SANKAR PRASAD MITRA, J.

( 1 ) THIS is a reference under Section 66 (1) of the Indian Income-tax Act, 1922. The assessment year is 1960-61. The corresponding accounting year is the calendar year is 1959. On the 13th June, 1960, a notice under Section 22 (2) dated the 1st June, 1960, was served on the assessee. In terms of this notice the assessee's return should have been filed by the 18th July, 1960. But, on that date, the assessee asked for two months' time to file its return. The Income-tax Officer allowed the extension but informed the assessee that there would be no further extensions. On the 16th January, 1961, the assessee was served with a notice under Section 23 (3 ). Then, on the 17th January, 1961, the assessee filed its return for the assessment year 1960-61. The Income-tax Officer, however, took more than two years to complete the assessment. The assessment was made on October 31, 1962, after the commencement of the Income-tax Act, 1961. Under the provisions of Section 297 (2) (g) of the 1961 Act the proceedings for imposition of penalty had to be initiated and completed (sic ). That is why the assessee was served with a fresh notice under Section 274 (1) of the 1961 Act. In response to the show cause notice, the assessee took a preliminary objection. The assessee contended that the notice under Section 274 (1) was issued on the 15th May, 1963, that is, after the completion of the assessment proceedings. The notice, therefore, was invalid and no penalty proceedings could be initiated. The Income-tax Officer rejected this contention. The assessee also submitted that its audited balance-sheet, owing to the absence of its accountant, was ready only in October, 1960. In these premises, the assessee could not file its return earlier. The Income-tax Officer did not accept this explanation as sufficient for the non-filing of the return. He imposed a penalty of Rs. 12,734 under Section 271 (1) (a) of the 1961 Act.

( 2 ) THE Appellate Assistant Commissioner agreed with the Income-tax Officer on both the points aforesaid and sustained the order of imposition of penalty.

( 3 ) BEFORE the Tribunal the assessee contended that the notice was issued long after the assessment was completed ; the satisfaction of the Income-tax Officer was not in the course of the assessment proceedings; and the initiation of the penalty proceedings was bad. The Tribunal held that the Income-tax Officer had already intimated his intention of initiating penalty proceedings long before the assessment was completed by issuing the notice under Section 28 (3) of the 1922 Act on the 13th January, 1961. The Tribunal observed, however, that it was surprising that the assessee was penalised for the delay of five months in filing its return ; while the Income-tax Officer sat over the return for more than a year and a half. But ultimately the Tribunal rejected the assessee's contention that the penalty proceedings were not properly initiated. The Tribunal also did not accept the assessee's contention that it was prevented by sufficient cause from filing the return before the 17th January, 1961.

( 4 ) FINALLY, the assessee submitted to the Tribunal that the amount of penalty for non-filing of return in time was a sum equal to 2% of the tax for every month during which the default continues. In the instant case, a demand was made on the assessee for Rs. 1,16,601 after a provisional assessment had been made under Section 23b of the 1922 Act and this demand was rectified under Section 35 of the 1922 Act to Rs. 92,294. 55. The assessee paid the amount on the 22nd February, 1961. The demand made under Section 23 (3) was also Rs. 1,59,180 but it was subsequently rectified to Rs. 1,26,512. 10. Therefore, the amount of tax payable by the assessee was Rs. 1,20,512. 10 minus Rs. 92,294 55, that is, Rs. 34,217. 55. In that case, the amount of penalty to be levied at the rate of 2% per month for four months on Rs. 34,217. 55 conies to Rs. 2,737. 44. The Tribunal accept

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