Section 263

Revision of Orders Prejudicial to Revenue by the Commissioner of Income Tax (CIT)

Extract of the Act:

Section 263 of the Income Tax Act, 1961 empowers the Commissioner of Income Tax (CIT) to revise any order passed by an Assessing Officer (AO) if it is considered erroneous and prejudicial to the interests of the revenue. The relevant extract is as follows:


  1. Revision of orders prejudicial to revenue. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act. Suppose he considers any order passed therein by the Assessing Officer is erroneous in that it is prejudicial to the interests of the revenue. In that case, 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. 

(2) It’s important to note that no order can 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. This time limit ensures that the revision process is timely and efficient. 

(3) Notwithstanding anything contained in sub-section (2), an order in revision under sub-section (1) may be passed at any time in consequence of or to give effect to any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. 

(4) The Principal Commissioner or Commissioner may make an order under subsection (1) at any point that has not been decided in an appeal before the Commissioner (Appeals).


Section 263 plays a crucial role in safeguarding revenue interests. Its primary purpose is to ensure that revenue is not adversely affected by erroneous orders passed by the Assessing Officers. This section empowers the CIT to correct such orders, thereby serving as a vital tool in maintaining the state’s financial health.

Legal Proceeding:

  1. Identification: The CIT identifies an order passed by the AO that appears erroneous and prejudicial to the revenue.
  2. Examination: The CIT calls for the records and examines the proceedings to confirm the errors.
  3. Notice: The CIT issues a notice to the assessee, outlining the reasons for considering the order erroneous and inviting the assessee to present their case.
  4. Hearing: The assessee is allowed to be heard. They can present their arguments and evidence to counter the CIT’s observations.
  5. Inquiry: The CIT may conduct further inquiries or investigations as necessary.
  6. Order: After considering the assessee’s response and the inquiry findings, the CIT passes a revision order. This order can:
    • Enhance or modify the assessment.
    • Cancel the assessment and direct a fresh assessment.

Legal Recourse:

If the assessee is aggrieved by the revision order passed by the CIT under Section 263, they can:

  1. File an Appeal: Appeal against the CIT’s order to the Income Tax Appellate Tribunal (ITAT) within the prescribed time limit.
  2. High Court: If unsatisfied with the ITAT’s decision, a further appeal can be made to the High Court under Section 260A, provided a substantial question of law is involved.
  3. Supreme Court: The decision of the High Court can be challenged in the Supreme Court if necessary.

Do’s and Don’ts:


  • Maintain Proper Records: Keep detailed and accurate records of all financial transactions and tax-related documents.
  • Timely Response: Respond promptly to any notice issued by the CIT under Section 263.
  • Seek Professional Help: Consult with a tax professional or legal advisor to prepare a robust defence against the CIT’s observations.
  • Review Assessment Orders: Regularly review assessment orders for potential errors or issues that could attract revision under Section 263.
  • Document Evidence: Ensure all supporting documents and evidence are well-organized and readily available for review.


  • Ignore Notices: Never ignore a notice from the CIT regarding a potential revision under Section 263.
  • Delay Response: Avoid delays in responding to notices or inquiries from the tax authorities.
  • Provide Incomplete Information: Ensure that all information and documentation in response to the notice are complete and accurate.
  • Disregard Professional Advice: Do not ignore advice from tax professionals; their expertise can be crucial in effectively handling the revision proceedings.
  • Underestimate the Process: Take the revision proceedings seriously, which can lead to enhanced tax liabilities and penalties.


Section 263 is an essential tool for the CIT to correct erroneous assessments that are prejudicial to revenue. Taxpayers must understand the process, maintain diligent records, and seek professional guidance to navigate the complexities of this provision effectively. Responding promptly and adequately to notices and preparing a solid defence are crucial steps in mitigating any adverse outcomes from a revision order under Section 263.


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