Section 263 revision fails where the Assessing Officer made enquiries and adopted a possible view on royalty and deduction claims.

Revision under section 263 was held unsustainable because the Assessing Officer had examined the royalty expenditure and section 80HHC computation during reassessment and had adopted a permissible view on the material before him. The assessee had explained the contractual basis of the royalty claim, the timing of payment, and deduction of tax at source, so the record did not show an assessment made without enquiry. The alleged arithmetic error in the section 80HHC working was also not established, and no clear error prejudicial to the Revenue was demonstrated. The assessment order was restored and the revisional order set aside.

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Issues: Whether revision under section 263 of the Income-tax Act, 1961 was justified on the grounds that the Assessing Officer had wrongly allowed royalty expenditure relating to earlier years and had incorrectly computed deduction under section 80HHC.

Analysis: The assessment record showed that both issues had been examined during the reassessment proceedings. The assessee had furnished detailed explanations for the royalty payment, including the contractual basis, the restraint on payment by the financial institution, the later permission to pay the arrears, and the claim that tax was deducted in the year of payment so that deduction was allowable under section 40(a)(i). On these materials, the Assessing Officer had taken a possible view while allowing the expenditure, and the record did not support the finding that the claim had been accepted without enquiry. As to section 80HHC, the computation was specifically considered in assessment and the supposed arithmetic error identified in revision was not substantiated. The revisional order did not establish a clear mistake in the computation or demonstrate prejudice to the Revenue on the basis of the material already on record.

Conclusion: The revisionary assumption of jurisdiction under section 263 was not sustainable; the order of assessment could not be revised on the stated grounds.

Final Conclusion: The assessment order was restored and the revisional order was set aside because the Assessing Officer had adopted a permissible view after considering the relevant issues and no revisable error prejudicial to the Revenue was shown.

Ratio Decidendi: An order cannot be revised under section 263 where the Assessing Officer has made enquiries and adopted a possible view, and the Commissioner fails to demonstrate both an error in the assessment and resulting prejudice to the Revenue.

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