Revision under section 263 sustained for inadequate enquiry into section 54F claim based on an unregistered property agreement.

Section 263 revision was upheld where an assessment allowed section 54F exemption on the basis of an unregistered agreement to sell with possession, said to involve purchase of immovable property from the assessee's wife. The record showed inadequate enquiry into the legal effect of the unregistered document, the surrounding non-registration circumstances, and the relevance of the Registration Act, 1908. On that basis, the assessment order was treated as one passed without the necessary verification required by Explanation 2 to section 263, making it erroneous and prejudicial to the interests of the Revenue and therefore amenable to revision.

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Issues: Whether the Principal Commissioner was justified in exercising revisional jurisdiction under section 263 of the Income-tax Act, 1961 on the ground that the assessment order allowing exemption under section 54F was passed without proper enquiry into the claim based on an unregistered agreement to purchase property from the assessee's wife.

Analysis: The assessee's claim for exemption was founded on an unregistered agreement to sell with possession relating to purchase of immovable property from a related party. The order under revision had allowed the claim, but the record did not show adequate verification of the legal effect of the unregistered document, the surrounding circumstances of non-registration, or the applicability of the Registration Act, 1908. On those facts, the Tribunal held that the Assessing Officer had not conducted the enquiry that ought to have been made and that the order, therefore, fell within Explanation 2 to section 263 as an order passed without making necessary enquiries or verification.

Conclusion: The invocation of section 263 was valid and the revisionary order was sustained.

Final Conclusion: The assessment order was held to be both erroneous and prejudicial to the interests of the Revenue, and the assessee's appeal failed.

Ratio Decidendi: An assessment order allowing a deduction or exemption without the enquiry and verification that the circumstances reasonably required is erroneous and prejudicial to the interests of the Revenue, and is amenable to revision under section 263, particularly where the claim rests on an unregistered transaction whose legal efficacy was not properly examined.

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