Revisional jurisdiction under section 263 cannot replace a plausible Assessing Officer view; PCIT's order set aside.

Principal Commissioner's invocation of revisional jurisdiction under section 263 was set aside because the Assessing Officer had conducted enquiries, considered submissions and documents, and adopted a plausible, sustainable view on allowance of deduction under section 80P(2)(a)(i) for interest income. The Tribunal applied the twin conditions for section 263 (order erroneous and prejudicial to revenue) and the principle that mere disagreement with a plausible AO view does not permit replacement by the Commissioner; it also found deficiencies in the PCIT's reasoning and inadequate demonstration that the AO's view was unsustainable in law, therefore revisional power was not attracted.

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Issues: (i) Whether the Principal Commissioner of Income Tax validly assumed jurisdiction under section 263 of the Income-tax Act, 1961; (ii) Whether the assessment order dated 05/09/2022 was erroneous and prejudicial to the interests of revenue within the meaning of section 263 of the Income-tax Act, 1961; (iii) Whether the ld. PCIT complied with requisite due process before exercising revisional jurisdiction under section 263 of the Income-tax Act, 1961.

Issue (i): Whether the Principal Commissioner validly assumed jurisdiction under section 263 of the Income-tax Act, 1961.

Analysis: The Tribunal examined the notice of revision and the record of assessment to determine if the ld. PCIT's satisfaction triggering section 263 was supported by objective material. The record showed that the Assessing Officer issued detailed notices under sections 142(1) and 143(2), called for specific information on deduction under Chapter VI-A and investments, received written submissions and documentary evidence, and after examination completed assessment under section 143(3) r.w.s. 144B. The Tribunal applied settled principles that section 263 is supervisory and requires satisfaction of twin conditions (order erroneous and prejudicial to revenue) and that mere disagreement with a plausible view taken by the AO does not justify revision. Reliance was placed on authorities establishing that where two views are possible and AO has taken a plausible view, the Commissioner cannot substitute his opinion by invoking section 263.

Conclusion: The ld. PCIT did not validly assume jurisdiction under section 263 of the Income-tax Act, 1961.

Issue (ii): Whether the assessment order dated 05/09/2022 was erroneous and prejudicial to the interests of revenue within the meaning of section 263 of the Income-tax Act, 1961.

Analysis: The Tribunal considered whether the AO's allowance of deduction under section 80P(2)(a)(i) for interest income from bank deposits was an error prejudicial to revenue. The AO had made inquiries, issued detailed questionnaires on deduction under section 80P and investments, and recorded that submissions and documents justified acceptance of returned income. The question of characterisation of interest income involved competing judicial opinions; jurisdictional High Court judgments supported the AO's view that interest on deposits attributable to the business of providing credit can be deductible under section 80P, while other decisions (including Totagars) were distinguishable on facts. The Tribunal held that the AO adopted one of the plausible views and that the PCIT's conclusion did not show the AO's view to be unsustainable in law or a grievous error attracting section 263.

Conclusion: The assessment order dated 05/09/2022 was neither erroneous nor prejudicial to the interests of the revenue for purposes of section 263 of the Income-tax Act, 1961.

Issue (iii): Whether the ld. PCIT complied with requisite due process before exercising revisional jurisdiction under section 263 of the Income-tax Act, 1961.

Analysis: The Tribunal reviewed the show-cause notice dated 28/02/2025 and the opportunity afforded to the assessee. While notice and hearing were accorded, the Tribunal noted deficiencies in the ld. PCIT's reasoning in the show-cause (not specifying applicable clause(s) of Explanation 2) and found that the material on record evidenced that AO had conducted enquiries and applied mind. The exercise of revisional power requires both lawful satisfaction and adequate articulation of reasons; substitution of the AO's plausible view without demonstrating unsustainability in law fails the due process and scope of section 263.

Conclusion: The ld. PCIT did not satisfy the due process and substantive threshold required for valid exercise of revisional jurisdiction under section 263 of the Income-tax Act, 1961.

Final Conclusion: The Tribunal set aside the order passed by the Principal Commissioner under section 263 of the Income-tax Act, 1961 and allowed the assessee's appeal, concluding that the AO had taken a plausible view after adequate enquiry and that the revisional powers under section 263 were not attracted.

Ratio Decidendi: Where the Assessing Officer, after making enquiries and applying his mind, adopts one of two plausible views reasonably sustainable in law regarding taxability or deduction, the Principal Commissioner cannot invoke section 263 of the Income-tax Act, 1961 to substitute the AO's view unless that view is shown to be unsustainable in law or the order is shown to be erroneous and prejudicial to the interests of the revenue.

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