Reassessment for inadmissible deduction was sustained under saving provisions despite a limitation challenge.

An inadmissible deduction that reduces assessable income constitutes under-assessment and therefore escapement of income for reassessment purposes. On that basis, excess deduction of excise duty in assessment year 1961-62 fell within the reassessment provision, and the notice under section 148 was not time-barred. The saving and deeming machinery in section 153(3), Explanation 2, together with the repeal-and-savings clause in section 297(2)(d), applied mutatis mutandis to the reassessment proceedings, even though the relevant earlier appellate order had arisen under the repealed Act. The Court therefore upheld the reassessment and rejected the limitation objection.

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Issues: Whether reassessment proceedings for assessment year 1961-62 were barred by limitation, and whether section 150(1) read with Explanation 2 to section 153(3) saved the notice issued under section 148.

Analysis: Wrongly allowing an expenditure deduction results in under-assessment of income chargeable to tax, because assessable income is the net income after proper deductions. On that basis, the excess deduction of excise duty in assessment year 1961-62 constituted escapement of income within section 147. The earlier appellate order excluding the same amount from assessment year 1960-61 attracted the saving provision in section 153(3), Explanation 2, and the repeal-and-savings clause in section 297(2)(d) required the provisions of the new Act to apply mutatis mutandis to reassessment proceedings initiated by notice under section 148. The reference to section 250 in section 153(3) was treated as applicable to an order under section 30 of the old Act.

Conclusion: The reassessment was not barred by limitation and the question was answered in favour of the Revenue.

Final Conclusion: The notice and reassessment for assessment year 1961-62 were upheld, and the assessee was held liable to bear the costs.

Ratio Decidendi: Where income is under-assessed because an inadmissible deduction was allowed, reassessment is permissible, and a reassessment made under the new Act may be supported by the saving and deeming provisions even when the relevant appellate order arose under the repealed Act.

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