Hari Om Maratha, J.M.: This is appeal by assessee-company against order of CIT passed under s. 263 of IT Act, 1961 (hereinafter referred to as Act ), on 7th Nov., 2000. assessment order in this case was completed under s. 143(3) of Act on 30th Oct., 1998, for asst. yr. 1996-97. CIT found this order to be erroneous insofar as it was prejudicial to interest of Revenue. CIT issued notice to assessee under s. 263 dt. 3rd Oct., 2000, vide which he pointed out two errors on basis of tax audit report vide Sch. 13 of accounting policy and notes of accounts, one in valuation of closing stock and other in closing stock of finished goods and work-in-progress, which according to him were undervalued. CIT concluded after hearing assessee that on both above counts, assessment order in question is erroneous as well as prejudicial to interest of Revenue. Consequently, he revised assessment order and enhanced assessed income of assessee by Rs. 1,45,301. assessee-company is aggrieved against this order. We have heard rival submissions and perused evidence available on record. Learned Authorised Representative, Sh. Mertia, has vehemently submitted that assessee-company, manufactures metallising equipments and surface finishing equipments like blasting machines and their accessories and thereafter sales same. According to him, assessment was framed after thorough and detailed enquiry and there was no error in valuation of stock. other submission of learned Authorised Representative is that when assessment order is sought to be revised on basis of audit objection, same is not tenable in eyes of law and that scope of interference under s. 263 is not to set aside unfavourable orders and to realise more taxes. powers under s. 263 are not that of review but it is only limited one in nature of supervisory power. above submissions have been swiftly repelled by learned Departmental Representative, Sh. D.R. Zala, who has kly supported order of CIT. We have given thoughtful consideration to available facts in light of oral as well as written submissions of parties. powers of revision provided under this Act are different from powers as provided under Civil and Criminal Procedure Codes insofar as, revision is permitted when prejudice is caused to Revenue, i.e., State by errors committed by subordinate authority unlike in civil and criminal parlance revision is allowable when utter injustice is caused to litigant party, which is invariably not State. Needless to say, Parliament has given very limited power of revision under this Act only in case where order is erroneous as well as prejudicial to interest of Revenue and not otherwise, meaning thereby, order can be revised when it is both erroneous and prejudicial to interest of Revenue. When order is erroneous alone, it cannot be revised, likewise, when order is prejudicial to interest of Revenue alone, it cannot be revised. Both these conditions must co-exist to give revisional powers to CIT. Having stated something about legal provision, we would now revert to facts of case in hand. Before we move further, we would like to mention that notice issued by CIT to assessee dt. 3rd Oct., 2000, which was served on assessee on 4th Oct., 2000, explicitly speaks that valuation of closing stock and that of closing stock of finished goods and work-in-progress was pointed out by tax audit report vide Sch. 13. It is also not in dispute that assessee has been following same method of accounting from its very inception. method adopted by assessee was accepted by AO after due deliberation. There are numerous methods and modes of valuation prevalent and method adopted by this assessee regularly is also one of them. Any prejudice may have been caused to interest of Revenue when AO accepted method employed by assessee, but order cannot be stated to be erroneous on that count. first issue is with regard to valuation of inventory was done on basis of cost or realisable (market) value whichever is lower. cost was determined by excluding freight and octroi, etc. AO has accepted value of stock as declared by assessee because assessee has been following similar method from its very inception. CIT however relying on audit objection concluded that AO has not made any further enquiries in this regard and has simply accepted declared value of stock assuming same to be correct, which amounts to error in assessment order. He has placed reliance on decisions of Hon ble Delhi High Court in case of Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61: (1975) 99 ITR 375 (Del), Hon ble Madhya Pradesh High Court in case of CIT vs. Kohinoor Tobacco Products (P) Ltd. (1998) 148 CTR (MP) 536: (1998) 234 ITR 557 (MP) and Hon ble Supreme Court in case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC), and has come to conclusion that assessment order is erroneous. CIT has not accepted submission of assessee that assessment order was made after thorough and detailed enquiry and, therefore, s. 263 cannot be invoked. assessee has also relied on decision of Hon ble Rajasthan High Court in case of CIT vs. Shiv Hari Madhusudhan (1998) 145 CTR (Raj) 349: (1998) 233 ITR 649 (Raj). Sec. 263 of IT Act, 1961 (the Act, in short, hereinafter), empowers CIT to call for and examine records of any proceedings under this Act, and in case he considers that any order passed by AO is erroneous insofar as it is prejudicial to interests of Revenue, he may, after giving assessee opportunity of being heard, enhance, modify or cancel and direct fresh assessment. Therefore, under this provision revisional powers have been vested in CIT to watch interest of Revenue alone. But, it is settled position of law that he can revise assessment as above only when order is erroneous as well as prejudicial to interest of Revenue. There are numerous instances wherein assessment order is held to be erroneous. More precisely, we can, categories such error broadly as under: (a) When AO has allowed what is not allowable by Act. (b) When AO did not apply his mind while making assessment. In this case, CIT has found that AO applied his mind and has accepted whatever was offered by assessee as valuation of stock that is why he has relied on above decisions of Hon ble Delhi High Court, Madhya Pradesh High Court and Hon ble Supreme Court s cases. But, we have t o disagree with learned CIT. AO has duly accepted valuation of stock which is based on regularly followed method by assessee and which was alone accepted in earlier years. Secondly, even in case freight and octroi of raw materials are included, it will not increase cost of produced article. In any case, when method is regularly employed by assessee it will make no difference as whole on taxability of income and in that case order cannot be said to be erroneous. decisions relied by learned CIT are not applicable in this case. AO has made requisite enquiries. It is not necessary that he should enter necessarily in detailed correspondence, etc. for matter. Thus, it cannot be said that AO has not applied his mind. This is very vague term and if it is given very enlarged interpretation, it will engulf each and every order in its sphere and render this provision redundant. Rajasthan High Court in case of Shiv Hari Madhusudhan (supra), when AO had relied on past history of assessee, it was held that AO has applied his mind and there was no error in it. Therefore, there is no error on this count in order of assessment. submission of learned Authorised Representative that if method of valuation is changed in this year, it would effect valuation of opening stock of next year is correct. decisions of Hon ble apex Court in cases of CIT vs. British Paints India Ltd. (1991) 91 CTR (SC) 108: (1991) 188 ITR 44 (SC) and P.M. Mohd. Meerakhan vs. CIT (1969) 73 ITR 735 (SC) are relevant in this connection because, opening stock was valued by similar method and thus if closing stock is disturbed, it will give distorted picture and order shall be erroneous in that eventuality. second issue relates to valuation of finished goods and work in progress. assessee has valued same by adding to cost of raw material @ 50 per cent of this cost on account of overhead expenses. This issue was found in favour of assessee, so CIT dropped same. Therefore, in our considered opinion, order of CIT passed under s. 263 is not correct as assessment is not erroneous to that extent. order of CIT is hereby cancelled. CIT is hereby cancelled. In result, appeal is accepted and original assessment order is restored. *** METALLIZING EQUIPMENT v. JOINT COMMISSIONER OF INCOME TAX