Section 263 revision upheld where lack of enquiry into patent fee deduction justified supervisory correction.

Revision under section 263 is available only where the assessment order is both erroneous and prejudicial to the interests of Revenue, and interference is generally unwarranted if the Assessing Officer has taken one of two plausible views after enquiry. Here, the Assessing Officer had not examined the allowability of patent fees paid to a subsidiary as revenue expenditure, and the omission was treated as lack of enquiry within Explanation 2 to section 263. On that basis, supervisory revision was justified and the challenge to the revisionary order failed.

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Issues: Whether the Principal Commissioner was justified in exercising revisionary jurisdiction under section 263 of the Income-tax Act, 1961 on the ground that the assessment order was passed without examining the allowability of patent fees paid to the subsidiary as revenue expenditure.

Analysis: Revision under section 263 can be invoked only when the assessment order is both erroneous and prejudicial to the interests of Revenue. Where the Assessing Officer has adopted one of two plausible views after enquiry, interference is not warranted. Here, the record did not show any examination by the Assessing Officer of the allowability of patent fees as revenue expenditure. The omission amounted to lack of enquiry, which falls within the scope of Explanation 2 to section 263 of the Income-tax Act, 1961 and justified supervisory correction.

Conclusion: The revisionary order was valid and the challenge to the exercise of power under section 263 failed.

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