Section 263 revision permits correction on merits when inquiry was made but the assessment conclusion was wrong, with remand only for superficial inquiry.

Revision under section 263 of the Income-tax Act may be exercised where the Assessing Officer conducted inquiry but reached an erroneous conclusion and made no addition; in such cases, the Commissioner may correct the assessment on merits by directing addition or disallowance. Remand is justified only where the inquiry was merely superficial or amounted to a real failure of investigation, and the revisional order must identify both the error and the prejudice caused to the Revenue. The challenge failed and the special leave petition was dismissed.

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Issues: Whether revision under section 263 of the Income-tax Act, 1961 can be invoked on the ground that the Assessing Officer made enquiries but did not make additions, and whether such error is to be corrected by remand or on merits.

Analysis: The order under challenge was upheld. A distinction was drawn between complete absence or failure of investigation and a case where inquiry was made but the conclusion reached was allegedly wrong. Where the Assessing Officer has carried out investigation and accepted the assessee's stand without making additions, the Commissioner's revisional power may be exercised to correct the error on merits by making an addition or disallowance. Remand is justified only where there is a superficial or random inquiry amounting to an abject failure, and the Commissioner must record both the error and the prejudice caused to the Revenue.

Conclusion: Revision could not be treated as a mere case of failure to investigate. The challenge failed and the special leave petition was dismissed.

Ratio Decidendi: Section 263 permits correction of an erroneous assessment on merits where inquiry was made but the conclusion was wrong; remand is appropriate only when there is a demonstrable lack or superficiality of investigation causing prejudice to the Revenue.

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