Section 263 revision unsustainable where exemption claim was examined and no specific error or prejudice was shown on record.

Revision under section 263 could not be sustained because the record showed that the assessment had already examined the exemption claim under sections 11 and 12, including receipts, application of income and accumulation. The revisionary authority relied on Ahmedabad Urban Development Authority and sought further enquiry into section 2(15), but did not independently show how the proviso was breached or how the Assessing Officer's order was both erroneous and prejudicial to the Revenue. A bare direction for fresh enquiry, without a specific finding of error on the existing record, was insufficient. The revision order was therefore quashed and the assessee's appeal succeeded.

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Issues: Whether the revisionary order under section 263 of the Income-tax Act, 1961, revising the assessment allowing exemption under sections 11 and 12 on the footing of section 2(15), was sustainable.

Analysis: The assessment order had examined the assessee's claim for exemption and the computation of receipts, application of income, accumulation and set-apart amount. The revisionary authority proceeded mainly on the basis of the Supreme Court decision in Ahmedabad Urban Development Authority and directed further enquiry into the applicability of section 2(15), but did not independently demonstrate how the proviso to section 2(15) was violated or how the Assessing Officer had failed to examine the issue. Revision under section 263 requires the order to be both erroneous and prejudicial to the interests of the Revenue, and a mere direction for fresh enquiry without showing a specific error on the existing record is insufficient.

Conclusion: The revision order was unsustainable and was quashed in favour of the assessee.

Final Conclusion: The reassessment of the exemption claim could not be reopened through section 263 on the facts recorded, and the assessee's appeal succeeded.

Ratio Decidendi: Revision under section 263 cannot be sustained unless the authority independently establishes both error and prejudice on the basis of the record, and a bare direction for further enquiry into section 2(15) without such finding is insufficient.

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