Section 263 revision fails without clear error-and-prejudice findings and cannot rest on a new section 68 basis.

Revision under section 263 requires a clear jurisdictional finding that the assessment order is both erroneous and prejudicial to the interests of the revenue; a mere statement that the assessee's explanation is unsatisfactory is insufficient. The revisional order was also unsustainable because it relied on section 68 deemed income, which had not been put to the assessee in the show-cause notice. A revision cannot be upheld on a new ground introduced after the notice stage, and the order was therefore set aside.

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Issues: Whether the revision order under section 263 of the Income-tax Act, 1961 was sustainable when the Commissioner did not record a categorical finding that the assessment order was erroneous and prejudicial to the interests of the revenue, and whether the revision could be upheld on a ground based on section 68 of the Income-tax Act, 1961 which was not the basis of the show-cause notice.

Analysis: Revision under section 263 can be exercised only when the Commissioner reaches a clear finding that the assessment order is both erroneous and prejudicial to the interests of the revenue. A mere view that the assessee's explanation is not fully satisfactory does not meet that jurisdictional requirement. The notice stage objection had been explained by the assessee and no infirmity in that explanation was recorded. The revisional order, however, proceeded on the different footing of deemed income under section 68, which had not been put to the assessee in the show-cause notice. A revision order cannot be sustained on a new basis not raised at the notice stage, especially where the Commissioner has not first established the foundational jurisdictional conditions for revision.

Conclusion: The revision order was unsustainable and was set aside. The assessee succeeded.

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