Revisional jurisdiction and capital gains exemption fail where assessment orders were not communicated and later enquiries enlarged the record.

Section 263 revision is valid only against a communicated and effective assessment order, and cannot be sustained where some assessments were never communicated to the assessees. Revisional action must also rest on the record existing at the time of assessment; material gathered through subsequent enquiries cannot be used to found the jurisdiction. On the merits, capital gains exemption under section 54E could not be denied on the Commissioner's artificial distinction about ownership and investment, where the materials supported the assessees' claim and the property could be treated as part of the family hotchpotch. The revisional orders were therefore unsustainable on both jurisdictional and substantive grounds.

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Issues: (i) whether the Commissioner could validly invoke revisional jurisdiction under section 263 of the Income-tax Act, 1961 when the assessment orders under section 143(3) had not been communicated to some assessees; (ii) whether the revisional order was vitiated because the Commissioner relied on material gathered through further enquiries instead of confining himself to the record existing when the assessment orders were passed; and (iii) whether, on the merits, the capital gains exemption under section 54E of the Income-tax Act, 1961 could be denied on the footing that the compensation and investment did not belong to the assessees in the manner assumed by the Commissioner.

Issue (i): whether the Commissioner could validly invoke revisional jurisdiction under section 263 of the Income-tax Act, 1961 when the assessment orders under section 143(3) had not been communicated to some assessees.

Analysis: An order of assessment must be communicated to the assessee to become effective and enforceable. A revisional power under section 263 can operate only on an order that is valid, effective, and capable of being revised. On the facts, the record and the assessees' correspondence supported the position that in some cases the assessment orders had never been communicated.

Conclusion: The revision was invalid in the cases where no effective assessment order existed, and this contention succeeded in favour of the assessees.

Issue (ii): whether the revisional order was vitiated because the Commissioner relied on material gathered through further enquiries instead of confining himself to the record existing when the assessment orders were passed.

Analysis: Revisional jurisdiction must be exercised on the basis of the record as it stood when the assessment orders were made. Subsequent material or evidence collected through further enquiries cannot furnish the foundation for action under section 263. The Commissioner's notice itself showed reliance on facts obtained through further enquiries, which went beyond the permissible record.

Conclusion: The revisional exercise was invalid on this ground and was against the assessees' challenge to the order.

Issue (iii): whether, on the merits, the capital gains exemption under section 54E of the Income-tax Act, 1961 could be denied on the footing that the compensation and investment did not belong to the assessees in the manner assumed by the Commissioner.

Analysis: The materials showed that the land had the character of ancestral property and that the assessees' version was supported by revenue records, partition-related material, and connected documents. Even if the land were treated as self-acquired property of one coparcener, the property could validly be thrown into the common hotchpotch of the Hindu family. The interpretation adopted by the Commissioner would also produce an artificial and inconsistent application of section 54E, because the same recipient could not be treated differently for receipt and for investment purposes.

Conclusion: The Commissioner was not justified in denying the benefit of section 54E on the facts found, and this issue was decided in favour of the assessees.

Final Conclusion: The revisional orders could not be sustained either on jurisdictional grounds or on merits, and the assessments restored by the Commissioner were set aside.

Ratio Decidendi: Revisional jurisdiction under section 263 can be exercised only on a valid, communicated assessment order and only on the record existing at the time of assessment; an inconsistent or artificial construction that defeats the statutory exemption under section 54E is impermissible.

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