Exordium Section 263 of the Income-tax Act, 1961 (‘the Act’) provides revisional power to Principal

Commissioner (‘Pr. CIT’) or Commissioner (‘CIT’) if he is of the opinion that an order passed by the AO is
erroneous and prejudicial to the interests of the revenue. Among other issues, the issue whether or not
an order is erroneous is always a matter of contention between the Assessee and the department. This
article discusses various aspects related to revision u/s 263 and its practical applicability. (1) Conditions
to exercise revisional jurisdiction u/s 263 and procedure to be followed in revision proceedings [Sec.
263(1)] The Pr. CIT/CIT may call for and examine the record of any proceeding under this Act, and if he
considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the
interests of the revenue, he may, after giving the assessee an opportunity of being heard and after
making or causing to be made such inquiry as he deems necessary, pass such order thereon as the
circumstances of the case justify, including an order enhancing or modifying the assessment, or
cancelling the assessment and directing a fresh assessment. In view of above, it seems that for
exercising revisional jurisdiction u/s 263 following twin conditions must be met: i. Erroneous order The
order should be erroneous. Thus, if any order is not erroneous it could not be subject to revision u/s
263. This issue is discussed below in detail along with Explanation 2 to section 263(1). i. Prejudicial to the
revenue’s interests Report this ad The order should be prejudicial to the interests of the revenue. Inter-
alia, in the following situations, an order can be said to be prejudicial to the interests of the revenue: –
Income has been under assessed; – Loss has been over assessed; Report this ad – Income has been
assessed at a lower rate; – Excess deductions, allowances and reliefs have been allowed to assessee.
Non-application of mind by the AO was held as prejudicial to the interest of the revenue in the case of
CIT v. Bhagwan Das [2005] 272 ITR 367 (All.)(HC). In absence of any finding that there is loss of revenue,
interference u/s 263 is not justified [CIT v. G. R. Thangamaligai [2003] 259 ITR 129 (Mad.) (HC)]. The
powers under section 263 of the Act are to be invoked on satisfaction of twin conditions of the order
being both erroneous and prejudicial to the interests of the Revenue. Where the tax effect because of
an order passed by the Assessing Officer is nil, such order even if erroneous being not prejudicial to the
interests of the Revenue, is not open to revision under section 263 of the Act. Punjab Wool Syndicate v.
ITO [2012] 17 ITR 439 (Chandigarh) (Trib.) Procedure to be followed in revision proceedings i. Audit
Alteram Partem / Opportunity of being heard Audi Alteram Partem is a Latin phrase meaning “listen to
the other side”, or “let the other side be heard as well”. It is the principle that no person should be
judged without a fair hearing in which each party is given the opportunity to respond to the evidence
against them. Principle of natural justice must be followed by providing opportunity of being heard to
the Assessee. This opportunity is generally provided by issuing a notice to the Assessee u/s 263. Issue of
specific Show Cause Notice is not mandatory but Opportunity of being heard is mandatory Section 263
does not in express terms require a notice to be served as in the case of section 147. Section 263 merely
requires that an opportunity of being heard should be given to the assessee and the stringent
requirement of the service of notice u/s 147 cannot be therefore be applied to a proceeding u/s 263
Gita Devi Aggarwal v. CIT [1970] 76 ITR 496 (SC) CIT v. Hukamchand Mohanlal [1971] 82 ITR 624 (SC)
Section 263 does not require any specific show cause notice detailing specific grounds on which revision
of assessment order is tentatively being proposed affecting initiation of exercise in absence thereof or to
require commissioner to confine himself to terms of notice and foreclosing (excluding/barring)
consideration of any other issue or question of fact; Commissioner is free to exercise his jurisdiction on
consideration of all relevant facts, provided an opportunity of hearing is afforded to assessee to contest
facts on the basis of which he had exercised revisional jurisdiction. CIT v. Amitabh Bachchan [2016] 69
taxmann.com 170 (SC) ii. Inquiry by Pr. CIT/CIT If Pr. CIT/CIT is of the view that any inquiry is necessary in
the matter, then he should either himself make such enquiry or may get such enquiry conducted. (2)
Void-ab-initio order cannot be subject to revision u/s 263 If the Original Assessment Order passed by the
AO is invalid/void-ab-initio, then revisionary jurisdiction u/s 263 cannot be exercised against such order.
On this issue, following judicial precedents can be referred to: Mumbai ITAT – Westlife Development
Ltd. vs. Pr. CIT – I.T.A. No.ITA No.688 /Mum/2016 Inder Kumar Bachani (HUF) v. ITO [2006] 101 TTJ 450
(Lucknow) (Trib.) Pune ITAT – Pioneer Distilleries Limited vs. Pr. CIT CIT v. Kalyan Solvent Extraction Ltd.
[2005] 276 ITR 154 (MP) (HC) Revisional power u/s 263 cannot be exercised for Original assessment
order, which has already been rectified u/s 154. Delhi ITAT – Vertex Customer Management India (P.)
Ltd. vs. DCIT [2018] 100 taxmann.com 387 To exemplify, if an order is passed by the AO against a non-
existent entity, e.g. against an Amalgamating Company or against a Dissolved Firm, such an order is
void-ab-initio and no revision can be made u/s 263 against such a void-ab-initio order. On the issue that
“an order passed against a non-existent entity is void-ab-initio”, following judicial precedents can be
referred to: Supreme Court – PCIT v. Maruti Suzuki India Ltd. – [2019] 107 taxmann.com 375 Delhi ITAT –
ACIT v. DLF Cyber City Developers Ltd. – [2015] 53 taxmann.com 81 Here it is important to take note of
section 292B, 292BB and relevant judicial pronouncements: Delhi High Court in the case of PCIT v.
Transcend MT Services (P.) Ltd. – [2019] 109 taxmann.com 421 (Delhi) (3) Inquiry by Pr. CIT/CIT If Pr.
CIT/CIT is of the view that any inquiry is necessary in the matter, then he should either himself make
such enquiry or may get such enquiry conducted. For the purpose of exercising jurisdiction u/s 263 of
the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the
revenue has to be preceded by some minimal enquiry by Pr. CIT/CIT. If the Pr. CIT/CIT is of the view that
the AO did not undertake any enquiry, it becomes incumbent on the Pr. CIT/CIT to conduct such
enquiry. If the Pr. CIT/CIT does not conduct such basic exercise then the Pr. CIT/CIT is not justified in
setting aside the order u/s. 263 of the Act. Delhi ITAT in its ruling in the case of – Dwarkadhis Buildwell
Pvt. Ltd. v. CIT – ITA No.3097/Del/2014 – order dated 1 July 2019. (4) Explanation 1 to Sec. 263(1)
(a) Order passed by the AO shall include following orders:  (i) √ an order of assessment made by the
ACIT/DCIT/ITO √ on the basis of the directions issued by the JCIT u/s 144A; (ii) √ an order made by the
JCIT √ in exercise of the powers or in the performance of the functions of an AO conferred on, or
assigned to, him √ under the orders or directions issued by CBDT or by the Pr. CCIT/CCIT or Pr.
DGIT/DGIT or Pr. CIT/CIT authorised by CBDT in this behalf u/s 120; In view of above, it seems that even
if an order is passed by an AO on the directions of his senior tax officials, still such an order can be
considered for revision u/s 263 provided other requisite stipulations are met. Whether 143(1) intimation
can be revised u/s 263? View 1 View 2 Intimation issued u/s 143(1) is not an order and AO has not
applied his mind on 143(1) intimation. Therefore, it should not be subject to revision u/s 263. However,
a contrary view was taken by the Hon’ble Bombay High Court in the case of CIT v. Anderson Marine &
Sons (P.) Ltd [2004] 266 ITR 694 (Bom.)(HC). No opinion is formed by AO for intimation u/s 143(1) –
Rajesh Jhaveri Stock Brokers 291 ITR 500 Further, 143(1) is appealable to CIT(A) and therefore it could
be said that 143(1) can be revised u/s 263 Since no opportunity of being heard is afforded to the
Assessee in 143(1), therefore revision u/s 263 cannot be invoked Whether order passed u/s 147 can be
revised u/s 263? Income-escaping assessment order passed u/s 147 r.w.s. 143(3), is an assessment order
passed by the AO and therefore, any issue, which Commissioner thinks that AO has not considered in
the said assessment/re-assessment, can be subject to revision by P. CIT / CIT u/s 263. Spencer & Co. Ltd.
v. ACIT [2012] 137 ITD 141 (Chennai) (Trib) (TM) Whether an order passed u/s 195/197 can be revised
u/s 263? Any communication by the AO u/s 195(2) that disposes of application made under section
195(1) and determines liability towards tax to be deducted at source in accordance with provisions of
section 195(2), is an order for purposes of section 263. Board of Control for Cricket in India v. DIT
(Exemption) [2005] 96 ITD 263 (Mum.)(Trib.) Whether an order passed to give effect to the orders of the
Tribunal can be revised u/s 263? The order passed by an authority which is subordinate to the Pr.
CIT/CIT, to give effect to the orders of the Tribunal is covered under the phrase “any order”. Thus,
invoking of power of revision u/s 263 by the pr. CIT/CIT is within the permissible limits of the law.
Pentamedia Graphics Ltd. v. ACIT [2012] 17 ITR 302 (Chennai) (Trib.) Whether Transfer Pricing Order u/s
92CA can be revised u/s 263? TPO is not under jurisdiction of CIT. TPO’s functions are under the
administrative jurisdiction of the DIT and not CIT. Therefore, TPO order cannot be revised u/s 263.
Mumbai ITAT in the case of Essar Steel Ltd [TS-698-ITAT-2012(Mum)-TP], has held that the CIT does not
have power to revise the TPO’s order. However, if AO has not followed TPO order or if AO has not
referred a matter to TPO despite falling under mandatory requirement to refer, then AO’s order can be
revised u/s 263. Delhi HC – Ranbaxy Laboratories Ltd. v. CIT [2012] 204 Taxman 294 AO’s omission to
follow the binding Circular, which makes it mandatory for the AO to make a reference to the TPO if the
aggregate value of the international transaction exceeds Rs. 5 crores, amounted to making asstt.
without conducting proper inquiry and investigation and resulted in the order becoming “erroneous &
prejudicial to the interest of the Revenue”. (b) Record √ “record” shall include and shall be deemed
always to have included √ all records relating to any proceeding under this Act √ available at the time of
examination by the Pr. CIT/CIT; Thus, any record can be considered by Pr. CIT/CIT provided it is available
when the Pr. CIT/CIT exercises his jurisdiction u/s 263, even if it was not considered by the AO. For
example, Pr. CIT / CIT can revise the order on the basis of a valuation report which came to the records
subsequent to the assessment. Valuation report forms part of the assessment records even if it came
subsequent to assessment. (c) Partial merger of orders under appeal √ where any order referred to in
this sub-section and passed by the AO had been the subject matter of any appeal, √ the powers of the
Pr. CIT/CIT under this sub-section √ shall extend and shall be deemed always to have extended √ to such
matters as had not been considered and decided in such appeal. Thus, the concept of partial merger
applies here which means that Pr. CIT / CIT will be competent to revise an order of assessment passed
by the AO on all the matters except those which have been considered and decided in an appeal.
Therefore, let’s say if in an order the AO has made additions on three issues and the Assessee has filed
an appeal on two of them then Pr. CIT/CIT can exercise the revisional powers on any issue other than
said two issues. (5) Explanation 2 to Sec. 263(1) An order passed by the AO shall be deemed to be
erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Pr. CIT/CIT
— (a) the order is passed without making inquiries or verification which should have been made; (b) the
order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in
accordance with any order, direction or instruction issued by the Board under section 119; or
Instructions or circulars which are contrary to the law cannot override judicial declaration of law. -
Hindustan Aeronautics Ltd. v. CIT [2000] 243 ITR 808 (SC) √ Though circulars or instructions given by
CBDT are no doubt binding in law on authorities under Act √ but when Supreme Court or High Court has
declared law on question arising for consideration √ it will not be open to a court to direct that a circular
should be given effect to and not view expressed in a decision of Supreme Court or High Court (d) the
order has not been passed in accordance with any decision which is prejudicial to the assessee,
rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other
person. To specify when an order shall be deemed to be erroneous, Explanation 2 was inserted in
section 263(1) by Finance Act 2015 w.e.f. 1 June 2015. Explanation 2 provides four scenarios in which an
order shall be deemed to be erroneous. Clause (a) of Explanation 2 Clause (a) of Explanation 2 provides
that an order shall be deemed to be erroneous if, in the opinion of the Pr. CIT/CIT “the order is passed
without making inquiries or verification which should have been made”. In view of judicial precedents
[prior to insertion of said clause (a)], in the following situations an order can be said to be erroneous: 1.
If no inquiries or verification are made by the AO before passing an order; or 2. If an order is passed
“without application of mind” i.e. non application of mind to relevant material; or 3. If an order is not in
accordance with fact or law i.e. if there is an incorrect assumption of facts or an incorrect application of
law. On this issue, following judicial precedents can be referred to: Malabar Industrial Co. Ltd. v CIT
[2000] 109 Taxman 66 (SC)/ 243 ITR 83 Himachal Pradesh Financial Corpn. [2010] 186 Taxman 105
(Himachal Pradesh) CIT v. Jawahar Bhattacharjee [2012] 341 ITR 434 (Gauhati) (HC) (FB) However, clause
(a) of explanation 2 seems to provide very wide power to Pr. CIT/CIT to deem an order as erroneous if, in
his opinion “the order is passed without making inquiries or verification which should have been made”.
The words “which should have been made” in clause (a) are very subjective and department could
happily argue that even if the AO has made some inquiries while passing the order, however, if in the
opinion of Pr. CIT/CIT the AO has not made such inquires which should have been made in view of Pr.
CIT/CIT, still such an order could be treated as erroneous. This makes these revisional proceedings very
subjective as how could an AO know in advance what all inquiries would satisfy the opinion of Pr.
CIT/CIT so as to make such inquires out of the ambit of clause (a). This could lead to dispute between
the Assessee and tax authorities and could result in increased litigation. To avoid protracted litigation, it
would be in the interest of both the Assessee and the revenue (including the AO and the Pr. CIT/CIT) to
provide a specific guidance on the nature of inquiries which should have been made by the AO before
concluding any assessment. Such a criterion in clause (a) is arbitrary in nature and is in violation of
Article 14 of the Constitution of India. Article 14 of the Constitution of India provides for equality before
the law or equal protection of the laws within the territory of India. It states that “The State shall not
deny to any person equality before the law or the equal protection of the laws within the territory of
India.” By allowing the scope of aforesaid subjectivity which can easily result into arbitrary revisional
orders, the principle of equality enshrined in Article 14 gets violated. The words “which should have
been made” in continuation of the words “without any inquiries or verification” gives birth to an
altogether new phrase due to inherent subjectivity of the words “which should have been made”.
Though the law is same for all, however, as no two persons think alike and there could be variance in
their analysis, understanding and application of law in same or somewhat different facts and situations,
therefore it may be possible that two different officers may not ask for exactly same questions,
documentation and explanations from the Assessee and may not make exactly same inquiries and
verifications. This may lead to different views being formed by Pr. CIT/CIT on said two orders.
Memorandum to Finance Bill 2015 While inserting explanation 2 to section 263 Memorandum to
Finance Bill 2015 stated as under: “Revision of order that is erroneous in so far as it is prejudicial to the
interests of revenue The existing provisions contained in sub-section (1) of section 263 of the Income-tax
Act provides that if the Principal Commissioner or Commissioner considers that any order passed by the
assessing officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after
giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying
the assessment made by the assessing officer or cancelling the assessment and directing fresh
assessment. The interpretation of expression “erroneous in so far as it is prejudicial to the interests of
the revenue” has been a contentious one. In order to provide clarity on the issue it is proposed to
provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is
prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or
Commissioner,— (a) the order is passed without making inquiries or verification which should have been
made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not
been made in accordance with any order, direction or instruction issued by the Board under section 119;
or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee,
rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other
person. This amendment will take effect from 1st day of June, 2015.” It can be observed from aforesaid
memorandum that explanation 2 was inserted to provide clarity on the interpretation of expression
“erroneous in so far as it is prejudicial to the interests of the revenue”. However, the words “which
should have been made” in clause (a) adds more subjectivity rather than providing clarity, particularly in
absence of any guidance on the nature of inquiries which should have been made by the AO before
completing the assessment. Merely because from a perfectionist point of view, it is felt that some more
enquiries and verifications could have been made by the AO, assessment order cannot be declared to be
erroneous and prejudicial to the interests of revenue [Delhi Tribunal Special Bench in the case of Salora
International Ltd. v. Addl. CIT [2005] 2 SOT 705 (Delhi) (Trib.)] Further, as it is clearly mentioned that this
amendment will take effect from 1st June 2015, therefore it will have prospective effect only. On this
issue, following judicial precedents can be referred to: Delhi ITAT Bench of Tribunal in the case of Arun
Kumar Garg (HUF) vs. PCIT in ITA No. 3391/Del/2018 (order dated 8 January 2019) (AY 2014-15)
Moreover, it cannot override the substantive provision of section 263(1). Judicial review of Explanation 2
to section 263(1) Crompton Greaves Limited v. CIT [2016] 46 ITR(T) 465 (Mumbai – Trib.) It is the
Commissioner’s responsibility to demonstrate that the enquiries or verification conducted by the TOs
were not in accordance with the enquiries or verification that would have been carried out by a prudent
officer. Hence, the question as to whether the amendment brought in by way of Explanation 2(a) would
have retrospective or prospective application, was not relevant. Mumbai ITAT in the case of Shri
Narayan Tatu Rane vs. ITO – ITA No. I.T.A. No. 2690/Mum/2016 [6 May 2016] Delhi ITAT has occasioned
to discuss this explanation in the case of M/s Amira Pure Foods Pvt. Ltd vs. Pr. CIT – ITA No.
3205/DEL/2017 [29 NOVEMBER 2017] Kolkata ITAT has occasioned to discuss this explanation in the
case of Khetawat Properties Ltd. vs. Pr. CIT – [2020] 113 taxmann.com 8 (Kolkata – Trib.) [22 NOVEMBER
2019] and held that the opinion of the Ld. CIT has to be in consonance with that of the well settled
judicial principles and cannot be arbitrarily made discarding the judicial precedent on the subject.
Explanation to substantive section should be read as to harmonize with and clear up any ambiguity in
the main section and should not be so construed as to widen the ambit of the section. Explanation (2)
inserted by the Parliament u/s 263 cannot override the main section i.e. sec. 263(1) of the Act. ICAI Pre-
Budget Memorandum–2018 (Direct Taxes and International Tax) Even the ICAI it is pre-budget
Memorandum-2018 had highlighted the probable hardship caused by Explanation 2 to section 263.
Relevant extract of ICAI Pre-Budget Memorandum is reproduced below. The language of the Explanation
gives scope for multiple interpretations and hence, can be the subject matter of litigation. It is possible
that there may be cases where the Assessing Officer makes inquiries to his satisfaction, but it may be
inadequate in the opinion of the Commissioner. Also, it is not clear as to the point of time when it must
be seen whether the order has been passed by the Assessing Officer in accordance with any direction or
instruction of the CBDT under section 119 or in accordance with any decision rendered by the
jurisdictional High Court or Supreme Court – whether at the time of passing of the order by the
Assessing Officer or at the time when the Commissioner invokes his jurisdiction under section 263. It
may be possible that the order passed by the Assessing Officer is not in accordance with the decision of
the Supreme Court or jurisdictional High Court pronounced after passing of such order. Further, since
the amendment has already been made applicable from 1st June 2015, it needs clarification whether the
same would be applicable only in cases where the order of the Assessing Officer is passed on or after
that date; or whether the amended provisions would get attracted even if the order is passed before
that date but the revisionary proceedings are pending before the Commissioner/Principal Commissioner
on that date. An order is not erroneous if it is not a case of “no inquiry” If an order is passed after
making inquiry on an issue and after having examined the replies of the Assessee with due application of
mind, it is not the case where no inquiry was made. Therefore, such a case cannot be treated as a case
of “no inquiry” and thus proceedings u/s 263 of the Act cannot be initiated in such a case. Further, an
assessment order should not be subject to revision u/s 263 merely because another view is possible on
the issue decided by the AO. Following judgements including that of the Supreme Court has decided this
issue in favour of Assessee: Supreme Court in the case of Greenworld Corporation – [2009] 181 Taxman
111 (SC) Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. – [2012] 28 taxmann.com 273
(Delhi) Delhi High Court in the case of CIT v. Anil Kumar Sharma – [2010] 194 Taxman 504 (Delhi) Lack of
enquiry/no enquiry is different from inadequate enquiry and it is only in case of no enquiry by the AO,
Pr. CIT/CIT can exercise jurisdiction u/s 263 of the Act and not in case where the AO has made enquiries
as seems appropriate in the facts and circumstances of the case. Similar proposition was upheld in the
following rulings: Delhi Tribunal in the case of Braham Dev Gupta v. PCIT – [2017] 88 taxmann.com 831
Bombay High Court in the case of CIT v. Nirav Modi – [2016] 71 taxmann.com 272 (Bombay) [’s SLP
dismissed by SC] If detailed inquires made by AO, revision u/s 263 not sustainable Supreme Court in the
case of PCIT vs. Shree Gayatri Associates – [2019] 106 taxmann.com 31 (SC) Where Commissioner
passed a revisional order making addition to assessee’s income under section 69A in respect of on-
money receipts, however, said order was set aside by Tribunal holding that AO had made detailed
enquiries in respect of on-money receipts and said view was also confirmed by High Court, SLP filed
against decision of High Court was to be dismissed Supreme Court in the case of PCIT vs. Sumatichand
Tolamal Gouti – [2019] 111 taxmann.com 287 (SC) Where High Court upheld Tribunal’s order holding
that AO had made detailed enquiries while allowing assessee’s claim for deduction of business
expenditure and, thus, revisional order passed by Commissioner was not sustainable, SLP filed against
High Court’s order dismissed Two views are possible- Revision is not valid When the Assessing Officer
takes one of the two views permissible in law and which the Commissioner does not agree with and
which results in a loss of revenue, it cannot be treated as erroneous order prejudicial to the interest of
revenue, unless the view taken by the Assessing Officer is completely unsustainable in law. CIT v. Max
India Limited [2007] 295 ITR 282 (SC) Malbar Industries Co Ltd v. CIT [2000] 243 ITR 83 (SC) If AO had
adopted a plausible view, revision u/s 263 not sustainable Supreme Court in the case of PCIT vs. V.
Dhana Reddy & Co. – [2018] 100 taxmann.com 358 (SC) Where High Court upheld Tribunal’s order that
while determining assessee’s income in respect of godown receipts on estimate basis, AO had adopted a
plausible view and, thus, revisional order passed by Commissioner on said issue was not sustainable, SLP
filed against decision of High Court was to be dismissed Karnataka High Court in the case of CIT vs.
International Society For Krishna Consciousness – [2020] 117 taxmann.com 799 (SC) Where Assessing
Officer after making due enquiries found assesee’s claim for exemption of income as correct and, thus,
dropped reassessment proceedings, since view taken by him was one of possible views, impugned
revisional order passed under section 263 was to be set aside If Commissioner revised an order without
recording as to how it was erroneous, revision u/s 263 was unjustified CIT v. Philips India Ltd. [2015] 64
taxmann.com 402/[2016] 237 Taxman 538 (Cal.) Where Assessing Officer granted deduction on account
of lease rentals to assessee in pursuance of directions of DRP, but Commissioner revised said order
without recording as to how assessment order was erroneous, revision was unjustified. However, SC has
granted SLP against this ruling. Clause (d) of Explanation 2 Clause (d) of Explanation 2 provides that an
order shall be deemed to be erroneous if, in the opinion of the Pr. CIT/CIT “the order has not been
passed in accordance with any decision which is prejudicial to the assessee, rendered by the
jurisdictional High Court or Supreme Court in the case of the assessee or any other person”. Hon’ble
Delhi ITAT in the case of Hindustan Tin Works Ltd. v. DCIT [2005] 92 ITD 101 (Delhi) (Trib.) laid down the
ratio that even though view of AO is in conformity with decision of jurisdictional High Court or any other
High Court, Pr. CIT / CIT is entitled to invoke jurisdiction u/s 263 subject to condition that view of
jurisdictional High Court is subject matter of an appeal before Supreme Court. The author is of the view
that post insertion of explanation 2 to section 263(1), in terms of clause (d) thereof the aforesaid ratio
should not hold good as post amendment an order can be treated as erroneous when it has not been
passed in accordance with any decision which is prejudicial to the assessee, rendered by the
jurisdictional High Court or Supreme Court. Therefore, if any ruling of jurisdictional High Court or any
other High Court is favourable to the Assessee and the AO passed assessment order based on said
ruling, then such an order cannot be deemed as erroneous even if it is subject matter of an appeal
before Supreme Court unless and until supreme court has overruled the ruling of high court. Revision of
order on the basis of a non-jurisdictional High Court which was not approved by the jurisdictional High
Court is not valid – Hindustan Lever Ltd v. CIT [2012] 70 DTR 182 (Cal.)(HC). Clause (c) of Explanation 2
Clause (c) of Explanation 2 provides that an order shall be deemed to be erroneous if, in the opinion of
the Pr. CIT/CIT “the order has not been made in accordance with any order, direction or instruction
issued by the Board under section 119”. If an existing circular is in conflict with the law of the land laid
down by the High Courts or the Supreme Court, the Revenue authorities while acting quasi-judicially,
should ignore such circulars in discharge of their quasi-judicial functions. (6) Time limit for passing order
u/s 263 [Sec. 263(2) and Sec. 263(3)] Sec. 263(2) √ No order shall be made under sub-section (1) √ after
the expiry of 2 years √ from the end of the financial year in which the order sought to be revised was
passed. In view of above, if an order which is sought to be revised was passed by the AO on 10
December 2019, revisional order u/s 263 shall be passed on or before 31 March 2022 (i.e. on or before
expiry of 2 years from the end of financial year 2019-20 in which the order sought to be revised was
passed). Sec. 263(3) √ Notwithstanding anything contained in sub-section (2), √ an order in revision
under this section √ may be passed at any time √ in the case of an order √ which has been passed in
consequence of, or to give effect to, √ any finding or direction contained in an order of the Appellate
Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Where jurisdiction u/s 263 is
sought to be exercised with reference to an issue which does not form the subject-matter of re-
assessment, limitation period of 2 years u/s 263(2) shall be counted from end of FY in which order u/s
143(3) was passed CIT vs. ICICI Bank Ltd. – [2012] 19 taxmann.com 142 (Bombay) (7) Time limit for
passing fresh assessment order in pursuance of 263 order [Section 153] S. No. Where order u/s 263 is
passed by the Pr. CIT / CIT Fresh assessment order in pursuance of an order u/s 263, setting aside or
cancelling an assessment, may be made 1 On or before 31 March 2019 Before the expiry of 9 months
from the end of the FY in which the order u/s 263 is passed by the Pr. CIT / CIT 2 On or after 1 April 2019
Before the expiry of 12 months from the end of the FY in which the order u/s 263 is passed by the Pr. CIT
/ CIT Where effect to an order u/s 263 is to be given by the AO, wholly or partly, otherwise than by
making a fresh assessment or re-assessment, such effect shall be given within a period of 3 months from
the end of the month in which order u/s 263 is passed by the Pr. CIT / CIT. Provided that where it is not
possible for the AO to give effect to such order within the aforesaid period, for reasons beyond his
control, the Pr. CIT / CIT on receipt of such request in writing from the AO, if satisfied, may allow an
additional period of 6 months to give effect to the order. Provided further that where an order u/s 263
requires verification of any issue by way of submission of any document by the assessee or any other
person or where an opportunity of being heard is to be provided to the assessee, the order giving effect
to the said order u/s 263 shall be made within the time aforesaid period of 9/12 months. (8) Fresh
assessment by the AO AO can consider only those grounds regarding which direction was given by the
Pr. CIT / CIT in 263 order and can make fresh assessment on said grounds only. CIT v. D. N. Dosani [2006]
280 ITR 275 (Guj.)(HC) Unlike re-assessment u/s 148, in fresh assessment pursuance to 263 order entire
assessment is not opened before the AO. Geometric Software Solutions Co. Ltd. v. ACIT [2009] 32 SOT
428 (Mum.)(Trib.) Assessee is not eligible to claim any new benefit in fresh assessment proceedings
pursuant to 263 order. ACIT v. ITW India (P) Ltd. [2010] 40 SOT 348 (Hyd.) (Trib.) CIT v. Sun Engineering
Works (P.) Ltd [1992] 198 ITR 297 (SC) CIT v. Caixa Economica De Goa [1994] 210 ITR 719 (Bombay) (9)
Appeal before Hon’ble ITAT against 263 Order [Section 253(1)(c)] An appeal against an order passed u/s
263 lies directly before Hon’ble ITAT [and not before hon’ble CIT(A)]. The logic behind having such an
arrangement is that order u/s 263 is passed by Pr. CIT/CIT and as Pr. CIT/CIT and CIT(A) are same ranking
officers, therefore law has provided that an appeal against an order passed u/s 263 lies directly before
Hon’ble ITAT. The Assessee should file an appeal against 263 order before Hon’ble ITAT, otherwise the
Assessee may not take any ground relating to revision order in appeal against fresh assessment order –
Crew B.O.S. Products Ltd v. ACIT [2012] 135 ITD 542 (Delhi) (Trib.). The proper course of action against
an order passed under section 263 is to approach the Tribunal and not the High Court in writ. John
George Vettath v. CIT [2007] 162 Taxman 134 (Ker.) (HC) (10) Early fixation application before Hon’ble
ITAT As per section 263(2), last date for passing order u/s 263 is 2 years from the end of the financial
year in which the order sought to be revised was passed. As per section 153(3), an order of fresh
assessment in pursuance of an order u/s 263 may be made at any time before the expiry of 9 months
from the end of the financial year in which the order u/s 263 is passed by the Pr. CIT/CIT. Thus, the AO
generally left with limited time to pass a fresh assessment order in pursuance of 263 order. Therefore,
immediately after filing appeal against 263 order before Hon’ble ITAT, the Assessee can file an
application for early fixation of hearing, so that there could be a chance that ITAT pass its order before
the AO finalises the fresh assessment. Here, the Assessee should keep in mind that as the Assessee itself
is filing early fixation application, therefore the Assessee should be fully prepared and should not take
adjournment once early fixation application is accepted by the Hon’ble ITAT. (11) Appeal before Hon’ble
CIT(A) against fresh assessment Order If the Assessee has not found favour in proceedings before the Pr.
CIT/CIT, he can and he should still explain its case before the AO in fresh assessment proceedings,
irrespective of the fact that the Assessee’s appeal against 263 order is pending before Hon’ble ITAT.
However, if the order of Hon’ble ITAT is not passed before the conclusion of fresh assessment by the AO
or passed against the Assessee, then the Assessee can file an appeal against the fresh assessment order
before the Hon’ble CIT(A). (12) Probability and likelihood to find error in the assessment order is not
permitted u/s 263 Revision u/s 263 Re-assessment u/s 148 Under Revision, Commissioner must be
certain that the order is erroneous. Mere doubt that order may be erroneous is not sufficient for
invoking section 263. It is necessary to point out the exact error in the order which he proposes to
revise. For Reassessment, there shall be reason to believe that the income has escaped assessment. The
reasons must be based on some tangible material. However level of certainty is not necessary at the
time of initiation of the proceedings. CIT v. GK Kabra 211 ITR 336 (AP)   Failure to make necessary
inquiries by the AO can result in an erroneous order and accordingly it can result in revision u/s 263. Re-
assessment does not permit a review of the order passed by the AO unless there is some fresh tangible
material. Failure on the part of the AO cannot result in Re-assessment. In a recent ruling dated 17 July
2020, the Hon’ble Gauhati ITAT in the case of Abdul Hamid vs. ITO held that there is no concept of
“partial application of mind” by the AO and there could either be application of mind or non-application
of mind. Hon’ble ITAT further held that section 115BBE does not apply to business receipts/business
turnover. The error envisaged by Section 263 is not one that depends on possibility or guess work, but it
should actually be an error either of fact or of law. ACIT v. Technip Italy Spa [2006] 150 Taxman 13
(Delhi) (Trib.) Pratap Footwear v. ACIT [2003] SOT 638 (Jabalpur) (Trib.) Epilogue The flow of proceedings
starting from original assessment to filing an appeal before Hon’ble CIT(A) may be summarized as under:
Original Assessment – At the outset whenever an assessment took place, the Assessee should respond
to all the queries of the AO and should furnish robust documentation. Further, the Assessee should
check whether the original assessment is invalid or void-ab-initio on any ground. 263 Proceedings – The
Assessee should file a detailed response to 263 notice by giving reference to relevant submissions and
documentation furnished in assessment. Further, the Assessee should file suitable response coupled
with robust documentation before Pr. CIT/CIT, even if those documents have already been furnished in
assessment. 263 Order and appeal before ITAT – The Assessee has the option to file an appeal before
Hon’ble ITAT against 263 Order. The Assessee may exercise this option and may try to obtain favourable
order from ITAT. The Assessee may also file an early fixation application before Hon’ble ITAT and may try
its luck to obtain a favourable order before the AO completes fresh assessment. Fresh Assessment and
appeal before CIT(A) – In fresh assessment, the Assessee should not only furnish suitable explanations
coupled with robust documentation on the queries raised by the AO but should also challenge the
jurisdiction exercised by the Pr. CIT / CIT u/s 263 and the validity of 263 order. In case the AO pass an
unfavourable order then the Assessee may file an appeal before Hon’ble CIT(A). To save itself from the
department’s third eye in the form of revisional power u/s 263, the Assessee should keep in mind
various nitty-gritties as elucidated above. Further, the scope of clause (a) in explanation 2 is ambiguous.
It could never be the intention of the legislature to provide unrestricted powers to the Pr. CIT/ CIT to
revise orders passed by the AO. Therefore, CBDT/parliament should provide requisite clarification on
clause (a) of explanation 2 to sec. 263(1) to save precious time, money and efforts of the Government
and the taxpayers in unnecessary and avoidable litigation.

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