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Issues: Whether the revisional order under section 263 was sustainable where the Assessing Officer had, after enquiry, allowed exemption under section 10(23FB) on the assessee's income from venture capital undertakings.
Analysis: The assessee was a SEBI-registered venture capital fund governed by the SEBI (Venture Capital Funds) Regulations, 1996. For the relevant assessment year, section 10(23FB) as amended by the Finance Act, 2012 applied, and the legislative scheme treated income from venture capital undertakings as exempt in the hands of the fund while taxing it in the hands of unitholders under section 115U. The Assessing Officer had called for detailed information, examined the assessee's registration, investments, Form 64 statements and the nature of the underlying venture capital undertakings, and then allowed the claim. The Tribunal held that the Principal Commissioner could not invoke section 263 merely because a different view was preferred, especially when the Assessing Officer had taken a possible view after due enquiry. The objections based on alleged violation of SEBI regulations, investment in mutual funds, and real estate-related investments were rejected because the real estate sector had been removed from the negative list under the applicable SEBI regulations and no violation had been established by SEBI itself. Since the income was taxable in the hands of the unitholders, the Revenue also suffered no real prejudice.
Conclusion: The revisional order under section 263 was invalid and the assessee's claim to exemption under section 10(23FB) was upheld.
Ratio Decidendi: An assessment order passed after enquiry and adopting a possible view cannot be revised under section 263 unless it is both erroneous and prejudicial to the interests of the Revenue; where the statutory pass-through regime applies and the income is taxed in the hands of the unitholders, revision cannot rest on a mere change of opinion or an unsubstantiated allegation of regulatory violation.
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