Failure to enquire into land sale tax consequences justified revision under section 263.

An assessment completed without enquiry into a material issue with tax consequences is erroneous and prejudicial to the interests of the revenue, making revision under section 263 valid. Here, the Assessing Officer examined only cash deposits and made no enquiry into the sale of land or whether the properties fell within the municipal limits of Bilaspur as capital assets under section 2(14). The omission to verify the capital-gains implications, including the effect of the municipal boundary notification, brought the case within section 263 and Explanation 2. The revisional order was upheld.

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Issues: Whether the revisional order under section 263 was validly made on the ground that the Assessing Officer failed to enquire into the sale of lands and their character as capital assets within the municipal limits of Bilaspur.

Analysis: The assessee had sold three properties at Bodri, Bilaspur, but the assessment order dealt only with cash deposits and contained no enquiry or finding on the land transactions. The revisional authority recorded that the municipal boundary of Bilaspur had been extended by the relevant notification, and that the lands fell within the municipal limits and therefore constituted capital assets within section 2(14) of the Income-tax Act, 1961. In such circumstances, the omission to examine the capital-gains consequence rendered the assessment order erroneous in so far as it was prejudicial to the interests of the revenue. The absence of enquiry and verification brought the case within the scope of section 263, including the deeming effect of Explanation 2.

Conclusion: The revisional order was upheld and the challenge to it failed.

Ratio Decidendi: Where an assessment is completed without making enquiries on a material issue that has tax consequences, the order is erroneous and prejudicial to the interests of the revenue and is liable to revision under section 263 of the Income-tax Act, 1961.

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