Section 263 revision fails where further verification is ordered without a clear finding of assessment error and revenue prejudice.

Revision under section 263 requires the Principal Commissioner to identify a specific error in the assessment order and record how it is prejudicial to the Revenue. A revisional direction cannot rest only on further enquiry or verification, such as asking whether recipients of interest income returned it to tax, without a clear finding that the assessment on the assessee's claim for interest expenditure under section 57(iii) was erroneous or unsustainable. On the stated facts, the revisional order proceeded on a different footing from the assessment issue and did not establish the necessary jurisdictional error, so the revision was held not sustainable and the assessee succeeded in challenging it.

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Issues: Whether revision under section 263 of the Income-tax Act, 1961 was valid where the Principal Commissioner found the assessment order erroneous and prejudicial to the Revenue for alleged non-examination of the assessee's claim of interest expenditure under section 57(iii), and directed verification of whether the recipients had offered the interest income to tax.

Analysis: The reassessment had been made with reference to the assessee's claim of interest expenditure against interest income, and the revisionary order was expected to identify a specific error in the assessment. The impugned revision, however, proceeded on a different footing by questioning the genuineness of the interest payments and directing the Assessing Officer to conduct further verification of the recipients' returns. That approach did not establish any error in the assessment order on the issue of allowability under section 57(iii), nor did it disclose any independent finding that the claim was bogus or otherwise unsustainable. A revisionary authority must record a clear error causing prejudice before invoking section 263 and cannot merely send the matter back for exploratory verification without such finding.

Conclusion: The revision under section 263 was not sustainable, and the assessee succeeded on the challenge to the revisional order.

Ratio Decidendi: Jurisdiction under section 263 cannot be exercised merely to order further enquiry or verification unless the revisional authority first records a clear finding that the assessment order is erroneous and prejudicial to the Revenue.

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