Reassessment notice validity: limitation override applied where action gave effect to a higher authority's direction

Reassessment notice under section 34 was not invalid for want of Central Board of Revenue sanction where escaped income was below one lakh rupees; the sanction contemplated by clause (iii) of the proviso to section 34(1) was confined to cases falling within clause (ii), and otherwise the relevant sanction was that of the Commissioner. The second proviso to section 34(3) also applied because the notice was issued to give effect to a direction in a higher income-tax authority's order, and that proviso overrode the limitation objection under section 34. The High Court's contrary view was held incorrect.

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Issues: (i) Whether, in a case falling under section 34(1)(a), the absence of sanction of the Central Board of Revenue rendered the notice invalid when the escaped income was below one lakh rupees and the notice was issued after eight years; (ii) Whether the second proviso to section 34(3) exempted the notice from the limitation otherwise applicable under section 34(1).

Issue (i): Whether, in a case falling under section 34(1)(a), the absence of sanction of the Central Board of Revenue rendered the notice invalid when the escaped income was below one lakh rupees and the notice was issued after eight years.

Analysis: Clause (iii) of the proviso to section 34(1) requires sanction only in a case falling under clause (ii) of that proviso. Clause (ii) deals with notices where escaped income after eight years is one lakh rupees or more. Where the escaped income is below one lakh rupees, clause (ii) is inapplicable, and the sanction contemplated by clause (iii) is not that of the Central Board of Revenue. If a notice is otherwise supportable under another provision, the sanction contemplated is that of the Commissioner.

Conclusion: The absence of sanction of the Central Board of Revenue did not invalidate the notice, and the contention of the assessee failed on this issue.

Issue (ii): Whether the second proviso to section 34(3) exempted the notice from the limitation otherwise applicable under section 34(1).

Analysis: The second proviso to section 34(3), as amended, overrides the time limitation contained in section 34 where reassessment is made in consequence of, or to give effect to, a finding or direction in an order of a higher income-tax authority. The proviso is not confined to cases where the escaped income exceeds one lakh rupees. The notice here was issued to give effect to such a direction, and the High Court erred in treating the proviso as inapplicable merely because the escaped income was below one lakh rupees.

Conclusion: The second proviso to section 34(3) applied and saved the notice from the limitation objection.

Final Conclusion: The High Court's view was incorrect, the appeal succeeded, and the matter was sent back for consideration of the remaining grounds that had not been heard.

Ratio Decidendi: Where reassessment is issued to give effect to a direction contained in an order of a higher income-tax authority, the second proviso to section 34(3) governs the action and overrides the limitation objection, and the sanction contemplated by clause (iii) of the proviso to section 34(1) is confined to cases within clause (ii) of that proviso.

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