Section 263 revision fails where the Assessing Officer made enquiry and adopted a possible view on service fee taxability.

Explanation 2 to section 263(1) of the Income-tax Act was treated as an enabling, procedural provision applicable to revision proceedings when the Commissioner passed the order, and its invocation was therefore permissible in principle. However, revision on the ground of inadequate enquiry into the taxability of headquarter service fee was not justified because the Assessing Officer had issued notices, examined the agreement and supporting material, considered the assessee's claim of non-taxability, and adopted a possible view consistent with the prior year. As the jurisdictional conditions in clauses (a) to (d) of Explanation 2 were not met, the section 263 revision was unsustainable and the revisionary order was set aside.

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Issues: (i) Whether Explanation 2 to section 263(1) of the Income-tax Act, 1961 applied to the revision order for the relevant assessment year, and (ii) whether the assessment order could be revised under section 263 on the ground that the Assessing Officer had not made proper enquiry into the taxability of the headquarter service fee.

Issue (i): Whether Explanation 2 to section 263(1) of the Income-tax Act, 1961 applied to the revision order for the relevant assessment year

Analysis: The Explanation was inserted with effect from 01.06.2015 and was held to be an enabling and procedural provision governing revision proceedings rather than the assessment year as such. Since it was on the statute book when the Commissioner passed the revision order on 30.03.2017, its invocation was held to be permissible in principle.

Conclusion: The Explanation was applicable to the revision proceedings.

Issue (ii): Whether the assessment order could be revised under section 263 on the ground that the Assessing Officer had not made proper enquiry into the taxability of the headquarter service fee

Analysis: The record showed that the Assessing Officer had issued notices, called for details, obtained the agreement and other supporting material, and examined the assessee's claim of non-taxability. The view accepted by the Assessing Officer was consistent with the treatment accepted in the immediately preceding assessment year. The order therefore reflected enquiry, application of mind, and adoption of a possible view. The conditions in clauses (a) to (d) of Explanation 2 were not satisfied, and the Commissioner could not revise the order merely by substituting a different view on taxability.

Conclusion: The revision under section 263 was not sustainable.

Final Conclusion: The revisionary order was set aside because the assessment was made after enquiry and the view adopted by the Assessing Officer was a legally possible one; the appeal succeeded.

Ratio Decidendi: An assessment order cannot be revised under section 263 merely because the Commissioner takes a different view, where the Assessing Officer has made enquiry, applied his mind, and adopted one of the possible lawful views; Explanation 2 applies only when the jurisdictional facts specified in its clauses are objectively established.

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