Section 263 revision upheld for lack of enquiry into tax treatment of mark-to-market gains on derivative contracts.

Revision under section 263 can be sustained where the Assessing Officer accepts a return without examining a prima facie relevant issue, because lack of enquiry can render the assessment order both erroneous and prejudicial to the interests of revenue. In this matter, the assessment was revised on the ground that no examination was made of the tax treatment of mark-to-market gains from derivative and forward contracts recognised on accrual basis in the profit and loss account. As there was no material showing that the issue had been considered during assessment, the revisional authority's finding of inadequate enquiry was upheld and the revision was held valid.

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Issues: (i) Whether the revision under section 263 was valid on the ground that the Assessing Officer had not made enquiry into the tax treatment of mark-to-market gains from derivative and forward contracts.

Issue (i): Whether the revision under section 263 was valid on the ground that the Assessing Officer had not made enquiry into the tax treatment of mark-to-market gains from derivative and forward contracts.

Analysis: The assessment order under section 143(3) was revised because the Assessing Officer had accepted the return without examining whether the mark-to-market gain recognised in the profit and loss account on accrual basis was taxable under the Act. Revision under section 263 is attracted where the order is both erroneous and prejudicial to the interests of revenue, including cases where a prima facie warranted enquiry is omitted. Since there was no material to show that the issue had been examined during assessment, the revisional authority was justified in holding that the order suffered from lack of enquiry.

Conclusion: The revision under section 263 was valid and the appeal was dismissed.

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