Section 263 revision requires error and revenue prejudice; prior add-back of interest prevents a further disallowance as double taxation.

Revisionary jurisdiction under Section 263 of the Income-tax Act, 1961 requires both an erroneous assessment order and prejudice to the interests of the Revenue. Where the assessment record shows that the Assessing Officer sought relevant deduction details and the assessee explained the Ind-AS adjustment, including interest on security deposits, the absence of separate discussion does not by itself establish inadequate enquiry. If the assessee has already added back the entire interest expense in its income computation, a further disallowance under Section 40(a)(ia) would create double disallowance. On this reasoning, the prescribed conditions for exercising revisionary jurisdiction are not satisfied.

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Issues: Whether revisionary jurisdiction under Section 263 of the Income-tax Act, 1961 was validly assumed on the ground that the assessment order failed to disallow 30% of interest expense on security deposits for non-deduction of tax at source, where the assessee had already added back the entire amount in its computation of income.

Analysis: Section 263 of the Income-tax Act, 1961 requires cumulative satisfaction of two conditions: the assessment order must be erroneous and it must be prejudicial to the interests of the Revenue. The assessment record showed that the Assessing Officer had specifically sought details of the deductions claimed under Section 142(1) of the Income-tax Act, 1961, and the assessee had explained the Ind-AS adjustment, including the interest expense on security deposits. The entire amount had already been added back in the computation of income. A further disallowance under Section 40(a)(ia) of the Income-tax Act, 1961 would therefore result in double disallowance, and the absence of a separate discussion in the assessment order did not establish lack of enquiry.

Conclusion: The assessment order was neither erroneous nor prejudicial to the interests of the Revenue, and the conditions for exercise of jurisdiction under Section 263 were not satisfied.

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