Section 263 revision fails where enquiry was made and the adopted view was plausible on business loss and exempt-income disallowance.

Revisional jurisdiction under section 263 is confined to assessments that are both erroneous and prejudicial to the Revenue, so it cannot be used merely because a different view is possible after the Assessing Officer has already examined the issue. On the loss from sale of Government securities, the note states that the securities were current investments sold before maturity and the resulting loss was treated as business loss, making revision unjustified. On exempt-income disallowance, the investments were shown to have come from interest-free funds and Rule 8D was not applicable retrospectively, so further revision was again unwarranted.

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Issues: (i) Whether the revisionary order under section 263 of the Income-tax Act, 1961 was sustainable when the Assessing Officer had made enquiries on the claim of loss on sale of Government securities and treated the loss as business loss; (ii) Whether section 263 could be invoked on the footing that section 14A of the Income-tax Act, 1961 and Rule 8D of the Income-tax Rules, 1962 required further disallowance in respect of exempt income.

Issue (i): Whether the revisionary order under section 263 of the Income-tax Act, 1961 was sustainable when the Assessing Officer had made enquiries on the claim of loss on sale of Government securities and treated the loss as business loss.

Analysis: The assessment record showed specific queries by the Assessing Officer and a reply by the assessee. The securities were held as current investments and were sold before maturity. In that situation, the true character of the transaction was that of stock-in-trade in a banking business, and the resulting loss was a business loss rather than a capital loss. An order cannot be branded erroneous merely because the revisional authority prefers a different view where the Assessing Officer has already applied his mind to the issue.

Conclusion: The revision on this issue was not justified and the finding was in favour of the assessee.

Issue (ii): Whether section 263 could be invoked on the footing that section 14A of the Income-tax Act, 1961 and Rule 8D of the Income-tax Rules, 1962 required further disallowance in respect of exempt income.

Analysis: The assessee demonstrated that the investments yielding exempt income were made out of interest-free funds. For the relevant assessment year, Rule 8D was not applicable retrospectively. On the facts found, no adequate basis existed to hold that the assessment order was erroneous and prejudicial to the interests of the Revenue merely because the revisional authority expected a fresh disallowance exercise under section 14A.

Conclusion: The revision on this issue was not justified and the finding was in favour of the assessee.

Final Conclusion: The revisional order under section 263 was quashed and the assessee succeeded on all substantial grounds.

Ratio Decidendi: Revisional jurisdiction under section 263 can be exercised only when the assessment order is both erroneous and prejudicial to the interests of the Revenue, and a revision is not warranted where the Assessing Officer has applied his mind to the issue and the view taken is a permissible one on the facts and law applicable.

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