Revision under section 263 upheld where inadequate enquiry in scrutiny assessment caused error and prejudice to Revenue.

Principal Commissioner's revision under section 263 was upheld where the assessment was found to have been completed without the enquiries and verifications required for a complete scrutiny assessment. General requisitions and routine compliance were insufficient because there was no meaningful examination of losses, the sharp increase in expenses, related-party payments, or the tax deduction at source disallowance issues. The omission was treated as a failure to apply mind, satisfying both error and prejudice to the Revenue under Explanation 2 to section 263. The assessee's challenge failed.

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Issues: Whether the Principal Commissioner validly invoked revisionary jurisdiction under section 263 of the Income-tax Act, 1961 on the ground that the assessment order was passed without making the enquiries and verifications that ought to have been made.

Analysis: The assessment proceedings showed only general requisitions and routine compliance, without meaningful verification of the losses, the sharp increase in expenses, related-party payments, or the disallowance issues relating to tax deduction at source. In such circumstances, the assessment order was treated as having been passed without the enquiries required for a complete scrutiny assessment. The twin requirements for revision, namely error and prejudice to the Revenue, were held to be satisfied because the omission to conduct proper enquiry amounted to a failure of application of mind and brought the case within Explanation 2 to section 263.

Conclusion: The invocation of section 263 was upheld and the assessee's challenge failed.

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