Section 263 revision fails where the Assessing Officer made enquiry and adopted a plausible view on debatable interest-taxability.

Section 263 revision was held unsustainable because the Assessing Officer had made enquiry into the taxability of interest received under section 28 of the Land Acquisition Act and accepted a plausible view that it formed part of enhanced compensation and was exempt. The Tribunal noted that the issue was debatable, that the assessment was not made without enquiry, and that an audit objection could not by itself establish error and prejudice. It also observed that a non-speaking dismissal of an SLP does not amount to approval of the High Court's reasoning. The assessee's appeal was allowed.

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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 had not properly examined the taxability of interest received under section 28 of the Land Acquisition Act, 1894 as part of enhanced compensation.

Analysis: The assessee had specifically disclosed the receipt of interest on enhanced compensation and had explained before the Assessing Officer that the amount formed part of compensation and was claimed exempt. The record showed that a query had been raised and answered, so the matter was not one of no enquiry or lack of enquiry. The revision was triggered mainly by an audit objection and by reliance on the Punjab and Haryana High Court decision in Mahender Pal Narang, but the Tribunal noted that the Supreme Court in Ghanshyam HUF had treated interest under section 28 of the Land Acquisition Act as part of the enhanced compensation, and that later authorities did not displace that position for the present facts. It was also held that dismissal of an SLP in limine does not amount to affirmation of the High Court's reasoning. Since the Assessing Officer had adopted one of the possible views on a debatable issue, the preconditions for section 263 were not satisfied.

Conclusion: The revision order was unjustified and unsustainable; the assessee succeeded.

Ratio Decidendi: Revision under section 263 cannot be sustained where the Assessing Officer has made enquiry and adopted a plausible view on a debatable issue, and an audit objection or a non-speaking dismissal of an SLP does not by itself establish that the assessment order is erroneous and prejudicial to the interests of the Revenue.

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