Section 263 revision fails where foreign tax credit was examined and no actual error was shown

Section 263 revision was held unsustainable where the Commissioner failed to identify an actual error in the assessment order and sought only further enquiry into foreign tax credit under the DTAA. The Tribunal held that, when the Assessing Officer had examined the claim and adopted one of the possible views, the order could not be treated as erroneous merely because another view was preferred. For assessment year 1994-95, the revision was also time-barred because limitation had to be counted from the original assessment order on the foreign tax credit, not from the later order giving effect to the appellate decision. Directions for fresh enquiry and recomputation were therefore invalid.

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Issues: (i) Whether revision under section 263 was barred by limitation for assessment year 1994-95 when the order sought to be revised was the order giving effect to the appellate order; (ii) whether the assessment orders could be revised under section 263 on the ground that credit for foreign tax under the relevant DTAA was allowed without proper verification and without demonstrating any error in the orders; (iii) whether the Commissioner could direct the Assessing Officer to make a fresh enquiry under section 263 without first establishing that the existing order was erroneous and prejudicial to the interests of the Revenue.

Issue (i): Whether revision under section 263 was barred by limitation for assessment year 1994-95 when the order sought to be revised was the order giving effect to the appellate order.

Analysis: The limitation question turned on identification of the order sought to be revised. The Assessing Officer had originally granted the foreign tax credit in the assessment order and, after the appellate order on other issues, again allowed the credit while giving effect to that order. The revisional authority treated the later order as the one under revision, but the Tribunal held that the subject-matter of revision was the original assessment order on the foreign tax credit, since the later order merely gave effect to the appellate decision and did not itself decide that issue. On that basis, the revision had to be tested from the date of the original order and not from the later consequential order.

Conclusion: The revision for assessment year 1994-95 was time-barred and is against the Revenue.

Issue (ii): Whether the assessment orders could be revised under section 263 on the ground that credit for foreign tax under the relevant DTAA was allowed without proper verification and without demonstrating any error in the orders.

Analysis: The Tribunal found that the Assessing Officer had called for details, examined the basis of the foreign tax credit, and had earlier considered the matter even in rectification proceedings. The Commissioner did not identify any concrete error in the allowance of credit and instead proceeded on the footing that further verification was necessary. The Tribunal held that where the Assessing Officer has taken one of the possible views after enquiry and application of mind, the order cannot be branded erroneous merely because the Commissioner prefers another view. Revision cannot rest on a general allegation of non-verification when the record shows that the issue was examined.

Conclusion: The revisional orders on merits were unsustainable and are in favour of the Assessee.

Issue (iii): Whether the Commissioner could direct the Assessing Officer to make a fresh enquiry under section 263 without first establishing that the existing order was erroneous and prejudicial to the interests of the Revenue.

Analysis: Section 263 requires the Commissioner to record a finding that the order is both erroneous and prejudicial to the interests of the Revenue. The power is not meant for a roving or fishing enquiry or for substituting the Commissioner's opinion for that of the Assessing Officer. The Tribunal emphasized that the revisional authority must point out the error in the order itself; it is not enough to remand the matter for a fresh investigation where the Assessing Officer has already applied his mind and adopted a plausible view. On the facts, the direction to recompute the DTAA relief without demonstrating an actual error exceeded the scope of section 263.

Conclusion: The directions for fresh enquiry and recomputation under section 263 were invalid and are in favour of the Assessee.

Final Conclusion: The revisional orders for all the assessment years were set aside, with the appeal for assessment year 1994-95 succeeding on limitation and the remaining appeals succeeding on merits because the Commissioner had not established a revisable error.

Ratio Decidendi: Revision under section 263 can be sustained only when the order revised is shown to be both erroneous and prejudicial to the interests of the Revenue, and it cannot be used to reopen a matter for further enquiry where the Assessing Officer has already examined the issue and adopted one of the possible views.

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