Section 263 revision requires both error and revenue prejudice; inadequate enquiry can justify revisional interference.

Revision under section 263 of the Income-tax Act is sustainable only when the assessment order is both erroneous and prejudicial to the interests of the Revenue. A lack of proper enquiry may make an assessment erroneous, but prejudice must still be shown. Where the assessee failed to produce cogent material for the surrendered amounts, the unreversed factual finding that the assessments were prejudicial to revenue justified revision. A surrendered amount does not lose taxability merely because it was brought to tax in the assessee's hands; acceptance without enquiry can still prejudice the Revenue if the amount was not genuinely assessable there.

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Issues: Whether the Commissioner could validly invoke section 263 of the Income-tax Act, 1961 on the basis that the assessment orders were erroneous and prejudicial to the interests of the Revenue.

Analysis: For revision under section 263, both conditions must coexist, namely that the assessment order is erroneous and that it is prejudicial to the interests of the Revenue. The absence of proper enquiry by the assessing authority may render an order erroneous, but prejudice to revenue must also be established. On the facts found by the Tribunal, the assessee produced no cogent material to support the explanation for the surrendered amounts, and the Tribunal recorded an unreversed finding that the assessment orders were prejudicial to the interests of the Revenue. A surrendered amount does not cease to be taxable merely because it was brought to tax in the assessee's hands; if the amount was not genuinely assessable in her hands, acceptance without enquiry could still prejudice revenue.

Conclusion: The invocation of section 263 was valid. The question was answered in favour of the assessee and against the Revenue, upholding the Tribunal's view that the assessment orders were erroneous and prejudicial to the interests of the Revenue.

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