Section 263 revision fails where revenue prejudice is absent and reassessment scope cannot be expanded to new issues.

Section 263 revision requires the assessment order to be both erroneous and prejudicial to the interests of the revenue. On the jointly held property issue, any increase in one co-owner's sale consideration would be offset by a corresponding reduction in the other co-owner's hands, leaving the tax base unchanged and defeating the prejudice requirement. On the section 54B issue, revision could not extend to a matter outside the reasons for reopening under section 147 or the reassessment proceedings. The revisionary order was therefore quashed, with the findings on both issues in favour of the assessee.

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Issues: (i) Whether revision under section 263 could be sustained on the ground that the assessee's share in the sale consideration of jointly held property was wrongly taken, when the corresponding enhancement in one co-owner's hands would neutralise the revenue effect. (ii) Whether revision under section 263 could be made on the deduction claimed under section 54B when that issue did not arise in the reassessment initiated under section 147.

Issue (i): Whether revision under section 263 could be sustained on the ground that the assessee's share in the sale consideration of jointly held property was wrongly taken, when the corresponding enhancement in one co-owner's hands would neutralise the revenue effect.

Analysis: The twin conditions for invoking section 263 must coexist, namely that the assessment order is both erroneous and prejudicial to the interests of the revenue. On the facts, even if the assessee's share in the sale consideration was required to be increased, the co-owner's corresponding share would necessarily stand reduced, leaving the total tax base unchanged. Since no additional prejudice to the revenue arose, the revisionary jurisdiction could not be sustained on this issue.

Conclusion: The revision under section 263 was not sustainable on the capital-gains share issue and the finding was in favour of the assessee.

Issue (ii): Whether revision under section 263 could be made on the deduction claimed under section 54B when that issue did not arise in the reassessment initiated under section 147.

Analysis: Reassessment under section 147 is founded on the reasons recorded by the Assessing Officer, though the Assessing Officer may examine other escapements noticed in the course of that proceedings. The Principal Commissioner cannot enlarge the scope of the reassessment by introducing a new issue not forming part of the reopening reasons or the reassessment proceedings. As the deduction under section 54B was outside the reassessment controversy, the Principal Commissioner exceeded jurisdiction in revising the assessment on that ground.

Conclusion: The revision under section 263 on the section 54B issue was unsustainable and the finding was in favour of the assessee.

Final Conclusion: The revisionary order was quashed because neither alleged defect furnished a valid basis for exercise of section 263 jurisdiction.

Ratio Decidendi: Section 263 can be invoked only when the assessment order is simultaneously erroneous and prejudicial to the interests of the revenue, and revisionary jurisdiction cannot be used to enlarge the scope of a reassessment by introducing an issue not forming part of the reassessment proceedings.

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