Section 263 revision fails where no capital gains exemption was claimed or allowed in the assessment order.

Section 263 revision is sustainable only where the assessment order is both erroneous and prejudicial to the Revenue. On the facts, the assessee had not claimed capital gains exemption on compulsory acquisition compensation, and the Assessing Officer had not allowed any exemption under section 10(37) or section 96 of the 2013 land acquisition law in the assessment under section 143(3). Because the revisional authority proceeded on the incorrect assumption that such a claim had been made and accepted, the foundational basis for revision was absent. The revision order was therefore not sustainable and was set aside in favour of the assessee.

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Issues: Whether the revision order under section 263 was sustainable when the assessee had not claimed any capital gains exemption on the compulsory acquisition compensation and the assessment order had not allowed any such exemption.

Analysis: The revisionary jurisdiction under section 263 of the Income-tax Act, 1961 can be invoked only where the assessment order is both erroneous and prejudicial to the interests of the Revenue. The assessment record showed that the assessee had accounted for the surplus from acquisition of land by NHAI as revenue from operations and had not offered the amount as capital gains in the return of income, nor claimed exemption under section 10(37) of the Income-tax Act, 1961 read with section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 in the return. Since no such exemption had been allowed by the Assessing Officer under section 143(3) of the Income-tax Act, 1961, the foundational premise for revision was factually incorrect.

Conclusion: The revision under section 263 could not be sustained and was rightly set aside in favour of the assessee.

Ratio Decidendi: Section 263 cannot be invoked on an incorrect factual assumption that a claim was made and allowed when no such claim or allowance exists in the assessment order.

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