The twin conditions for exercise of power under section 263 of the Income Tax Act, 1961, must be satisfied, i.e., the assessment order must be erroneous and prejudicial to the interest of the revenue.

K.J. Sengupta, J.

1. THE Judgment of the Court was as follows: THE above appeal was preferred by the appellant against the judgment and order dated 10th February 2006 passed by the Income Tax Appellate Tribunal (D) Bench, Calcutta in ITA (SS) No. 185 Col/ 2004 in the block assessment years 1996-97 to 2001 -02 in so far as the same relate to reconsideration of taxability or otherwise of the sum of Rs. 254,32,93,100 received by the appellant on March 1, 2006. Thus it appears that the appeal is preferred against portion of the judgment and order of the leaned Tribunal by which five several appeals were disposed of. One of the appeals being ITA (SS) 161/Col./2004 was preferred against the order of the Commissioner of Income Tax passed under section 263 of Income Tax Act, 1961, dated 27th November 2006. Above appeal was admitted on the following formulated question of law:

"Whether the learned Tribunal was justified in law in holding that the twin conditions for exercise of the power under section 263 of the Income Tax Act, 1961, in respect of the block assessment order dated November 29, 2002 were satisfied and its purported findings upholding the order of the Commissioner of the Income Tax cancelling the same in reconsideration of taxability or otherwise of the sum of Rs. 254,32,93,100 are arbitrary, unreasonable and perverse?"

2. THE short facts relevant for this appeal, is as follows: THE block assessment of the assessee was completed under section 158B read with section 144 of the Income Tax Act, 1961, (hereinafter referred to as the said Act) on 29th November 2002 for the period 1995-96 to 2001-02. Thereafter the CIT on perusal of the assessment record found that the assessing officer while completing assessment had not taken Into consideration of the assessee's transaction recorded in a small diary which is one of the seized documents bearing identification mark KP-19. In the said document the assessee is said to have recorded cash paid and received a sum of Rs. 254,32,93,100 relating to assessment years 1995-96 to 2001-02. Accordingly a notice was issued on 6th September 2004 asking the assessee to explain receipt of the said amount and also gave chance of personal hearing. Pursuant thereto, the assessee duly appeared and made submission. THE sum and substance of the assessee's case before the CIT was that Assessing Officer had looked into and examined all the books of accounts and documents seized during search period and therefore, there was no occasion to ignore any taxable income. THE CIT did not accept such explanation and having invoked his power under section 263 cancelled the assessment and directed the Assessing Officer to make fresh assessment after examining the cash transaction recorded in seized document KP-19. THE learned Tribunal having considered the submission of both the parties upheld the action of CIT under section 263 so far as the same relates to the total amount of Rs. 254,32,93,100. THE learned Tribunal did not approve of cancellation of the entire order of assessment. Thereafter the Assessing Officer made fresh assessment and necessary order was passed in terms of the direction of the learned Tribunal. In the context of the aforesaid factual position the present appeal is being heard by the Court.

3. DR. Pal learned senior counsel appearing for the assessee/appellant highlighting the facts submits that the order of assessment dated 29th November 2002 made for the block period had already been merged in the order of CIT (A) passed on 2nd August 2004. Hence the CIT had no power, jurisdiction and/or authority to revise the assessment for the block period which is not erroneous. He has drawn our attention in support of this submission, to a Supreme Court decision reported in 34 ITR 130 (SC 134).

4. HIS further contention is that explanation C of section 263 of the aforesaid Act cannot be made applicable. The loss so determined for the relevant period only on the basis of the audit report of the Ch