Section 263 revision survives for issues not considered in appeal, despite partial appellate scrutiny of the assessment order.

The retrospective Explanation to section 263 of the Income-tax Act enlarges revisional power where an assessment order has been appealed only in part. Matters in the assessment that were not considered or decided by the appellate authority do not merge with the Commissioner (Appeals) order, so revision can still be exercised over those items. On that basis, the three disputed items, not raised in the assessee's appeal, remained open to revision under section 263, and the issue was decided in favour of the Revenue.

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Issues: Whether the assessment order, in respect of the three items not raised in the assessee's appeal, had merged with the order of the Commissioner (Appeals) so as to bar revision under section 263 of the Income-tax Act, 1961.

Analysis: The amended Explanation to section 263, inserted by the Finance Act, 1989 with retrospective effect, declares that where an assessment order has been the subject-matter of an appeal, the Commissioner's revisional power extends to matters not considered and decided in that appeal. The three disputed items were not the subject of the assessee's appeal and were not considered or decided by the appellate authority. Therefore, the doctrine of merger could not exclude revisional jurisdiction over those items.

Conclusion: The Commissioner retained jurisdiction under section 263 over the three items, and the question was answered in the negative, in favour of the Revenue and against the assessee.

Ratio Decidendi: Under the retrospective Explanation to section 263, revision remains available in respect of matters forming part of an assessment order that were not considered and decided in the appeal, notwithstanding partial appellate scrutiny of the order.

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