This is appeal filed by assessee against order of CIT dt. 21st March, 2006 for asst. yr. 2001-02 in matter of order passed under s. 263 of IT Act, 1961 wherein following five grounds have been raised by assessee: "1. That order dt. 21-3-2006 passed by learned CIT(A)-II under s. 263 of IT Act, 1961 is against law and facts on file. That assessment order dt. 6th Feb., 2004 was neither erroneous nor prejudicial to interest of revenue and that neither of grounds as detailed in show-cause notice dt. 21st Feb., 2006, neither apply nor cumulatively made assessment order in question erroneous and prejudicial to interest of revenue. That fundamental principles for holding order erroneous and prejudicial t o interest of revenue as held by Their Lordships of Supreme Court in well-known case such as in Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC) as per which their Lordships held that CIT has to satisfy that both aforesaid conditions were satisfied and if any one of them was absent, recourse could not be had to s. 263(1) of Act. That disallowance of Rs. 17,38,106 claimed under head Selling and distribution expenses and issue of deduction under s. 80HHC claimed at Rs. 32,20,387 were dealt with in appeal by learned CIT(A) and thus could not be considered by learned CIT for action under s. 263. That viewing issue in total circumstances, order dt. 6th Feb., 2004 being neither erroneous nor prejudicial to interest of revenue, could thus not be set aside by resort to action under s. 263 and hence this appeal." Rival contentions have been heard and record perused. Facts in brief are t h t assessee is engaged in business of manufacturing and export of garments. During year under consideration, assessee filed its return of income showing net profit as per P&L a/c of Rs. 35,32,028. assessee had also claimed deduction under s. 80HHC amounting to Rs. 32,25,486 as per Annex.-A Form No. 10-CCA filed along with return of income. During course of scrutiny assessment, AO called for various details and books of account. assessee attended office of AO on 25th Aug., 2003 and vide letter of even date filed routine information about business activities of company, name and address of registered office, head office and other offices, bank accounts, list of directors with their addresses and their bank accounts. In same letter, following was submitted: "As we already pointed that our account books, vouchers, files, etc. for above mentioned assessment year have been lost and FIR regarding same is already filed within Police Station, Division 6, Ludhiana on 6th June, 2002. Photocopy of same is enclosed herewith. We are trying to get record complete from getting records, information, documents, etc. from various sources." Some of details were furnished by assessee on 10th Nov., 2003 and 14th Jan., 2004 and same were taken on record by AO. AO also called for certain more details, which were not filed before him, AO, therefore, decided to proceed on basis of material available on record. AO found that in P&L a/c, assessee has claimed loss of Rs. 17,38,106 under head "Selling and distribution expenses" as loss on sales (exports). As assessee did not furnish supporting documents, AO, disallowed expenditure of Rs. 17,38,106 in full. AO also stated that assessee has not given reconciliation of export sales etc., he, therefore, disallowed entire claim of deduction under s. 80HHC amounting to Rs. 32,25,486. AO also disallowed claim on account of charity of donation, interest on TDS, disallowance under s. 43B of Act etc. CIT undertook proceedings under s. 263 of IT Act, 1961 wherein he observed that assessee had shown closing stock to tune of Rs. 5.28 crores against export turn over of Rs. 6.13 crores. He further stated that assessee had shown M/s Meghna Overseas as sundry debtors to extent of Rs. 6.99 crores but no details of export were filed. He also observed that assessee had shown income of Rs. 1.61 crores as exchanged rates difference, whereas in immediately preceding year, there was no such gain. assessee had shown insurance claim amounting to Rs. 1.21 crores but no details have been furnished by assessee to show nature of insurance claim recoverable and whether it is taxable and where it has been shown or not. CIT, therefore, concluded that AO has made no third party inquiry, as result of which he has passed very weak order. Accordingly, order passed by AO under s. 143(3) dt. 14th March, 2005 was set aside with direction to examine issue pointed out and pass fresh order de novo after giving adequate opportunity to assessee. Aggrieved by order of CIT passed under s. 263 of IT Act, 1961, learned Authorised Representative Shri Ashwani Kumar contended that whatever information was available with assessee, were furnished before AO and since its books of account, vouchers etc. were lost, proper FIR was also lodged with police station, same could not be produced before AO. As per learned Authorised Representative, after making full inquiries and on basis of material available on record, AO after applying his mind has already disallowed entire claim of deduction under s. 80HHC of Act amounting to Rs. 32,25,456, and also disallowed claim of Rs. 17,38,3 06 debited to profit and loss account, and also various other disallowances as mentioned in assessment order, order of AO cannot be said to be erroneous insofar as prejudicial to interest of Revenue. As per learned Authorised Representative, both twin conditions are required to be satisfied while invoking provisions of s. 263 of Act and merely on basis of order of AO was found by CIT as weak, he cannot invoke provisions of s. 263 of Act unless he can point out any prejudice having been caused to Revenue, because of such order. He further submitted that nowhere CIT has given any finding that order of AO was erroneous which resulted into prejudice to interest of Revenue. He further contended that whatever disallowance he has made and which are subject-matter of appeal before CIT, cannot be made basis for exercising powers under s. 263 of Act. It was also contended by learned Authorised Representative that even while giving effect of order of CIT, in its order under s. 143(3)/263 of IT Act, 1961, AO had only made addition in respect of insurance claim of Rs. 1.21 crores and no other additions were made by AO. As per learned Authorised Representative, there was no any accrual nor any receipt of any income by assessee company from insurance company on account of claim filed by it for loss of goods in transit. Accordingly, such notional income cannot be brought to tax under IT Act, 1961. He therefore contended that CIT had wrongly issued direction for bringing to tax net notional income which neither accrued nor received by assessee during year under consideration. On other hand, learned Departmental Representative Shri K.C. Badhok submitted that assessee did not furnish full information as well as books of account before AO and AO also did not undertake full inquiry with third party, CIT was justified in setting aside order of AO and for doing assessment de novo. We have considered rival contentions carefully gone through orders o f lower authorities and also deliberated on various case laws cited by learned Authorised Representative and Departmental Representative during course of hearing before us, in context of factual matrix of case. bare reading of provisions of s. 263 makes it clear that prerequisite to exercise of jurisdiction by CIT suo motu under it, is that order of ITO is erroneous insofar as it is prejudicial to interests of Revenue. CIT has to be satisfied of twin conditions, namely, (i) order of AO sought to be revised is erroneous; and (ii) by virtue of order being erroneous, prejudice has been caused to interests of Revenue. If one of them is absent if order of ITO is erroneous but is not prejudicial to Revenue or if it is not erroneous but is prejudicial to Revenue recourse cannot be had to s. 263(1). There can be no doubt to well-settled legal proposition that provision cannot be invoked to correct each and every type of mistake or error committed by AO. incorrect assumption of facts or incorrect application of law will satisfy requirement of order being erroneous. In same category fall orders passed without applying principles of natural justice or without application of mind. phrase prejudicial to interest of Revenue is not expression of art and is not defined in Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. scheme of Act is to levy and collect tax in accordance with provisions of Act and this task is entrusted to Revenue. If due to erroneous order of Act and this task is entrusted to Revenue. If due to erroneous order of ITO, Revenue is losing tax lawfully payable by person, it will certainly be prejudicial to interests of Revenue. phrase prejudicial to interest of Revenue has to be read in connection with erroneous order passed by AO. Every loss of revenue as consequence of order of AO cannot be treated as prejudicial to interests of Revenue, for example, when ITO adopted one of courses permissible in law and it has resulted in loss of revenue; or where two views are possible and ITO has taken one view with which CIT does not agree, it cannot be treated as erroneous order prejudicial to interest of Revenue unless view taken by ITO is unsustainable in law. order cannot be termed as erroneous unless it is not i n accordance with law. If ITO acting in accordance with law passes some order, same cannot be branded as erroneous by CIT simply because he is of some other view or in opinion of CIT order passed by AO is weak. This section does not visualize case of substitution of judgment of CIT for that of ITO, who passed order, unless decision is held to be erroneous causing prejudice to interest of revenue. power of suo motu revision under sub-s. (1) of s. 263 is in nature of supervisory jurisdiction and same can be exercised only if both circumstances specified therein exist. Furthermore order passed by AO cannot be set aside for making roving inquiry without pointing out any error in his order. order can be revised only when such order is demonstrated to be erroneous, powers of revision is not meant to be exercised for purpose of directing officer to hold another investigation when order of AO is not found to be erroneous. Where assessment order has been passed by AO after taking into account assessee s submissions and documents furnished by him and no material whatsoever has been brought on record by CIT which showed that there was any discrepancy or falsity in evidences furnished by assessee, order of AO cannot be set aside for making deep inquiry only on presumption and assumption that something new may come out. For making valid order under s. 263 it is essential that CIT has to record express finding to effect that order passed by AO is erroneous which has caused loss to Revenue. Furthermore where acting in accordance with law AO frames certain assessment order, same cannot be branded as erroneous simply because according to CIT, order should be written more elaborately. In instant case we found from record that during course of scrutiny assessment, AO has called for certain details, vouchers and books of account, assessee filed part of details, with regard to books of account, vouchers, etc. assessee filed copy of FIR regarding loss of books of account and vouchers etc. which have not been disputed either by AO or by CIT. After undertaking his all efforts and inquiry, AO found that in absence of relevant details of exports, deduction claimed under s. 80HHC amounting to Rs. 32,25,456 cannot be allowed. He therefore, disallowed entire claim of Rs. 32,25,456. He also found that expenditure of Rs. 17,38,106 even though debited under head Selling and distribution expenses , cannot be allowed. After due application of mind, he also disallowed this claim of assessee and also other claims relating to charity and donation, interest on TDS, loss on sale of shares etc. As AO has already disallowed entire claim of deduction under s. 80HHC, there does not appear to be any reason for alleging AO for not making any third party inquiry insofar as export business of assessee was concerned i.e. regarding its purchase of stocks, sundry debtors on account of export sales etc. With regard to income of Rs. 1.61 crores on account of exchange rates fluctuation, there is no reason for doubting income offered by assessee, which was received on account of difference in rate of foreign exchange on date of booking export sales vis-a-vis date of realization of export proceeds, only on plea that in immediately preceding year, assessee was not in receipt of such income. Even if it is found that part of such income was claimed as deduction under s. 80HHC, when such claim has been fully disallowed by AO, there does not appear to be any reason for making any further disallowance on this account. Now coming to direction given by CIT with regard to making addition in respect of amount of insurance claim lodged for goods lost in transit, and which was finally given effect by AO. As per our considered view, mere filing of claim with insurance company does not accrue any income in favour of assessee, as assessee has not got any right to receive such income, insofar as claim was neither accepted by insurance company nor any assurance was given for making any payment on account of such loss. Income is liable to be taxed under IT Act on basis of its accruing or arising to assessee, or on basis of its receipt by assessee, during relevant previous year. words "accrue", "arise" and "is received" are not synonymous. expression "is received" conveys clear and definite meaning. words accrue or arise depend upon rights of assessee to secure income though actual receipt of income may not be there. Ordinarily, income is said to have accrued to person when he has acquired right to income. He must have acquired enforceable right in regard to that income, though actual quantification and receipt may follow in due course. mere claim to income without enforceable right thereto cannot, therefore, be regarded as accrued income for purpose of IT Act. Likewise, mere filing of claim with insurance company, is itself not sufficient to make such income to be accrued for taxing purposes. It goes without saying that mere such filing of claim without its acceptance by insurance company cannot accrue income in hands of assessee merely by passing accounting entry to this effect in assessee s books of account. It is only when such claim is accepted by insurance company that it can be basis for treating income as "accrued" within scope of s. 5(1)(b) of IT Act. Once claim is accepted assessment of such accrued income cannot be postponed till it is actually paid to assessee. In CIT vs. Ferozepur Finance (P) Ltd. (1980) 18 CTR (P&H) 227: (1980) 124 ITR 619 (P&H), held as under: "IT is levied on income whether accounts are maintained on mercantile system or on cash basis. If income does not result at all, there cannot be levy of tax. Even if entry of hypothetical income is made in books of account, where income does not result at all as there is neither accrual nor receipt of income, no tax can be levied. Even in mercantile system of accountancy assessee could forgo whole or part of debt, which was irrecoverable, and same could not be added to income of assessee." (Emphasis, italicised in print supplied) Hon ble Supreme Court in case of Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564: (1997) 225 ITR 746 (SC) held that "income-tax is levy on income. No doubt, IT Act takes into account two points of time at which liability to tax is attracted, viz., accrual of income or its receipt; but substance of matter is income. If income does not result at all, there cannot be tax, even though in book keeping, entry is made about hypothetical income, which does not materialise". At pp. 748 and 749, Supreme Court further observed as under: "Even though assessee company was following mercantile system o f accounting and had made entries in books regarding enhanced charges for supply made to consumers, no real income had accrued to assessee company in respect of those enhanced charges. Tribunal had rightly held that claim at increased rates as made by assessee company on basis of which necessary entries were made, represented only hypothetical income, and amounts in question brought to tax by ITO did not represent income which had really accrued to assessee company during relevant previous years." This issue is also squarely covered by order of Tribunal, Delhi Benches, in case of Rama Associates Ltd. vs. Dy. CIT (2007) 106 TTJ (Del) 448: (2007) 12 SOT 207 (Del) wherein action of CIT under s. 263 for bringing to tax-net claim of loss lodged with insurance company, was held to be not justified. In view of above, we do not find any merit in order of CIT passed under s. 263 of IT Act, 1961. In result, appeal of assessee is allowed. *** LEISURE WEAR EXPORTS LTD. v. INCOME TAX OFFICER