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Author: Mohini Chaturvedi, Sharda University

Section 263 of the Income Tax Act, 1961 seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner of Income Tax (CIT) to revise any assessment and take suo moto cognizance to take corrective action. In the case of CIT V Gabriel India Ltd[1], the scope of the expression "erroneous" was discussed and it was held that an order cannot be termed as "erroneous" unless it is not as per law.


In the case of Malabar Industrial Co. Ltd. V CIT[2], it was observed that Commissioner can take recourse under Section 263(1) of the Act only if the twin conditions are satisfied which are-

(i) the order of the assessing officer sought to be revised is erroneous and

(ii) it is prejudicial to the interest of the revenue.

The twin conditions are mandatory to be fulfilled otherwise if any condition is absent, Section 263 will not apply.

The Assessee will be given the opportunity of being heard and after the inquiry, only the Commissioner of Income Tax (CIT) shall pass such order. Such order shall include the modification of the assessment, enhancing the assessment or cancelling the assessment and giving direction for a fresh assessment. It is provided that under Section 263(2), such order shall not be made after the expiry of two years in which the order was passed for revision.

Commissioner of Income Tax and another v Mullers Charitable Institution[3]

In this case, there was a charitable trust which advanced an amount of Rs. 30 lakhs in the assessment year 2000 - 01 and a sum of Rs. 50 lakhs in the assessment year 2001-02 for a company. The Karnataka High Court dismissed the appeal and held that the Commissioner cannot invoke the revisional power under Section 263 of the Income Tax Act to correct every type of errors committed by the Assessing Officer.


In the recent case of Virtusa Consulting Services Pvt. Ltd. v The Deputy Commissioner of Income-tax, Income Tax, Chennai[4], the Madras High Court reiterated that under Section 263 of the Income Tax Act, the revision powers conferred on the Principal Commissioner of Income Tax (PCIT) cannot be invoked only based on a change in opinion and if the assessment order has been passed after thorough application of mind. It was observed that the conditions as laid down under Section 263 must be satisfied which are –

(i) There must be a commission of an error in assessment by the assessing officer and

(ii) An erroneous decision must be prejudicial to the interest of revenue.

These two conditions are to be satisfied to invoke Section 263 of the Act.

In the matter of Kumar Rajaram v Income-tax Officer[5], the Court had considered the scope of Section 263 of the Act and opined that revision powers could not be exercised only on the terms of mere change of opinion.

In the case of Ashutosh Bandopadhyay v Commissioner of Income Tax and others[6], it was held that under Section 263, no order can be passed without giving the assessee an adequate opportunity of being heard.

In the case of Commissioner of Income Tax v Rai Bahadur[7], the Supreme Court while considering Section 31 of the Income Tax Act, 1922 considered Section 263 of the Income Tax Act, 1961 and held that the appellate powers are very wide and thus co-exist with the power of the assessing officer.

In the case of CIT v Emery Stone[8], it was held that even in a case where the facts have been disclosed by the assessee to the assessing authority if the correct position of law had not been examined by the assessing authority, the power under Section 263 of the Income Tax Act, 1961, can be invoked.

In the case of CIT v Amit Corporation[9], the Gujarat High Court stated that where the Assessing Officer after detailed verification of record and making enquiries had framed assessment, the CIT cannot revise it under the ambit of Section 263 of the Income Tax Act.

In the case of Director of Income Tax v Jyoti Foundation[10], it was held that the Revisional Authority feeling a case of inadequate enquiry must enquire to make out a case under Section 263 of Income Tax Act. It was held in the case of Russell Properties (P.) Ltd. v A. Chowdhury, Addl. CIT[11], that the power of revision under Section 263 of the Income Tax Act, 1961 can be exercised only if the conditions are satisfied which are –

a) The Commissioner must call for and examine the records of the proceedings under the Act and

b) The Commissioner must consider the order passed by the income-tax officer to be erroneous which is prejudicial to the interest of the revenue.