Section 10A deduction computed at gross total income stage cannot justify revision under section 263 for a different method.

Deduction under section 10A is to be computed at the stage of arriving at the gross total income of the eligible undertaking, not by first setting off business losses and brought forward losses under Chapter VI. Where the Assessing Officer adopted this legally sustainable view, the assessment order could not be treated as erroneous and prejudicial to the interests of the Revenue merely because the Principal Commissioner preferred a different computation method. On that basis, invocation of revisionary jurisdiction under section 263 was held unjustified and the revisional order was set aside.

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Issues: Whether the Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 on the ground that deduction under section 10A ought to have been computed after setting off business losses and brought forward losses.

Analysis: The assessment had accepted the assessee's claim of deduction under section 10A. The dispute turned on the stage at which the deduction is to be allowed and whether the Assessing Officer's view could be treated as erroneous and prejudicial to the interests of the Revenue merely because the Principal Commissioner preferred a different method of computation. The binding legal position applied was that deduction under section 10A is to be allowed at the stage of computing the gross total income of the eligible undertaking, and not at the stage of computation under Chapter VI; accordingly, the Revenue's proposed set-off approach could not render the assessment order erroneous for purposes of section 263.

Conclusion: The invocation of section 263 was not justified, and the revisional order was set aside.

Ratio Decidendi: Where the Assessing Officer adopts a legally sustainable view on the stage of allowance of section 10A deduction, the assessment order cannot be revised under section 263 merely because the Principal Commissioner considers a different computation method preferable.

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