Section 263 revision fails when based on wrong factual assumptions, especially where settlement disclosures are not incriminating search material.

Revision under Section 263 is described as unsustainable where it rests on the incorrect factual assumption that the assessee failed to intimate its settlement application through Form No. 34BA under Section 245C(4). For years assessed under Section 153C, the note states that completed assessments can be disturbed only on the basis of incriminating material found during search, and an estimated disclosure made before the Settlement Commission is not, by itself, such incriminating seized material. For a regular assessment under Section 143(3), the same premise also fails if the intimation was in fact furnished and no other assessment error is identified. On that basis, the revision orders, consequential fresh assessments, and related appellate orders are stated to lack legal foundation.

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Issues: (i) Whether revision under Section 263 of the Income-tax Act, 1961 was valid for the assessment years governed by Section 153C where the Principal Commissioner proceeded on the footing that the assessee had not intimated its settlement application and that the additional income disclosed before the Settlement Commission ought to have been acted upon by the Assessing Officer; (ii) Whether revision under Section 263 was valid for the regular assessment year under Section 143(3) on the same premise that no intimation of the settlement application had been furnished.

Issue (i): Whether revision under Section 263 of the Income-tax Act, 1961 was valid for the assessment years governed by Section 153C where the Principal Commissioner proceeded on the footing that the assessee had not intimated its settlement application and that the additional income disclosed before the Settlement Commission ought to have been acted upon by the Assessing Officer.

Analysis: The record showed that the assessee had furnished intimation in Form No. 34BA in compliance with Section 245C(4) of the Income-tax Act, 1961 on the date of filing the settlement application. The foundation adopted for invoking Section 263, namely that no such intimation had been given to the Assessing Officer, was therefore factually incorrect. For the two years assessed under Section 153C, the original returns had already attained finality and the permissible scope of assessment was confined to incriminating material found during search. The disclosure made in the settlement application was only an estimated disclosure made for settlement purposes and could not, by itself, be treated as seized incriminating material for making additions in proceedings under Section 153C.

Conclusion: The revision orders for the Section 153C years were unsustainable and were decided in favour of the assessee.

Issue (ii): Whether revision under Section 263 was valid for the regular assessment year under Section 143(3) on the same premise that no intimation of the settlement application had been furnished.

Analysis: The same factual basis adopted for revision failed for this year as well because the assessee had in fact furnished Form No. 34BA. The revisional action rested only on that incorrect factual premise and no other error in the assessment order was identified. Although information available to the Assessing Officer in a regular assessment could in principle be considered, the estimated disclosure before the Settlement Commission did not justify revision when the assumption that it had not been disclosed to the Assessing Officer was itself wrong.

Conclusion: The revision order for the regular assessment year was also unsustainable and was decided in favour of the assessee.

Final Conclusion: Since the assumption underlying the revisional exercise was factually wrong, the Section 263 orders could not stand; as a result, the consequential fresh assessments and the appellate orders arising from those revision orders also lost their legal basis.

Ratio Decidendi: Revision under Section 263 of the Income-tax Act, 1961 cannot be sustained where it is founded on an incorrect assumption of fact that the assessee failed to intimate its settlement application under Section 245C(4), and in a completed assessment under Section 153C, a disclosure made before the Settlement Commission is not by itself incriminating seized material justifying addition.

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