Opportunity of hearing under reassessment limitation provisions must be given to the assessee itself, not just its director.

Explanation 3 to section 153(3) of the Income-tax Act, 1961 applies only where the assessee whose income is sought to be reassessed itself had an opportunity of being heard before the earlier order was passed. The Bombay High Court treated a company as a separate taxable entity and held that examination of its director in another assessee's proceedings did not satisfy that condition. Because the company was not called upon to participate in the earlier proceedings as such, the deeming exception did not operate and the reassessment notice remained time-barred. The notice was quashed.

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Issues: Whether the notice reopening the assessment was barred by limitation because Explanation 3 to section 153(3) of the Income-tax Act, 1961 applied only if the assessee had been given an opportunity of being heard before the earlier order was passed.

Analysis: The statutory exception in Explanation 3 to section 153(3) deems an assessment to be within time only where income excluded from one person is held to be the income of another person and the latter was given an opportunity of being heard before the relevant order. A company is a separate taxable entity, and the mere examination of one of its directors in proceedings relating to another assessee does not amount to giving the company itself an opportunity of being heard. Since the petitioners were not called upon to participate as such in the earlier proceedings, the condition precedent for invoking the deeming provision was not satisfied.

Conclusion: The limitation bar was not lifted by Explanation 3 to section 153(3), and the reassessment notice was rightly quashed. The appeal failed.

Ratio Decidendi: For the purpose of Explanation 3 to section 153(3) of the Income-tax Act, 1961, the assessee whose income is sought to be reassessed must itself be given an opportunity of being heard before the earlier order is passed; examination of a director or other representative in another proceeding is not sufficient compliance.

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