Revision under section 263 requires clear error and prejudice; tentative suspicion and mere enquiry directions are not enough.

Section 263 revision requires a clear finding that the assessment order is both erroneous and prejudicial to the Revenue; a tentative view that matters were "apparently" not examined is insufficient. A revision order that merely directs further enquiry, without identifying a jurisdictional defect or legal error in the assessment, amounts to an impermissible fishing and roving exercise. On the facts, the assessee was entitled only to its share of surplus from the share premium suspense account, and the return disclosed United Kingdom tax residence with income offered under the treaty rate. In those circumstances, the assessment could not be treated as erroneous for lack of enquiry, and the revisionary invocation failed.

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Issues: Whether the revisionary order under section 263 of the Income-tax Act, 1961 was valid when the Commissioner had not recorded a clear finding that the assessment order was erroneous and had proceeded on a tentative assumption that certain matters had not been examined; and whether the assessment could be revised on the footing that the interest income was taxable on a gross basis notwithstanding the assessee's claim under the India-UK tax treaty and the nature of the income as its share in surplus from a share premium suspense account.

Analysis: The revisionary power under section 263 requires a finding that the assessment order is erroneous and prejudicial to the interests of the Revenue. A mere suspicion that some aspects were "apparently" not considered is not enough. The Commissioner gave no reasons showing how the assessment was erroneous in law, and the order effectively directed a fresh enquiry without identifying a jurisdictional defect. Such a course amounts to a fishing and roving exercise, which is impermissible in revision. On the merits as well, the assessee was entitled only to its share of the surplus arising from the share premium suspense account, and not to the underlying interest on securities as such. The return also disclosed that the assessee was a United Kingdom tax resident and had offered the income in terms of the treaty rate. In those circumstances, the assessment could not be branded erroneous for want of enquiry.

Conclusion: The invocation of section 263 was invalid, and the assessee succeeded.

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