Revision under section 263 fails where the Assessing Officer adopts a lawful view on life-insurance income computation.

Where the Assessing Officer had examined the computation method of a life-insurance business and adopted a lawful possible view under section 44 read with the First Schedule, revision under section 263 was not justified. The assessee's accounts followed the prescribed regulatory form with policyholders' and shareholders' accounts, and the material showed that the issue was considered during assessment. Transfers between those accounts were treated as tax neutral, and the Tribunal view relied on supported consolidation for arriving at taxable surplus or deficit. As both error in the assessment order and prejudice to the Revenue were absent, the revisionary order was set aside.

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Issues: Whether revision under section 263 of the Income-tax Act, 1961 was justified on the ground that the Assessing Officer failed to separately tax the shareholders' account of a life-insurance company and thereby passed an erroneous and prejudicial order.

Analysis: The assessee carried on only life-insurance business and had prepared its accounts in the form mandated by the regulatory framework, showing a policyholders' account and a shareholders' account. The Assessing Officer had called for an explanation on the method of computation and the assessee had furnished its basis for aggregating the results under section 44 and Rule 2 of the First Schedule. The material on record showed that the Assessing Officer was aware of the issue and had adopted one of the lawful views available. The decision of the Tribunal in the comparable life-insurance matter was relied upon for the proposition that, where section 44 applies, the policyholders' and shareholders' accounts are to be consolidated for arriving at the taxable surplus or deficit, and transfers between the two accounts are tax neutral. In these circumstances, the prerequisite conditions for revision, namely an error in the assessment order and prejudice to the Revenue, were not satisfied.

Conclusion: The revision order under section 263 was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The assessment order was held to be a permissible and lawful view on the computation of income of a life-insurance business, and the revisionary interference was annulled.

Ratio Decidendi: Where the Assessing Officer has examined the computation method of a life-insurance assessee and the adopted view is a lawful possible view under section 44 read with the First Schedule, revision under section 263 cannot be sustained in the absence of both error and prejudice to the Revenue.

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