Section 263 revision and wind mill depreciation: no error-prejudice basis for revision, and additional depreciation remained available.

Section 263 revision is confined to assessments that are both erroneous and prejudicial to the Revenue; where the carry-forward of losses under section 72A accords with the legal position read with section 32(2) of the Sick Industrial Companies Act, the jurisdictional basis for revision fails. Additional depreciation under section 32(1)(iia) is available for eligible new plant or machinery, including wind mills, and does not require a direct functional nexus with the assessee's existing manufacturing activity. A separate objection based on the absence of a specific show-cause notice on the wind mill issue did not displace the substantive legal position, so the assessee's position was upheld on all points.

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Issues: (i) Whether revision under section 263 of the Income-tax Act, 1961 was justified in respect of the assessment allowing carry forward of losses under section 72A of the Income-tax Act, 1961. (ii) Whether the assessee was entitled to additional depreciation on wind mills under section 32(1)(iia) of the Income-tax Act, 1961. (iii) Whether the alleged absence of a specific show-cause notice on the wind mill depreciation issue deprived the revisional order of jurisdiction.

Issue (i): Whether revision under section 263 of the Income-tax Act, 1961 was justified in respect of the assessment allowing carry forward of losses under section 72A of the Income-tax Act, 1961.

Analysis: The revisional jurisdiction under section 263 can be exercised only where the assessment order is both erroneous and prejudicial to the interests of the Revenue. The allowance made by the Assessing Officer was found to be consistent with the governing legal position flowing from the interaction between section 72A of the Income-tax Act, 1961 and section 32(2) of the Sick Industrial Companies (Special Provisions) Act, 1985. In such circumstances, the essential jurisdictional precondition of error was absent.

Conclusion: The revision under section 263 was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether the assessee was entitled to additional depreciation on wind mills under section 32(1)(iia) of the Income-tax Act, 1961.

Analysis: The provision permits additional depreciation where new machinery or plant is acquired and installed after the specified date by an assessee engaged in manufacturing or production. The entitlement does not depend on a direct operational nexus between the new plant and the assessee's existing manufacturing business. Wind mills were treated as eligible plant for the purpose of the provision, and the Revenue's contrary contention was rejected in the earlier binding decisions followed by the Court.

Conclusion: The assessee was entitled to additional depreciation on wind mills and the issue was decided in favour of the assessee.

Issue (iii): Whether the alleged absence of a specific show-cause notice on the wind mill depreciation issue deprived the revisional order of jurisdiction.

Analysis: The challenge on the footing of lack of notice did not survive once the substantive issue of eligibility for additional depreciation was governed by the existing legal position, and the matter had already been covered against the Revenue by prior decisions. The Court therefore did not accept the Revenue's jurisdictional objection.

Conclusion: The notice-based jurisdictional challenge failed and the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's appeal failed on all surviving questions, and the assessment and the Tribunal's view were left undisturbed.

Ratio Decidendi: Revisional power under section 263 of the Income-tax Act, 1961 cannot be invoked unless the assessment order is both erroneous and prejudicial to the Revenue, and additional depreciation under section 32(1)(iia) is available for eligible new plant or machinery such as wind mills without requiring functional nexus with the assessee's existing manufacturing activity.

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