Section 263 revisional power upheld for block assessment; belated return and advance tax did not exclude undisclosed income.

Section 263 revisional power can extend to a block assessment under Section 158BC read with Section 143(3) where the order is erroneous and prejudicial to the Revenue. A return filed after search and after the due date does not make the income disclosed therein immune from block assessment merely because advance tax was paid, since advance tax is only an estimate of current income. On freight suppression, deletion of the addition was held unsustainable because the assumption of corresponding unaccounted expenditure was perverse. The deletion of lorry hire charges was sustained under the mercantile system, and the token booking income issue remained remanded for fresh consideration.

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Issues: (i) Whether the Commissioner could invoke revisional jurisdiction under Section 263 of the Income-tax Act, 1961 to set aside the block assessment and whether income shown in a return filed after search but before the block assessment order, together with advance tax payment, could be excluded from undisclosed income. (ii) Whether the deletion of addition for suppression of freight charges and the treatment of lorry hire charges and token booking income in block assessment were legally sustainable.

Issue (i): Whether the Commissioner could invoke revisional jurisdiction under Section 263 of the Income-tax Act, 1961 to set aside the block assessment and whether income shown in a return filed after search but before the block assessment order, together with advance tax payment, could be excluded from undisclosed income.

Analysis: The revisional power under Section 263 extends to any assessment order that is erroneous and prejudicial to the Revenue, including a block assessment made under Section 158BC read with Section 143(3). The Court held that the form of assessment does not limit the Commissioner's power where the record shows an apparent error and failure to apply the correct legal position. On the question of disclosure, the Court applied the later law declared by the Supreme Court that advance tax is only an estimate of current income and does not by itself amount to disclosure of total income. Since the return for the relevant assessment year was filed after the due date and after commencement of search, the income shown therein could not be excluded from the block assessment as disclosed income.

Conclusion: The revision under Section 263 was valid and the belated return and advance tax payment did not take the income outside the block assessment. This issue is decided in favour of the Revenue.

Issue (ii): Whether the deletion of addition for suppression of freight charges and the treatment of lorry hire charges and token booking income in block assessment were legally sustainable.

Analysis: The deletion of the addition for suppression of freight charges based on the assumption that unaccounted receipts must necessarily have corresponding unaccounted expenditure was held to be perverse and legally unsustainable. The Court, therefore, interfered with that deletion. However, the deletion of the lorry hire charges addition was sustained on the footing accepted by the appellate authority and Tribunal that the liability was accounted for under the mercantile system and did not represent undisclosed income. As regards token booking income, the matter stood remanded for fresh consideration and that direction was left undisturbed.

Conclusion: The Revenue succeeded in challenging the deletion of the freight suppression addition, but the deletion of the lorry hire charges addition and the remand on token booking income were sustained. This issue is partly in favour of the Revenue.

Final Conclusion: The assessee's challenge to the revisional order fails, while the Revenue secures relief on the freight suppression issue and succeeds overall in substantially restoring the block assessment, subject to the sustained deletion on lorry hire charges and the remand relating to token booking income.

Ratio Decidendi: A Commissioner may validly invoke Section 263 where a block assessment is erroneous and prejudicial to the Revenue, and a return filed after search and after expiry of the due date does not render the disclosed income immune from inclusion in block assessment merely because advance tax was paid.

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