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Issues: (i) Whether revision under section 263 of the Income-tax Act, 1961 was sustainable in relation to the claim of deduction under section 80G for CSR expenditure. (ii) Whether revision under section 263 of the Income-tax Act, 1961 was sustainable in relation to ESOP expenditure.
Issue (i): Whether revision under section 263 of the Income-tax Act, 1961 was sustainable in relation to the claim of deduction under section 80G for CSR expenditure.
Analysis: The assessee had disclosed the CSR-related facts during assessment, and the assessment record showed that the claim under section 80G was considered and accepted. The revisional power under section 263 can be invoked only when the assessment order is both erroneous and prejudicial to the interests of the Revenue. Where the Assessing Officer adopts one of the permissible views after inquiry, the order cannot be revised merely because the revisional authority prefers another view. On the facts, the issue was examined in assessment and the view taken by the Assessing Officer was a plausible one. The later challenge amounted to a different opinion on the same material, which does not satisfy the statutory threshold for revision.
Conclusion: The revision on the CSR expenditure issue was not sustainable and the assessee succeeded on this issue.
Issue (ii): Whether revision under section 263 of the Income-tax Act, 1961 was sustainable in relation to ESOP expenditure.
Analysis: The assessment order did not show any inquiry or verification by the Assessing Officer on the ESOP claim, and the record did not establish application of mind on this item. In such a case, Explanation 2 to section 263 deems an order erroneous insofar as it is prejudicial to the interests of the Revenue where the order is passed without making inquiries or verification that should have been made. The case fell in the category of complete lack of inquiry rather than inadequate inquiry. The revisional authority was therefore justified in treating the assessment order as erroneous and prejudicial on this aspect.
Conclusion: The revision on the ESOP expenditure issue was valid and the assessee failed on this issue.
Final Conclusion: The appeal succeeded only on the CSR-related deduction issue and failed on the ESOP issue, so the revisional order was upheld in part and set aside in part.
Ratio Decidendi: Revision under section 263 is permissible where the assessment order reflects no inquiry on a material issue, but it is not permissible where the Assessing Officer has taken a plausible view after considering the material on record.
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