Revisional power under income-tax law requires a reasoned finding of error and prejudice, not a mere remand for further inquiry.

Section 263 revision requires the Commissioner to independently record a reasoned finding that the assessment order is both erroneous and prejudicial to the interests of Revenue before exercising revisional power. A mere mismatch between audit forms, or a possible clerical or typographical discrepancy, does not by itself justify setting aside an assessment for fresh inquiry. The governing principle is that revision cannot be used to direct the Assessing Officer to decide whether the order is erroneous; a clear jurisdictional foundation must first be established. On these facts, the revision was held unsustainable and quashed in favour of the assessee.

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Issues: Whether the revisionary order under section 263 of the Income-tax Act, 1961, could be sustained where the Commissioner treated a mismatch in audit forms as a basis for revising the assessment without independently recording that the assessment order was erroneous and prejudicial to the interests of Revenue.

Analysis: The assessment had been completed under section 143(3) of the Income-tax Act, 1961, and the Commissioner invoked section 263 on the footing that there was a discrepancy between the figures in the audit report and the tax audit documents. The assessee furnished an explanation that the discrepancy was only a clerical or typographical error. The Tribunal found that this explanation had not been properly dealt with and that the Commissioner had proceeded to set aside the assessment for fresh inquiry without first establishing, on reasons recorded, that the assessment order was unsustainable in law. Applying the governing principle that section 263 cannot be used to direct the Assessing Officer to decide whether the order is erroneous, the Tribunal held that a finding of error and prejudice is a jurisdictional precondition. A mere possibility of further inquiry, or a debatable issue on the adequacy of inquiry, is not enough to sustain revision in the absence of a clear and reasoned conclusion that the assessment order is erroneous and prejudicial to the Revenue.

Conclusion: The revision under section 263 was not sustainable and was quashed in favour of the assessee.

Final Conclusion: The assessment revision was held to be beyond jurisdiction because the Commissioner had remanded the matter without first recording the mandatory finding required for exercise of revisional power.

Ratio Decidendi: Section 263 can be invoked only when the Commissioner independently records a reasoned finding that the assessment order is both erroneous and prejudicial to the interests of Revenue; it cannot be used to send the matter back for fresh inquiry in the absence of such a finding.

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