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Income-tax Act, 1961 · Chapter XX: Appeals and Revision · E.—Revision by the Principal Commissioner or Commissioner

Section 263: Revision of orders prejudicial to revenue

The Income-tax Act, 1961 was repealed by the Income-tax Act, 2025 from 1 April 2026. The text is kept here because the judgments below apply it.

In plain words

The Principal Commissioner or Commissioner can call for the records and revise an order of the Assessing Officer that is erroneous and prejudicial to the interests of the revenue.

  • Both conditions must exist: the order must be wrong, and it must cause loss to the revenue.
  • When the officer has taken one of two possible legal views, the order is usually not erroneous just because the Commissioner prefers the other view.
  • The assessee must be heard before any order is passed.
  • The Commissioner may enhance, modify or cancel the assessment, or direct a fresh one.
  • Explanation 2 treats an order as erroneous if passed without proper inquiry, without examining a claim, or against a Board direction or a binding court decision.
  • No order can be made after two years from the end of the financial year in which the order under revision was passed.

A simplified explanation, prepared with AI assistance from the official text below and checked automatically against it for numbers and cross-references. The official text is the law and prevails over this summary. Not legal advice.

Read the in-depth explanation, with key Supreme Court rulings ↓

Official text

(1) The [Principal Commissioner or Commissioner] may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein 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 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. [[Explanation 1.]—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,—

(a) an order passed [on or before or after the 1st day of June, 1988] by the Assessing Officer shall include—

(i) an order of assessment made by the [Assistant Commissioner or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the [Joint Commissioner] under section 144A;

(ii) an order made by the [Joint Commissioner] in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the [Principal Chief Commissioner or Chief Commissioner] or [Principal Director General or Director General] or [Principal Commissioner or Commissioner] authorised by the Board in this behalf under section 120;

(b) —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 [Principal Commissioner or Commissioner];

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the [Principal Commissioner or Commissioner] 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.]

[Explanation 2.—For the purposes of this section, it is hereby declared 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 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.] [(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.]

(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.

Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.

Source: India Code (Legislative Department), the text of the Act as it stood before its repeal. Words in square brackets [ ] were inserted or substituted by later amending Acts, and *** marks words omitted by an amendment. The amendment footnotes are not reproduced here. Official text on India Code.

Understanding this section

Section 263 lets the Principal Commissioner or Commissioner revise an order of the Assessing Officer that is erroneous in so far as it is prejudicial to the interests of the revenue. The Commissioner may enhance or modify the assessment, cancel it, or direct a fresh assessment, after hearing the assessee.

Two conditions together

The order must be erroneous, and the error must cause prejudice to the revenue. An error that does not cost the revenue anything is not enough, and neither is a loss of revenue from a correct order. Where the officer adopted one of two possible views and that view is sustainable in law, the Commissioner cannot revise only because they prefer the other view.

Failure to make inquiries that the facts plainly called for can make an order erroneous. Explanation 2, added in 2015, lists such cases.

Hearing and time

The assessee must get a real opportunity of being heard on the grounds the Commissioner relies on. No order can be made after two years from the end of the financial year in which the order sought to be revised was passed.

Key Supreme Court rulings

  • Malabar Industrial Co. Ltd. v. Commissioner of Income-Tax 2000 INSC 61

    Section 263 can be invoked only when the order is both erroneous and prejudicial to the revenue; where the officer adopts one of two permissible views, the order cannot be treated as erroneous.

  • Commissioner of Income Tax v. Amitabh Bachchan 2016 INSC 406

    Revision under section 263 is not tied to the grounds in a show cause notice, but the assessee must be given a full opportunity of hearing on the grounds relied on, and lack of inquiry by the officer can make an order erroneous.

Common mistakes

  • Revising an order only because the Commissioner prefers a different but equally possible view.
  • Passing a revision order on a ground the assessee was never heard on.

Read with: Section 143 Income-tax Act, 1961, Section 264 Income-tax Act, 1961

Prepared with AI assistance as a study aid. Every ruling listed was checked against the Supreme Court's own judgments on this site, and quoted words appear in those judgments; linked names open the full judgment. Read the judgments themselves before relying on them. Not legal advice.

Supreme Court judgments citing the section 263