Judgment :- Balanarayana Marar, J. At the instance of the Revenue, the Income-tax Appellate Tribunal, Cochin Branch has referred the following question of law for the decision of this Court: "Whether, on the facts and in the circumstances of the case, and also on an interpretation of the revisional order, the assessee is entitled to claim deduction of the cost of improvement in respect of an asset (the capital gains arising on the sale had been considered in the original assessment) in :he reassessment pursuant to the order of the Commissioner under S.263 of 1 is Income-tax Act, 1%1". 2. Deceased first respondent, whose legal representatives are respondents 2 and 3 herein is an assessee to income-tax. The relevant assessment year is 1976-77. In the original assessment completed on 25-2-1977 the Income-tax officer did not include the c; piial gains arising out of transfer of 2000 shares in M/s. Nirlon Synthetic Fibres & Chemicals Ltd. to a firm called M/s. Laxmi Ram in which the assessee was a partner. The Commissioner of Income-tax acting under S.263 of the Income-lax Act held that the Income-tax Officer erred in failing to bring to tax the capital gains arising out of this transaction. The order of the Income-tax Officer was set aside with a direction to make a fresh assessment. 3. A revised return was filed by the assessee on 20-1-1981 wherein he claimed deduction of an amount of Rs. 75,198/- towards cost of improvements in respect of a sale of a property in Courlallam. This claim was not put forward at the time of the original assessment. The Income-tax Officer rejected the claim on the ground that it was not put forward earlier and also on the further ground that the original assessment order was set aside in revision for the limited purpose of computing the capital gains on the sale of shares to the partnership firm. Revised assessment was made on 21-3-1981 wherein the value of the shares transferred was fixed at Rs. 544/- per share by invoking the provisions of S.52(2) of the Income-tax Act and the capital gains arising out of that transaction was worked out at Rs. 9,02,810/-. On appeal, the Commissioner of Income-tax (Appeals) held that the provisions of S.52(2) could not invoked and relief was granted to the extent of Rs, 5,88,000/-. 544/- per share by invoking the provisions of S.52(2) of the Income-tax Act and the capital gains arising out of that transaction was worked out at Rs. 9,02,810/-. On appeal, the Commissioner of Income-tax (Appeals) held that the provisions of S.52(2) could not invoked and relief was granted to the extent of Rs, 5,88,000/-. It was further found that the assessee was entitled to claim the deduction towards cost of improvements in respect of the property at Courtallam. The Commissioner of Income-tax (Appeals) set aside the assessment for recomputing the capital gains and for making the deduction claimed by the assessee. The matter was carried in second appeal to the Appellate Tribunal. The Tribunal held that the assessment having been set aside by the Commissioner on the earlier occasion the assessee was well within his rights to agitate a claim that was not made in the original assessment. It was observed that the original assessment has become nonest on lite passing of the order by the Commissioner under S.263. The appeal by the revenue was dismissed by the Tribunal upholding the order of the Commissioner. It is in these circumstances that the question aforementioned has been referred to his Court. 4. Heard counsel. 5. The main argument advanced by the learned counsel for llic :vvcnuc is that the Commissioner acting under S.263 of the Income-tax Act by his order dated 22-2-1979 has only directed the assessing officer to make a fresh assessment after giving an opportunely to the assessee to place before the Income-tax Officer whatever materials he wishes to place in regard to the question relating to the taxation of capital gains indicated in that order. It is seen mentioned therein that the shares owned by the assessee have been transferred to the firm in lieu of his capital contribution and on the facts of the case there is a transfer of capital asset within the meaning of S.2(47). The contention is that the Income-tax Officer should have made a reassessment in the light of the order of the Commissioner and deduction of Rs. 75,lJ 98/- towards cost of improvements in respect of a sale of the property in Courtallam should not have been allowed. The claim made by the assessee. The contention is that the Income-tax Officer should have made a reassessment in the light of the order of the Commissioner and deduction of Rs. 75,lJ 98/- towards cost of improvements in respect of a sale of the property in Courtallam should not have been allowed. The claim made by the assessee. was rejected by the Income-tax Officer on the ground that the earlier assessment was set aside for the limited purpose of computing capital gains on the transfer of shares to the partnership firm. On appeal the Commissioner of Income-tax (Appeals) - first appellate authority - found that the deduction to be admissible for the reason that the claim now made is a deduction in computing the capital gains though not in respect of the assets considered by the Commissioner of Income-lax in revision. The deduction claimed relates to the expenditure inclined by the assessee for laying roads and other developmental activities in respect of some land at Courlallam. The Commissioner observed that the amount claimed is a portion of the total expenditure and is calculated in proportion to the area sold as compared to the total area of the land held by the appellant. 6. The Income-tax Appellate Tribunal has considered the mailer in detail and found that the assessee was well within his rights to claim deduction of that amount. On hearing counsel for the revenue we see no error in the order of the Tribunal. 7. S.263 of the Income-tax Act enables the Commissioner to call for and examine the record of any proceeding wider assessing officer is erroneous in so far as it is prejudicial to the interest of the revenue he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary pass such order thereon as the circumstances of the case justify including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. Power is therefore given to the Commissioner to suo motu revise the order of the assessing authority, if the order is erroneous and the order has resulted in prejudice to the interest of the revenue. While revising the order the Commissioner may cancel the assessment and direct a fresh assessment. Power is therefore given to the Commissioner to suo motu revise the order of the assessing authority, if the order is erroneous and the order has resulted in prejudice to the interest of the revenue. While revising the order the Commissioner may cancel the assessment and direct a fresh assessment. S.264 also confers a power on the Commissioner to call for the records of any proceeding under (his Act and pass such order thereon as he thinks fit, either of his own motion or on an application by the assessee for revision. But an order passed under that section should not he an order prejudicial to She assessee. On the other hand, an order passed under S.263 can be one prejudicial to the assessee. The enhancement or modification of the assessment or cancellation of the same is contemplated under S.263 only when the order of the assessing authority is prejudicial to the interest of the revenue. 8. There has not been any appeal against the earlier order of assessment. The Commissioner in exercising the revisional powers under S.263 can either enhance or modify or cancel the assessment and direct a fresh assessment to be made. In this case, the Commissioner by order dated 22-2-1979 passed under S.263 of the Act had set aside the earlier assessment and the Income-tax Officer was directed to make a fresh assessment after giving an opportunity to the assessee to place before the I.T.O. whatever materials he wishes to place in regard to the question relating to the taxation of capital gains indicated in that order. Learned counsel for the revenue would contend that the assessing authority has only to consider the aspects indicated in she order which did not relate to the expenses incurred in connection with the property at Courlallain. ft is therefore contended that the deduction of that amount was not made in accordance with the direction of the Commissioner; It is his contention that the assessing authority was bound to confi nc the enquiry within the four corners of that order and was not competent to entertain other claims. 9. The question therefore to be considered is whether the assessing authority has power to entertain the claim when the entire assessment has been set aside or annuled and a direction has been given to make a fresh assessment. 9. The question therefore to be considered is whether the assessing authority has power to entertain the claim when the entire assessment has been set aside or annuled and a direction has been given to make a fresh assessment. When the Commissioner has cancelled the order and has directed a fresh assessment to be made the entire assessment is before the Officer. He is within his powers to consider all claims - even the one not taken up earlier. The entire matter is afresh before the assessing authority and all relevant aspects should be considered by him while making the assessment a fresh. The position will be different if the assessing authority has been directed to make only an assessment following some directions issued by the Commissioner. That the assessee was given an opportunity to place before the Income-tax Officer all materials regarding the question relating to taxation of capital gains indicated in the order does not by itself restrict the powers of the assessing authority while making a fresh assessment. The entire a & sesapacnt had been cancelled and the direction was to make a fresh assessment. The Commissioner of Income-tax (Appeals) was therefore right in observing that the assessee is legitimately entitled to claim the deduction. No error has therefore been committed by the Tribunal in upholding the order of the Commissioner (Appeals). For the aforesaid reasons the question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the revenue. A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.