Revisional jurisdiction under section 263 cannot be used to add unrelated interest income when reopening issue was accepted.

Revisional jurisdiction under section 263 cannot be invoked to direct inquiry and additions on income (interest) that was not included in the original section 148 notice where the Assessing Officer accepted the assessee's explanation on the reopening reason and made no addition. The twin conditions for exercise of section 263 (order erroneous and prejudicial to revenue) and the limits imposed by Explanation 3 to section 147 require that other income discovered during reassessment may be assessed only if the income that prompted reopening remains part of the reassessed income or a fresh valid notice is issued; absent that, the revisional direction is unsustainable.

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Issues: Whether the Principal Commissioner of Income Tax validly exercised jurisdiction under section 263 of the Income-tax Act, 1961 to set aside the reassessment order and direct fresh inquiry in respect of interest income not included in the scope of the original notice under section 148.

Analysis: The appeal concerns reassessment proceedings initiated by notice under section 148 for a specific issue (purchase of immovable property) and the acceptance of the assessee's explanation on that issue in the assessment passed under section 143(3) read with section 147. The question is whether, in such circumstances, the revenue (or the Principal Commissioner) can invoke section 263 to revise the assessment by directing inquiry and addition on an unrelated item of income (interest income) which was not part of the reason for reopening. The legal framework includes the twin conditions for exercise of section 263 (that an order is erroneous and prejudicial to the interests of revenue) and the limits on reassessment under section 147 as explained by Explanation 3 thereto, which permits bringing to tax other income discovered during reassessment proceedings only when the income which led to the reopening remains part of the reassessed income. Authorities and principles relied on establish that where the issue giving rise to reopening is accepted and no addition is made on that issue, neither the Assessing Officer nor the appellate revisional authority may independently make additions on other issues without issuing a fresh notice for reopening.

Conclusion: The Principal Commissioner's exercise of jurisdiction under section 263 to direct inquiry and potential addition of the interest income (which was not included in the section 148 notice and on which no addition was made in reassessment) is not sustainable. The revisional order is not confirmable and the assessee's appeal is allowed.

Ratio Decidendi: Where a reassessment under section 147 is initiated for a specific reason and the Assessing Officer accepts the assessee's explanation on that reason (resulting in no addition on that issue), the Assessing Officer or revisional authority cannot lawfully make additions on other issues not covered by the original section 148 notice; other income discovered can be assessed only if the original escaped income remains part of the reassessed income or a fresh valid notice is issued.

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