Revision under section 263 fails where deduction on co-operative bank interest is legally sustainable on binding precedent.

ITAT Mumbai held that revision under section 263 could not be used to disturb an assessment allowing deduction on interest income from deposits with a co-operative bank. The underlying deduction claim was already supported by binding Supreme Court authority, and section 80P(4) was held inapplicable absent material showing that the recipient was a co-operative bank licensed by the RBI to carry on banking business. Since the assessment order was legally sustainable on the merits, it could not be treated as erroneous for revisionary purposes, and the revisionary order was set aside.

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Issues: Whether the Principal Commissioner could invoke revision under section 263 to set aside the assessment order allowing deduction under section 80P(2)(d) on interest income earned from deposits with a co-operative bank.

Analysis: The assessment order had allowed the deduction, and the revision was founded on the view that interest from a co-operative bank was not eligible under section 80P(2)(d). The Tribunal noted that the merits of the deduction issue were already settled in favour of the assessee by binding Supreme Court authority, and that section 80P(4) applies only to co-operative banks possessing an RBI licence to carry on banking business. In the absence of any material showing such licensing, the Revenue's attempt to deny deduction by importing section 80P(4) could not stand. Once the underlying claim was legally sustainable on merits, the assessment order could not be treated as erroneous in a manner justifying revision under section 263.

Conclusion: The revisionary order was unsustainable and the assessee succeeded on the section 263 challenge.

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