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Issues: (i) Whether the revisionary order under section 263 was sustainable when the Assessing Officer had made enquiries, examined the assessee's replies and taken a possible view on utilisation of accumulated income. (ii) Whether Explanation 2 to section 263 could be invoked without the assessee being confronted with that proposed basis in the show-cause notice.
Issue (i): Whether the revisionary order under section 263 was sustainable when the Assessing Officer had made enquiries, examined the assessee's replies and taken a possible view on utilisation of accumulated income.
Analysis: The record showed that the Assessing Officer had raised specific queries on the accumulation of income under section 11(2) and the utilisation of Rs. 6 crores, and the assessee had furnished details, Form No. 10, board resolutions and replies explaining the utilisation. The order under section 143(3) was thus passed after verification and not in a case of total absence of enquiry. The governing principle is that revisional jurisdiction under section 263 can be exercised only where the assessment order is both erroneous and prejudicial to the Revenue, and where there is lack of enquiry or the Assessing Officer's view is unsustainable in law. A mere different opinion, or a desire for deeper or more elaborate enquiry, does not justify substitution of the Commissioner's view for a possible view already taken by the Assessing Officer.
Conclusion: The revision under section 263 was not sustainable on this ground and the assessee succeeded.
Issue (ii): Whether Explanation 2 to section 263 could be invoked without the assessee being confronted with that proposed basis in the show-cause notice.
Analysis: The notice initiating revision did not clearly confront the assessee with invocation of Explanation 2 as the basis for action under section 263. An assessee must be given notice of the material foundation on which revisionary action is proposed so that an effective opportunity of hearing is afforded. A ground introduced in the revision order without prior confrontation cannot sustain the exercise of jurisdiction where it materially affects the basis of the proposed revision.
Conclusion: Invocation of Explanation 2 to section 263 was held unsustainable in the absence of confrontation in the show-cause notice.
Final Conclusion: The assessment order could not be revised, because the Assessing Officer had conducted enquiries and adopted a permissible view, and the revisionary authority did not establish any legally sustainable error warranting interference.
Ratio Decidendi: Section 263 cannot be invoked where the Assessing Officer has made enquiry and taken a possible view, unless the Commissioner independently shows, by proper verification, that the assessment order is erroneous and prejudicial to the Revenue.
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