Revision under section 263 fails where the Assessing Officer made enquiry and adopted a plausible view on debatable interest-on-compensation tax treatment.

Revision under section 263 is not justified where the Assessing Officer has examined the issue, applied a plausible view, and the tax position remains debatable. The text explains that interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation may be treated as an accretion to compensation and claimed exempt under section 10(37) of the Income-tax Act, rather than as ordinary interest income. Because the assessment record showed enquiry and the revision relied mainly on an audit objection and an alternative interpretation, the order could not be treated as erroneous and prejudicial to the Revenue.

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Issues: Whether the Principal Commissioner could invoke revisionary jurisdiction under section 263 of the Income-tax Act, 1961 on the ground that the Assessing Officer had not properly examined the taxability of interest received under section 28 of the Land Acquisition Act, 1894 on enhanced compensation, and whether such interest could be treated as exempt as part of compensation.

Analysis: The assessee had responded to the assessment queries and explained that the amount received under section 28 of the Land Acquisition Act, 1894 formed part of enhanced compensation and was claimed exempt under section 10(37) of the Income-tax Act, 1961. The assessment record showed enquiry on the issue, so the matter was not one of no enquiry or lack of enquiry. The revision was founded substantially on an audit objection and on the view that the decision in Mahender Pal Narang controlled the field, but the earlier Supreme Court ruling in Ghanshyam HUF, as affirmed in later decisions, supported the assessee's stand that interest under section 28 is an accretion to compensation and not merely interest income in the ordinary sense. In these circumstances, the assessment order could not be treated as erroneous and prejudicial to the interests of the Revenue, and the issue at best remained debatable with two possible views.

Conclusion: The invocation of section 263 was not justified, and the assessee's stand on the character of the interest received under section 28 was accepted.

Final Conclusion: The revisionary order was unsustainable and the assessee succeeded in appeal.

Ratio Decidendi: Where the Assessing Officer has made enquiry and taken a plausible view on a debatable tax issue, revision under section 263 cannot be sustained merely because the Principal Commissioner prefers another view or relies on an audit objection.

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