Revision for lack of enquiry sustained where assessment ignored binding precedent on taxability of interest on enhanced compensation.

Section 263 revision was sustained because the assessment order accepted the assessee's claim on taxability of interest on enhanced compensation without showing any clear enquiry or reasoning. Where the issue was governed by conflicting views, the Assessing Officer was required to demonstrate application of mind and consider the binding jurisdictional High Court view that such interest was taxable as income from other sources. The absence of a reasoned examination supported a finding of lack of enquiry, and a later judicial view could not cure that defect in the completed assessment. The order was therefore treated as erroneous and prejudicial to the interests of revenue.

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Issues: Whether the Principal Commissioner could invoke revisionary jurisdiction under section 263 on the ground that the assessment order accepted the assessee's claim regarding taxability of interest on enhanced compensation without proper enquiry and without following the binding jurisdictional precedent.

Analysis: The revised return and the assessment record showed disclosure of the receipt and the assessee's claim of exemption, but the assessment order did not record any clear reasoning on how the issue was examined or why the claim was accepted. In the context of a legal controversy governed by conflicting decisions, the Assessing Officer was required to reflect application of mind, particularly to the binding view of the jurisdictional High Court that interest on enhanced compensation was taxable as income from other sources. The absence of a reasoned examination supported the finding of lack of enquiry. A subsequent judicial view could not cure the absence of proper enquiry in the completed assessment.

Conclusion: The revision under section 263 was rightly sustained, as the assessment order was erroneous and prejudicial to the interest of revenue.

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