Section 263 revision fails where the assessment followed enquiry and a permissible view, despite audit objections and differing opinion.

Revision under section 263 is not justified where the Assessing Officer has raised specific queries, examined the deduction under section 80IC, disallowance under section 14A and depreciation on electric installations, and then adopted a permissible view on the material before him. A Commissioner cannot revise an assessment merely because a different view is possible, the enquiry could have been more elaborate, or audit objections suggest another appreciation of the same facts. The twin requirements of error and prejudice to the Revenue must both be established; on these facts, they were not, so the revisional orders were unsustainable and the original assessments stood restored.

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Issues: (i) whether revision under section 263 of the Income-tax Act, 1961 was justified in respect of deduction under section 80IC of the Income-tax Act, 1961, disallowance under section 14A of the Income-tax Act, 1961, and depreciation on electric installations; (ii) whether the assessment order was erroneous and prejudicial to the interests of the Revenue.

Issue (i): whether revision under section 263 of the Income-tax Act, 1961 was justified in respect of deduction under section 80IC of the Income-tax Act, 1961, disallowance under section 14A of the Income-tax Act, 1961, and depreciation on electric installations.

Analysis: The assessment records showed that the Assessing Officer had raised specific queries and examined the deduction under section 80IC in detail, including the claim of substantial expansion, the nature of the unit's activities, allocation of expenses, and the effect of the earlier year's allowance. The material on record also showed examination of the disallowance under section 14A with reference to the assessee's computations and Rule 8D, and consideration of the depreciation claim on the relevant installations. The revision was founded substantially on a different appreciation of the same material and on audit objections, but the record did not establish a case of absence of enquiry or unsustainable view.

Conclusion: The revision on these issues was not justified and the assessee succeeded.

Issue (ii): whether the assessment order was erroneous and prejudicial to the interests of the Revenue.

Analysis: An order can be revised only where both error and prejudice are established. Where the Assessing Officer adopts one of the possible views after enquiry, the Commissioner cannot invoke section 263 merely because a different view is possible or because the enquiry could have been more elaborate. On the facts, the Assessing Officer had made enquiries, applied mind to the relevant material, and taken a plausible view on the claims in question. Reliance on audit objections could not by itself sustain revision.

Conclusion: The twin conditions for revision under section 263 were not satisfied.

Final Conclusion: The revisional orders were unsustainable, the original assessments were restored, and both appeals were disposed of in favour of the assessee.

Ratio Decidendi: Revision under section 263 is impermissible where the Assessing Officer has made enquiries and adopted a permissible view, because a mere difference of opinion, inadequate enquiry, or audit objection does not by itself make the assessment order erroneous and prejudicial to the interests of the Revenue.

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