Section 263 revision fails where Rule 8D was inapplicable and the Assessing Officer had taken a plausible view.

Section 263 revision requires the assessment order to be both erroneous and prejudicial to the interests of the Revenue. The Commissioner could not invoke revision merely because section 14A read with Rule 8D was not applied where Rule 8D was not applicable to the relevant assessment year. Revision was also impermissible where the assessee had made a reasonable disallowance, the return was accepted in scrutiny, and no material showed non-application of mind by the Assessing Officer. A plausible view taken by the Assessing Officer could not be revised simply because the Commissioner preferred another line of authority.

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Issues: Whether the Commissioner was justified in invoking section 263 of the Income-tax Act, 1961 and setting aside the assessment on the ground that the Assessing Officer had not applied section 14A read with Rule 8D of the Income-tax Rules, 1962 while dealing with exempt dividend income.

Analysis: Revision under section 263 can be sustained only if the assessment order is both erroneous and prejudicial to the interests of the Revenue. Where Rule 8D was not applicable to the assessment year concerned, the Commissioner could not treat non-application of that rule as the basis for revision. The order also could not be revised merely because the Commissioner preferred one line of authority over another when the assessee had made a reasonable disallowance on its own and the Assessing Officer had accepted the return in a scrutiny assessment. In the absence of material showing non-application of mind by the Assessing Officer, the order could not be branded as erroneous.

Conclusion: The invocation of section 263 was not justified, and the revisionary order was unsustainable.

Ratio Decidendi: An assessment order cannot be revised under section 263 merely because the Commissioner disagrees with the Assessing Officer's plausible view, particularly where the statutory basis relied upon for revision is inapplicable to the assessment year and no material shows lack of application of mind.

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