Section 263 revision fails where co-operative bank interest was not supported by material and the assessee's explanation remained unrebutted.

A revision under section 263 of the Income-tax Act, 1961 was held unsustainable where the Principal Commissioner treated a difference in interest income as co-operative bank interest and denied deduction without supporting material. The Assessing Officer had examined deductions and bank accounts under section 142(1), and the assessee's reply showed no receipt of interest from a co-operative bank. The impugned amount was explained as interest from members, and the Revenue did not rebut that explanation. As the assessment order was not shown to be erroneous and prejudicial to the interests of the Revenue, the section 263 jurisdiction could not be invoked and the revisionary order was quashed.

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Issues: Whether the revisionary order under section 263 of the Income-tax Act, 1961 was sustainable where the Principal Commissioner treated a difference in interest income as interest from a co-operative bank and denied deduction, and whether the assessment order under section 143(3) could be held erroneous and prejudicial to the interests of the revenue on that basis.

Analysis: The record showed that the Assessing Officer had called for details of deductions and bank accounts under section 142(1) of the Income-tax Act, 1961, and the assessee's reply did not show receipt of any interest from a co-operative bank. The impugned amount was explained as interest received from members, and the Revenue did not controvert that explanation. The Principal Commissioner's inference that the difference represented co-operative bank interest was not supported by any material on record. In these circumstances, the premise for invoking section 263, namely that the assessment order was erroneous and prejudicial to the interests of the revenue, was not established.

Conclusion: The revisionary order under section 263 of the Income-tax Act, 1961 was not sustainable and was quashed. The issue was decided in favour of the assessee.

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