect of subsequent chargeable accounting periods. Further, reliance on this point was placed on the fact that even the assessment, in respect of which these demands were made by the Excess Profits Tax Officer, were being challenged in appeal and it was urged that in these circumstances the assessee could not be treated as being in default.