Section 263 revision fails where alleged unrecorded sales are deleted and no basis remains for estimating extra capital employed.

Revision under section 263 could not be sustained where the very basis for the proposed adjustment, namely alleged unrecorded sales and the related profit addition, had already been deleted. Once the turnover itself was held unsustainable, there was no independent legal foundation to estimate additional capital employed or inventory for carrying on that turnover. The revisionary direction therefore lacked support and was set aside in favour of the assessee on that issue.

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Issues: Whether the revisionary order under section 263 of the Income-tax Act, 1961, could survive when the addition relating to alleged unaccounted sales and the consequential profit addition had already been deleted, thereby leaving no legal basis for estimating additional capital employed or inventory for such turnover.

Analysis: The assessment had been revisited only for the limited question of additional capital employed/invested for maintaining minimum stock to carry out alleged unaccounted turnover. However, the coordinate bench had already held in the assessee's own case that the foundation for making additions on account of unrecorded sales stood demolished and that the additions on account of additional net profit from alleged unrecorded sales were liable to be deleted. Once the alleged unaccounted turnover itself was found unsustainable, the supposed requirement of further capital for carrying out that turnover could not be independently sustained. In those circumstances, the revisionary direction lacked legal support.

Conclusion: The revision under section 263 could not be sustained on the issue of estimated additional capital employed for alleged unaccounted turnover, and the order of the Principal Commissioner was set aside on that issue in favour of the assessee.

Ratio Decidendi: Where the very foundation of alleged unrecorded sales is deleted, an of additional capital employed or inventory for carrying on such sales cannot independently justify revision under section 263.

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