Section 263 revision fails on plausible views, but stands where unsecured loan credits were accepted without proper inquiry.

Revision under section 263 was not sustainable on rental income treated as business income and construction expenditure capitalised in the books, because the AO had adopted a plausible view based on the assessee's past treatment and no error prejudicial to the Revenue was shown. However, revision was justified on unsecured loans, since the AO had merely accepted creditors' replies without adequate examination or verification of the credits; that inadequate inquiry rendered the assessment erroneous and prejudicial to the Revenue on that issue. Partial relief was therefore granted, with only the unsecured loan verification aspect sustained.

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Issues: (i) whether the revision under section 263 could be sustained in respect of rental income offered as business income and construction expenses capitalised in the books; and (ii) whether the revision could be sustained in respect of unsecured loans where the Assessing Officer was found not to have examined the credits adequately.

Issue (i): whether the revision under section 263 could be sustained in respect of rental income offered as business income and construction expenses capitalised in the books

Analysis: The assessee had consistently shown only rental income under the head business income, and the Assessing Officer had accepted that treatment on the basis of the past history of the case. The construction expenditure was reflected in the profit and loss account but was reduced by change in inventory, with the result that the amount was capitalised and not claimed as a deduction.

Conclusion: The revision was not justified on these two issues, as the Assessing Officer had taken a plausible view and there was no error causing prejudice to the Revenue.

Issue (ii): whether the revision could be sustained in respect of unsecured loans where the Assessing Officer was found not to have examined the credits adequately

Analysis: The replies of the creditors did not disclose a sufficient break-up or verification of the loans advanced, and the record showed that the Assessing Officer had merely accepted the replies without meaningful examination. This amounted to inadequate inquiry in respect of the unsecured loans.

Conclusion: The revision was justified to the extent of requiring verification of the unsecured loans, and the Assessing Officer's order was erroneous and prejudicial to the interests of the Revenue on this aspect.

Final Conclusion: The assessee succeeded on the rental income and construction expense issues, but the revision was sustained insofar as the unsecured loan verification was concerned; the appeal was accordingly disposed of by granting only partial relief.

Ratio Decidendi: Revision under section 263 is not sustainable where the Assessing Officer has taken a plausible view on an examined issue, but it can be upheld where the assessment is vitiated by inadequate inquiry and mere acceptance of replies without proper verification.

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