Revision under section 263 upheld where scrutiny assessment lacked enquiry into electricity duty disallowance under section 40(a)(iib).

An assessment completed under section 143(3) without enquiring into the applicability of section 40(a)(iib) to electricity duty paid under the Kerala State Electricity Duty Act was treated as erroneous and prejudicial to the interests of the Revenue. On that basis, the Principal Commissioner was justified in invoking section 263 and directing reconsideration of the disallowability issue. The challenge to the revisionary order failed because the absence of enquiry on a material claim in a scrutiny assessment was sufficient to warrant revision.

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Issues: Whether the Principal Commissioner was justified in invoking section 263 of the Income-tax Act, 1961 to set aside the assessment for want of enquiry into the disallowability of electricity duty under section 40(a)(iib) of the Income-tax Act, 1961.

Analysis: The assessment had been completed under section 143(3) of the Income-tax Act, 1961 without examining the applicability of section 40(a)(iib) to the electricity duty paid under section 3(1) of the Kerala State Electricity Duty Act, 1963. The absence of enquiry on a material issue in a scrutiny assessment rendered the assessment order erroneous and prejudicial to the interests of the Revenue. The Principal Commissioner was therefore entitled to revise the assessment under section 263 of the Income-tax Act, 1961 and direct reconsideration of the issue.

Conclusion: The invocation of section 263 was upheld and the assessee's challenge failed.

Ratio Decidendi: An assessment order passed in a scrutiny proceeding without enquiry into a material claim liable to disallowance is erroneous and prejudicial to the interests of the Revenue, warranting revision under section 263 of the Income-tax Act, 1961.

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