Section 263 revision limits: possible view after inquiry and merged appellate issues cannot be reopened, but lack of inquiry permits revision.

Section 263 revision was held impermissible where the Assessing Officer had examined the development agreement, possession, consideration and asset character before taking a possible view that no capital gain accrued in the relevant year. Revision was also barred on depreciation because the IT Park building issue had already merged with an appellate order. For the later year, the same depreciation issue remained outside revision for the same reason, but the donation deduction was allowed without proper inquiry, making the assessment erroneous and prejudicial to revenue. Rectification under section 154 did not prevent revision on that issue. The revision was therefore quashed for the capital gains and depreciation matters, but sustained for the donation claim.

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Issues: (i) Whether revision under section 263 of the Income-tax Act, 1961 was valid on the issues of taxability of capital gains arising from the development agreement and allowance of depreciation for the assessment year 2007-08. (ii) Whether revision under section 263 of the Income-tax Act, 1961 was valid on the issue of excess donation deduction and the same depreciation issue for the assessment year 2010-11.

Issue (i): Whether revision under section 263 of the Income-tax Act, 1961 was valid on the issues of taxability of capital gains arising from the development agreement and allowance of depreciation for the assessment year 2007-08.

Analysis: The Assessing Officer had examined the development agreement, the possession and consideration question, and the nature of the asset before concluding that no capital gain accrued in the relevant year. The issue was thus decided after inquiry and on a possible view, so the Commissioner could not invoke section 263 merely because a different view on timing of taxability was possible. On depreciation, the same IT Park building had already been considered in appellate proceedings, and the relevant finding that it was a depreciable asset had merged with the appellate order; the revisionary power could not be used on a matter already considered and decided in appeal.

Conclusion: The revision under section 263 on both the capital gains issue and the depreciation issue for the assessment year 2007-08 was not sustainable and was quashed in favour of the assessee.

Issue (ii): Whether revision under section 263 of the Income-tax Act, 1961 was valid on the issue of excess donation deduction and the same depreciation issue for the assessment year 2010-11.

Analysis: The depreciation issue was identical to the one already decided against revision for the assessment year 2007-08 and was therefore not sustainable for the same reasons. As to the donation deduction, the Assessing Officer had wrongly allowed the claim without proper inquiry, and the error caused prejudice to the revenue. The availability of rectification under section 154 did not bar revision under section 263 where the assessment order was erroneous and prejudicial.

Conclusion: The revision under section 263 was invalid on the depreciation issue but valid on the donation issue, and the matter was restored for fresh examination on the donation claim in favour of the Revenue.

Final Conclusion: The assessee succeeded fully for the assessment year 2007-08 and succeeded partly for the assessment year 2010-11, with the revision sustained only in relation to the donation deduction.

Ratio Decidendi: Section 263 can be invoked only when the assessment order is both erroneous and prejudicial to the interests of the revenue, and it cannot be used to replace a possible view taken after inquiry or to reopen issues already concluded in appeal; where there is lack of inquiry, however, revision is permissible.

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