Revisionary jurisdiction under section 263 fails where section 28 interest is treated as enhanced compensation after enquiry.

Section 263 could not be invoked where the Assessing Officer had examined the nature of interest received under section 28 of the Land Acquisition Act and accepted the assessee's explanation that it formed part of enhanced compensation exempt under section 10(37). The assessment was not an order passed without enquiry or on a mere lack of discussion, and acceptance of one of two possible views did not make it erroneous and prejudicial to the Revenue. The revision was also substantially driven by an audit objection, while the distinction between section 28 and section 34 interest supported the view that section 28 interest is an accretion to compensation. The revisionary order was quashed.

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Issues: Whether the Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 on the ground that the Assessing Officer had wrongly accepted the assessee's treatment of interest received under section 28 of the Land Acquisition Act, 1894 as part of enhanced compensation exempt under section 10(37) of the Income-tax Act, 1961.

Analysis: The assessee had disclosed the receipt and responded to the assessment query regarding the nature of the amount received under section 28 of the Land Acquisition Act, 1894. The record showed that the Assessing Officer had examined the issue and accepted the explanation that the amount formed part of enhanced compensation. The order could not, therefore, be characterised as one passed without enquiry or with a mere lack of discussion. The revision was also founded substantially on an audit objection and on the view that the decision in Mahender Pal Narang governed the controversy. The decision of the Supreme Court in Ghanshyam HUF, together with the subsequent affirmation of the distinction between section 28 and section 34 interest, supported the view that section 28 interest is an accretion to compensation. In these circumstances, the issue was at least debatable, and acceptance of one possible view by the Assessing Officer did not render the assessment order erroneous and prejudicial to the interests of the Revenue.

Conclusion: The invocation of section 263 was not sustainable and the assessee succeeded on this issue.

Final Conclusion: The revisionary order was quashed and the assessee's treatment of the receipt was left undisturbed.

Ratio Decidendi: Section 263 cannot be invoked where the Assessing Officer has applied his mind to the issue, the assessment is based on one of two possible views, and the revision is founded mainly on an audit objection rather than on a demonstrable error causing prejudice to the Revenue.

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