Revision under Section 263: Commissioner can order fresh adjudication where deduction was allowed without AO's enquiry; hearing required.

Revision under Section 263 addresses whether an assessment became erroneous and prejudicial to revenue by allowing a large business loss without enquiry. The tribunal applied the principles requiring the assessing officer to record application of mind and to distinguish business loss from bad and doubtful debts, and found the AO made no enquiry before allowing adjustments partly from statutory reserve and opening balances. On that basis the Commissioner's exercise of revisionary jurisdiction to direct a de novo adjudication after affording opportunity to be heard was upheld and the assessee's appeal dismissed.

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Issues: Whether the revisionary order passed by the Commissioner of Income Tax under section 263 of the Income-tax Act, 1961 in respect of assessment year 2008-09 is valid.

Analysis: The Court examined whether the assessment order was passed by the Assessing Officer after proper enquiry and application of mind, and whether allowance of deduction of Rs. 2,84,00,000/- as business loss without such enquiry was erroneous and prejudicial to the interest of revenue. The Court considered the distinction between a business loss and bad and doubtful debts under Section 36(1)(viia) of the Income-tax Act, 1961, the manner in which the assessee had adjusted the loss partly out of statutory reserve and partly out of opening profit and loss balances, and the requirement to afford a fair and reasonable opportunity of being heard before making a de novo assessment. The Court noted the Assessing Officer recorded no enquiry or application of mind in allowing the deduction and that the Commissioner exercised jurisdiction under Section 263 to direct fresh adjudication.

Conclusion: The revisionary order under Section 263 of the Income-tax Act, 1961 is valid because the assessment was rendered erroneous and prejudicial to the interest of revenue by allowance of the deduction without enquiry; the Assessing Officer is directed to rehear and pass assessment order de novo after affording opportunity of being heard. The assessee's appeal is dismissed.

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