Revision under section 263 upheld for lack of inquiry into interest disallowance on non-genuine unsecured loans.

Revision under section 263 is sustainable where the assessment order is both erroneous and prejudicial to the interests of the Revenue, particularly when the Assessing Officer fails to make proper inquiry on a material issue. Here, the assessment accepted unsecured loans as non-genuine but did not examine the corresponding disallowance of interest expenditure. That omission showed lack of inquiry on a revenue-impacting matter, so the Principal Commissioner was justified in revising the order. The assessment was set aside for fresh examination of the interest disallowance issue, and the assessee's challenge to jurisdiction failed.

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Issues: Whether the Principal Commissioner was justified in exercising revisionary jurisdiction under section 263 on the ground that the Assessing Officer failed to examine disallowance of interest expenditure on unsecured loans treated as non-genuine.

Analysis: Section 263 can be invoked only where the assessment order is both erroneous and prejudicial to the interests of the Revenue. On the facts recorded, the assessment had accepted the unsecured loans as non-genuine but did not disallow the corresponding interest expenditure. The omission reflected lack of proper inquiry on an issue having revenue consequences, bringing the case within the statutory standard for revision.

Conclusion: The revisionary order was valid and the challenge to the exercise of jurisdiction under section 263 failed.

Final Conclusion: The assessment order was rightly set aside for fresh examination of the interest disallowance issue, and the assessee's appeal was rejected.

Ratio Decidendi: Revision under section 263 is sustainable where the Assessing Officer's order suffers from lack of inquiry on a material revenue issue and is therefore both erroneous and prejudicial to the interests of the Revenue.

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