Revision under Section 263 requires recorded prima facie error and prejudice; remand without such findings is unsustainable.

Question whether a revisional order under Section 263 setting aside an assessment under Section 143(3) r.w.s. 144B is sustainable where the Assessing Officer issued repeated Section 142(1) notices and considered detailed submissions. Principle applied: Section 263 requires the Commissioner to record clear prima facie reasons that the assessment order is both erroneous and prejudicial to revenue; mere disagreement with an AO who applied his mind does not suffice. The authority cannot order a roving inquiry or remand without demonstrating specific errors and quantifying any excessive related party payments against fair market value. Outcome: the revisional order was set aside and the AO's assessment restored.

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Issues: Whether the revisional order passed under Section 263 of the Income-tax Act, 1961 setting aside the assessment order framed under Section 143(3) r.w.s. 144B is sustainable where the Assessing Officer had issued repeated notices under Section 142(1) and considered detailed submissions regarding payments to specified persons and the Commissioner remanded the matter for fresh inquiry without recording independent findings that the order was erroneous and prejudicial to the interest of the revenue.

Analysis: The statutory test for exercise of jurisdiction under Section 263 requires a conclusion that the assessment order is both erroneous and prejudicial to the interest of the revenue. Evidence of inquiry by the Assessing Officer includes issuance of repeated notices under Section 142(1), show cause notices, receipt of detailed replies, confirmations and supporting documents addressing payments to specified persons, and framing of assessment under Section 143(3) r.w.s. 144B. Where the record shows that the Assessing Officer applied his mind to the issue and accepted the returned income after considering the material placed before him, mere disagreement by the revisional authority does not convert the assessment order into an erroneous one. Invocation of Section 263 cannot be used to direct a roving or fishing inquiry or to remand for fresh verification without the Commissioner recording clear prima facie reasons demonstrating how the impugned order is erroneous and how such error is prejudicial to revenue. Further, where payments to related parties are in issue, the Commissioner must identify and quantify any excessive or unreasonable portion in comparison to fair market value before treating the assessment as prejudicial to revenue; absence of such specific findings weakens the case for revision.

Conclusion: The revisional order under Section 263 is unsustainable and is set aside; the Assessing Officer's order under Section 143(3) r.w.s. 144B is restored. The appeal is allowed in favour of the assessee.

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