Revisional jurisdiction under Section 263 cannot be used to raise fresh issues beyond limited scrutiny; reassessment quashed.

Revisional jurisdiction under Section 263 was held inapplicable where the assessment was completed after limited scrutiny (CASS) and the revisional authority reopened issues that were outside the defined selection criteria. The legal test requires a clear finding that the original assessment order was erroneous and prejudicial to revenue within the scope of the selection; absent such a finding, substitution of the Assessing Officer's view by taking up fresh issues is impermissible. Consequently, the direction for reassessment on matters beyond the limited scrutiny mandate was set aside and the appeal allowed for the assessee.

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Issues: Whether the revisional jurisdiction under Section 263 of the Income-tax Act, 1961 can be validly exercised where the assessment was completed after limited scrutiny (CASS) and the revisional authority took up issues beyond the original selection criteria.

Analysis: The assessment was selected for limited scrutiny under CASS on specific parameters and the Assessing Officer completed the assessment after verifying records within that mandate. The Principal Commissioner of Income Tax thereafter treated the assessment as erroneous and prejudicial by investigating payments to contractors/labourers that were not within the defined selection criteria and by directing reassessment on those fresh issues. The revisional power under Section 263 must be exercised within the legal limits of the test of the assessment order being both erroneous and prejudicial to the revenue; it does not permit the revisional authority to substitute its own opinion by taking up new issues outside the scope of the limited scrutiny selection without establishing error and prejudice caused by the AO within the selected scope.

Conclusion: The exercise of revisionary jurisdiction under Section 263 is not maintainable in respect of issues that were beyond the limited scrutiny selection criteria; the reassessment direction is therefore set aside and the appeal is allowed in favour of the assessee.

Ratio Decidendi: Section 263 of the Income-tax Act, 1961 cannot be invoked to revise an assessment by taking up fresh issues outside the limited scrutiny selection criteria in the absence of a clear finding that the original assessment order was erroneous and prejudicial to the revenue within the scope of that selection.

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