Section 263 jurisdiction must be tested on existing material, not later assessment orders, and the appeal was remanded

The revisional order under section 263 had to be judged only on the material existing when that order was made, so the Tribunal could not rely on a later assessment order passed pursuant to the revisional direction to justify the original assumption of jurisdiction. A hindsight-based review of the revisional action was impermissible where the validity of section 263 itself was under challenge. The impugned order was quashed and the Tribunal was directed to hear the appeal afresh; the question was answered in favour of the assessee and against the revenue.

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Issues: Whether the Tribunal could rely upon an assessment order passed after the revisional order under section 263 of the Income-tax Act, 1961, while deciding the challenge to the very invocation of revisional jurisdiction, and whether the appeal required a de novo hearing.

Analysis: The revisional order under section 263 had to be tested on the basis of the material and circumstances existing on the date on which that order was passed. The subsequent assessment order, passed pursuant to the revisional direction, could not be used to justify the correctness of the original exercise of jurisdiction under section 263. Reliance on such later assessment proceedings introduced a hindsight-based approach into the jurisdictional inquiry and was impermissible when the validity of the revisional action itself was under challenge.

Conclusion: The Tribunal was not entitled to rely on the later assessment order for deciding the legality of the revisional assumption of jurisdiction; the impugned order was quashed and the appeal before the Tribunal was directed to be heard afresh. Question D was answered in favour of the assessee and against the revenue.

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