Revision under Section 263 failed where depreciation dispute caused no demonstrated prejudice to the revenue.

Section 263 revision required both an erroneous assessment and prejudice to the revenue; where the dispute was only the depreciation rate on a windmill, the statutory threshold was not met because no revenue loss was shown. Even if depreciation were recomputed at a lower rate, the assessee had no positive taxable income in the year and no prejudice was established in later years. The revisionary order was therefore invalid and quashed.

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Issues: Whether revision under section 263 of the Income-tax Act, 1961 was sustainable where the assessment was alleged to be erroneous on account of the depreciation rate applied to the windmill, but no prejudice to the interests of the revenue was shown.

Analysis: Section 263 can be invoked only when both conditions are satisfied, namely that the assessment order is erroneous and that it is prejudicial to the interests of the revenue. The controversy was confined to the rate of depreciation on the windmill. On the facts recorded, even if depreciation was recomputed at the lower rate, the assessee had no positive taxable income in the year in question and no revenue loss was established in the later years either. The order could at best be said to contain an error, but absence of prejudice meant the statutory threshold for revision was not met.

Conclusion: The revisionary order under section 263 was not valid and was quashed.

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