Section 263 revision invalid where Commissioner gave no reasons and AO followed binding precedent treating power subsidy as capital

SC held that the Commissioner's revision under section 263 was invalid because he recorded no reasons showing the Assessing Officer erred in treating the power subsidy as a capital receipt. At the time the power was exercised, the jurisdictional HC's decision treating the subsidy as capital was operative, and the AO had properly acted on that decision. A later reversal by the SC could not retroactively justify treating the AO's conduct as erroneous. The Commissioner thus lacked the requisite material-legal or factual-to exercise jurisdiction under section 263.

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Issues: Whether the Commissioner, under section 263 of the Income-tax Act, 1961, validly exercised revisionary jurisdiction to revise assessment orders which treated power subsidy as a capital receipt when the Assessing Officer had followed a binding decision of the jurisdictional High Court.

Analysis: Section 263 permits the Commissioner to call for and examine assessment records only if he is satisfied that (1) the Assessing Officer was erroneous in making the assessment order and (2) the order was prejudicial to the interests of the Revenue; that satisfaction must be objectively justifiable and supported by reasons and material available at the time the power is exercised. In the present case the Assessing Officer had followed the binding decision of the jurisdictional High Court that treated the power subsidy as a capital receipt. The Commissioner issued revision orders without recording any reasons or pointing to material showing the Assessing Officer was erroneous as per the law and facts existing at the time. A subsequent reversal of the jurisdictional High Court's view by this Court cannot be used retrospectively to supply jurisdictional grounds for exercise of section 263 unless the Commissioner had, at the time, relevant material or reasons to conclude the Assessing Officer was erroneous.

Conclusion: The Commissioner wrongly exercised power under section 263 in the absence of recorded reasons and supporting material; the revision orders are invalid. The decision is in favour of the assessee.

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