Section 263 revision requires error and prejudice; adverse findings without notice or enquiry cannot survive.

Revision under section 263 was held unsustainable where the assessment record showed repeated enquiry into cash deposits, cash sales, festive-period sales, books, stock, VAT returns and creditor balances, and the assessee had filed detailed replies with supporting material; the revision also failed to show how the assessment order was both erroneous and prejudicial to Revenue, especially where the issue appeared driven by an audit objection. A further adverse finding on sundry creditors could not stand because that matter was not covered in the show-cause notice and no specific opportunity was given, amounting to a natural justice breach. The revisional order was set aside and the assessment order restored.

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Issues: (i) Whether revision under section 263 of the Income-tax Act, 1961 was validly invoked in respect of the cash sales and PMGKY-related disclosure. (ii) Whether the revision order could be sustained on the alleged non-verification of sundry creditors when that matter was not covered in the show-cause notice and no opportunity was given.

Issue (i): Whether revision under section 263 of the Income-tax Act, 1961 was validly invoked in respect of the cash sales and PMGKY-related disclosure.

Analysis: The assessment record showed repeated enquiries by the Assessing Officer on cash deposits, cash sales, sales during the relevant festive period, books of account, stock, VAT returns, and creditor balances. The assessee had furnished detailed replies and supporting material, and the Additional CIT had also issued binding directions under section 144A after considering the PMGKY disclosure and the surrounding facts. The revisional order did not demonstrate how the assessment order was erroneous in law or prejudicial to the Revenue on this issue, and the revision appeared to rest substantially on an audit objection rather than on an independent finding of error.

Conclusion: Revision under section 263 was not sustainable on the cash sales and PMGKY issue and the finding was in favour of the assessee.

Issue (ii): Whether the revision order could be sustained on the alleged non-verification of sundry creditors when that matter was not covered in the show-cause notice and no opportunity was given.

Analysis: The show-cause notice under section 263 did not raise the issue of sundry creditors, and nothing on record showed that the assessee was given a specific opportunity during the revision proceedings to explain that matter. Since an adverse finding was recorded without prior notice on that issue, the order suffered from violation of natural justice. In these circumstances, it was unnecessary to examine further whether the Assessing Officer had already verified the creditors during assessment.

Conclusion: The finding on sundry creditors could not be sustained and was in favour of the assessee.

Final Conclusion: The revisional order was set aside and the assessment order was restored, resulting in allowance of the appeal.

Ratio Decidendi: Section 263 can be invoked only when the assessment order is both erroneous and prejudicial to the interests of the Revenue, and where the assessment has been made after substantial enquiry, binding subordinate directions, and no independent finding of error is recorded, revision is not justified; an adverse revisional finding on a new issue without prior notice also cannot stand.

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