Section 263 revision fails where assessment enquiries exist and no specific error causing revenue prejudice is established.
Section 263 revision requires an assessment order to be both erroneous and prejudicial to Revenue. Explanation 2(a) applies where requisite enquiries are absent but does not permit revision merely because further verification is possible. Where assessment records contain lender confirmations, banking records, creditor ledgers, work-in-progress details and supporting invoices, revision cannot rest on a roving re-enquiry without identifying a specific false, unexplained or defective item. Revenue-recognition and fixed-asset objections cannot support revision when outside the show-cause notice or when no error, taxable accrual, or Revenue prejudice is demonstrated.
Issues: (i) Validity of revisional jurisdiction under Section 263 of the Income-tax Act, 1961 on the alleged absence of enquiry into unsecured loans, trade payables and work-in-progress; (ii) Validity of revision on revenue-recognition and fixed-asset matters not proposed in the show-cause notice.
Issue (i): Validity of revisional jurisdiction under Section 263 of the Income-tax Act, 1961 on the alleged absence of enquiry into unsecured loans, trade payables and work-in-progress.
Analysis: Revision under Section 263 requires the assessment order to be both erroneous and prejudicial to Revenue interests. Explanation 2(a) applies where requisite enquiries have not been made, but does not permit revision merely because further or more elaborate verification was possible. The assessment record contained loan particulars, confirmations, return acknowledgments, lender responses to notices under Section 133(6), banking material, creditor ledgers, work-in-progress details, invoices and supplier ledgers. No particular lender, liability, expenditure or document was identified as non-genuine, false or unexplained. Financial and banking records furnished during revision were also not analysed to establish any specific defect. The material showed enquiry rather than a complete lack of enquiry; revision for an exploratory or roving enquiry was therefore impermissible.
Conclusion: The assessment was not shown to be both erroneous and prejudicial to the interests of Revenue in respect of unsecured loans, trade payables or work-in-progress; invocation of Section 263 on these matters was unsustainable, in favour of the assessee.
Issue (ii): Validity of revision on revenue-recognition and fixed-asset matters not proposed in the show-cause notice.
Analysis: The show-cause notice concerned verification of the source and composition of work-in-progress, whereas the revision order introduced a distinct revenue-recognition objection by proposing proportionate income instead of the consistently followed project-completion method. No examination was undertaken of project completion, contractual terms, accrual of enforceable rights or distortion of profits. Receipt of customer advances and substantial work-in-progress alone did not establish taxable accrual. The fixed-asset source issue was not included in the show-cause notice, and no unexplained source, incorrect capitalisation, inadmissible depreciation or Revenue prejudice was identified.
Conclusion: Revision could not be sustained on the revenue-recognition or fixed-asset matters, as they were either outside the show-cause notice or unsupported by a demonstrated error causing Revenue prejudice, in favour of the assessee.
Final Conclusion: Section 263 does not authorise an exploratory re-examination where the assessment record evidences actual enquiry and supporting material, nor may revision be enlarged beyond the stated show-cause grounds without establishing the statutory conditions.
Ratio Decidendi: Revision under Section 263 is unavailable merely because further enquiry may be possible; where the assessment record demonstrates enquiry, the revisional authority must identify a specific error causing prejudice to Revenue and cannot direct a roving re-enquiry.