Section 263 revision fails where agricultural land is shown outside the capital asset definition and assessment error is unproven.

The Principal Commissioner could not invoke revisionary jurisdiction under section 263 merely because the assessment accepted the sale consideration and treated the land transaction as long-term capital gains. The assessee had produced material showing that the sold agricultural land lay beyond the prescribed distance and therefore did not fall within the definition of a capital asset under section 2(14). On those facts, the assessment order was not shown to be erroneous and prejudicial to the interests of the Revenue, so the revisionary assumption failed. The ITAT set aside the revision directions and upheld the assessee's position.

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Issues: Whether the Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 of the Income-tax Act, 1961 on the footing that the assessment under section 143(3) had wrongly accepted the sale consideration and the consequent taxability of the land transaction as long-term capital gains, despite the assessee's claim that the land was not a capital asset under section 2(14).

Analysis: The assessee had sold agricultural land and produced material showing that the land lay beyond the prescribed distance so as not to fall within the definition of a capital asset. The record also showed that the controversy over sale consideration and the tax treatment of the transaction could not sustain the revisionary assumption that the assessment order was erroneous and prejudicial to the interests of the Revenue on the facts placed before the authority.

Conclusion: The invocation of section 263 was not justified and the revision directions were set aside in favour of the assessee.

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