Revision under section 263 upheld where inadequate enquiry into an interest deduction made the assessment erroneous and prejudicial

An assessment completed summarily under section 143(1) can be revised under section 263 where the record does not show proper enquiry into a material deduction claim. On the facts discussed, the interest deduction on borrowed funds was not supported by necessary agreements or other evidence before the Assessing Officer, so the assessment was treated as erroneous and prejudicial to the revenue. The objection that the show-cause notice was too narrow was rejected because it addressed the core issue of inadequate examination of the interest claim. The revisionary order and setting aside of the assessment for fresh consideration were upheld.

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Issues: Whether the Commissioner was justified in exercising revisionary jurisdiction under section 263 of the Income-tax Act, 1961 to set aside the assessment completed under section 143(1), on the ground that the Assessing Officer had not properly investigated the claim for deduction of interest paid or payable on borrowed funds.

Analysis: The assessment was made in a summary manner, and the record did not show that the necessary agreements, partition material, or other supporting evidence for the interest claim had been produced before the Assessing Officer. On the material available, the Assessing Officer could not have properly satisfied himself about the allowability of the deduction. The order, therefore, suffered from lack of enquiry and was prejudicial to the interests of the revenue. The objection based on the scope of the show-cause notice was rejected, since the notice did cover the core ground that the interest claim had not been properly examined.

Conclusion: The exercise of power under section 263 was upheld and the assessment order was rightly set aside for fresh consideration.

Ratio Decidendi: An assessment passed without proper enquiry into a material deduction claim is erroneous and prejudicial to the interests of the revenue, and is amenable to revision under section 263 of the Income-tax Act, 1961.

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