Section 263 revision requires error and prejudice; assessment with due enquiry on capital gains deductions was upheld.

Section 263 revision is permissible only when the assessment order is both erroneous and prejudicial to the Revenue. On the facts noted, the Assessing Officer had called for details, examined the material, considered the assessee's explanations and taken a legally sustainable view on deductions under sections 54, 54F and 54EC. The assessment record also reflected enquiry into the nature of the property, bifurcation of sale consideration, and the agreement to sell. A mere lack of elaborate discussion in the assessment order did not establish error, and the revisional authority's reliance on colourable device principles was found misplaced.

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Issues: Whether the Principal Commissioner was justified in exercising revisional jurisdiction under section 263 by holding that the assessment order was erroneous and prejudicial to the interests of the Revenue for alleged lack of enquiry in respect of the deductions claimed under sections 54, 54F and 54EC, and related issues concerning the nature of the property, bifurcation of sale consideration, and the effect of the agreement to sell.

Analysis: The assessment record showed that the Assessing Officer had called for details, examined the relevant material, considered the assessee's explanations, and taken a view on the claim of deduction after enquiry. The bifurcation of the sale proceeds between commercial and residential portions of the shop-cum-flat had a legal basis and was not shown to be unsustainable. The record also showed that the questions relating to the agreement to sell, possession, and the claim under the capital gains provisions had been specifically addressed in the assessment proceedings. A mere lack of elaborate discussion in the assessment order did not by itself make the order erroneous. The revisional authority had proceeded largely on suspicion, and the conditions of both error and prejudice were not established. The reliance on the principle of a colourable device was found to be misplaced on the facts.

Conclusion: The revisionary order under section 263 was not sustainable, and the assessee succeeded.

Final Conclusion: The assessment order was restored and the revisional interference was annulled because the Assessing Officer had made due enquiries and had taken a legally possible view.

Ratio Decidendi: Section 263 can be invoked only when the assessment order is both erroneous and prejudicial to the interests of the Revenue, and a revision is not permissible where the Assessing Officer has made enquiries and adopted one of the legally sustainable views.

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