Section 263 revision fails where scrutiny enquiry was made on agricultural income and raw coffee sales.

Section 263 revisional jurisdiction could not be invoked where the Assessing Officer had made specific enquiries on the assessee's claim of agricultural income from sale of raw coffee and on the application of Rule 7B, and the assessee had furnished details that coffee was picked, dried and sold without curing. Acceptance of the returned income after such scrutiny showed, at most, a possible case of inadequate enquiry, not a complete lack of enquiry. Because the twin requirements of error and prejudice to the Revenue were not established on these facts, the revisional order was held unsustainable and was set aside.

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Issues: Whether the Principal Commissioner was justified in invoking revisional jurisdiction under section 263 of the Income-tax Act, 1961 on the footing that the assessment order was passed without proper enquiry into the assessee's claim of agricultural income from sale of raw coffee and the applicability of Rule 7B of the Income-tax Rules, 1962.

Analysis: The record showed that, during the original scrutiny assessment, the Assessing Officer issued a detailed questionnaire calling for particulars of the nature of agricultural income, the processes undertaken, and the mode of sale of agricultural produce. The assessee replied that coffee was picked, dried and sold as raw coffee without curing, and also furnished supporting sale details and documents. On that basis, the assessment under section 143(3) read with section 144B was completed accepting the returned income. In such a situation, the case was not one of complete lack of enquiry. At most, the Principal Commissioner could suggest that the enquiry was inadequate. The settled distinction between lack of enquiry and inadequate enquiry meant that section 263 could not be invoked merely because the revisional authority held a different view or considered the enquiry insufficient. The twin requirements that the order be both erroneous and prejudicial to the interests of the Revenue were not shown to coexist on the facts.

Conclusion: The invocation of section 263 was not justified and the revisional order was liable to be set aside.

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