Revisional jurisdiction cannot override a rectification order based on one of two plausible views on a debatable tax issue.

Revisional jurisdiction under section 263 was discussed in relation to a rectification order passed under section 154 deleting an addition for interest on enhanced compensation. The Tribunal treated the taxability of that interest as a debatable issue with two plausible views and noted that the rectification authority had adopted one legally permissible view. On that basis, the Principal Commissioner could not revise the order merely because another view was preferred, as the order was not shown to be erroneous and prejudicial to revenue. The article concludes that revision was not sustainable and the assessee's claim was accepted.

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Issues: (i) Whether the Principal Commissioner could invoke revisional jurisdiction under section 263 against the order passed under section 154 of the Income-tax Act, 1961; (ii) Whether the rectification order deleting the addition relating to interest on enhanced compensation suffered from an error warranting revision when the taxability of such interest was a debatable issue with two plausible views.

Issue (i): Whether the Principal Commissioner could invoke revisional jurisdiction under section 263 against the order passed under section 154 of the Income-tax Act, 1961.

Analysis: The rectification order had been passed by the CPC under section 154 after considering the assessee's claim and granting refund by deleting the earlier addition. Revisional power under section 263 can be exercised only when the order sought to be revised is erroneous and prejudicial to the interests of the Revenue. Where the underlying controversy turns on a debatable issue and the view adopted by the lower authority is one of the possible views, revision is not justified.

Conclusion: The invocation of section 263 was not sustainable in law.

Issue (ii): Whether the rectification order deleting the addition relating to interest on enhanced compensation suffered from an error warranting revision when the taxability of such interest was a debatable issue with two plausible views.

Analysis: The taxability of interest received on enhanced compensation had been considered in the light of the competing judicial views and the statutory amendment dealing with interest income. The Tribunal treated the matter as debatable and accepted that the Assessing Authority had chosen one of the legally plausible views while rectifying the earlier processing order. On that basis, the order could not be branded as erroneous merely because the Principal Commissioner preferred another view.

Conclusion: The rectification order was not liable to revision and the assessee's claim succeeded.

Final Conclusion: The revisional order was quashed and the assessee's appeal succeeded, as section 263 could not be used to revise a rectification order based on one of two plausible legal views on a debatable tax issue.

Ratio Decidendi: Revisional jurisdiction under section 263 cannot be exercised where the order under challenge reflects a permissible view on a debatable issue and is not demonstrably erroneous and prejudicial to the interests of the Revenue.

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