Revision valid where deduction was allowed without enquiry, making the assessment order erroneous and prejudicial to Revenue.

An assessment order passed without enquiry or verification on a claimed deduction can be treated as erroneous and prejudicial to the interests of the Revenue, attracting revisionary jurisdiction. Where the record shows that the Assessing Officer allowed deduction for unrealised gain on mutual fund while computing book profit without application of mind, and the assessee cannot rebut that factual finding, revision is valid. The merits of the deduction are not ative at that stage because the revisionary authority may only direct fresh examination in accordance with law. The challenge therefore failed.

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Issues: Whether the Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 of the Income-tax Act, 1961 on the ground that the Assessing Officer allowed deduction on account of unrealized gain on mutual fund while computing book profit under section 115JB without making proper enquiry.

Analysis: The assessment record did not show that the Assessing Officer made any enquiry on the allowability of the claim while completing the assessment. The Principal Commissioner specifically recorded that the allowance of the deduction was made without application of mind and without verification, and the assessee could not rebut that factual finding. In such a situation, the assessment order is treated as erroneous and prejudicial to the interests of the Revenue. The challenge on merits of the deduction was held to be irrelevant at this stage because the revisionary order did not finally decide the allowability of the claim and only directed fresh examination in accordance with law.

Conclusion: The revision under section 263 was valid and the assessee's contention failed.

Ratio Decidendi: An assessment order passed without making enquiries or verifications that should have been made, and thereby allowing a claim without proper examination, is erroneous and prejudicial to the interests of the Revenue and is amenable to revision under section 263 of the Income-tax Act, 1961.

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