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Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Revision by the Principal Commissioner or Commissioner under Income Tax Act.

1.   [Section 263]- Revision of orders prejudicial to Revenue:

The Principal Commissioner or Commissioner may call for and examine the record of am proceedings under the 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 pass such orders thereon as the circumstances of the case justify including an order enhancing or modifying the assessment or canceling the assessment and directing a fresh assessment. However, he has to pass an order only after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary.

Revision by the Principal Commissioner or Commissioner under Income Tax Act.
Revision by the Principal Commissioner or Commissioner under Income Tax Act.

However, the Principal Commissioner or Commissioner can revise the order passed by the Assessing Officer only if he considers that the order passed is prejudicial to the interests of the revenue.

For removal of doubts, it is provided that the Principal Commissioner or Commissioner can revise the following orders also:

(a)     an order of assessment made by the Assistant Commissioner/Deputy Commissioner or the Income-tax Officer on the basis of directions issued by Joint Commissioner under section 144A.

(b)     an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of Assessing Officer conferred on him under the orders or directions issued by CBDT or Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by CBDT under section 120.

When will the order of the Assessing Officer be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue?

Since the interpretation of expression “erroneous in so far as it is prejudicial to the interests of the revenue” has been a contentious one, the Finance Act, 2015 has inserted the following Explanation 2 to section 263(1) w.e.f. 1.6.2015 in order to provide clarity on the issue.

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:

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(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.

Time limit for passing the revision order under section 263:

The Commissioner cannot revise the order of the Assessing Officer after the expiiy of 2 years from the end of the financial year in which the order sought to be revised was passed. In computing the period of limitation of 2 years, the following period shall be excluded:

(1)     the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129, and

(2)     any period during which any proceeding under this section is stayed by an order or injunction of any court.

No time limit in the following cases:

An order of revision 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 under the Income-tax Act or order of Court under any other law.

Commissioner’s power of revision extends to matters not covered in appeal [Clause (c) of Explanation to section 263]:

Where an order passed by the Assessing Officer has been subject matter of any appeal, it cannot be revised by the Commissioner. However, in respect of such matters which have not been considered and decided in appeal, the Commissioner has powers under section 263 for revision.

2.   Power of revision involves 4 steps to be taken U/s 263

Step 1:

The Principal Commissioner or Commissioner can call for and examine the records of any proceeding under the Act. For this purpose he does not need to show any reason.

Step 2:

He would see whether the order passed under the Act by the Assessing Officer is erroneous in as much as it is prejudicial to the interest of the revenue. Up to this time, there is no question of the assessee appealing or making any submission.

Step 3:

If after calling for and examining the records, the Principal Commissioner or Commissioner considers that the order of the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, then he has to give the assessee an opportunity of being heard. The Principal Commissioner or Commissioner must disclose in his notice to the assessee the grounds on which he desires to revise the order of the Assessing Officer. Further notice to show cause must be served upon the assessee reasonably ahead of the date fixed for hearing.

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Step 4:

The Principal Commissioner or Commissioner may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. lie can enhance or modify the assessment. He has also power to cancel the assessment and direct fresh assessment.

3.   [Section 264]- Revision of orders in favor of Assessee:

Revision of orders not covered by section 263, can be made by the Principal Commissioner or Commissioner either on his own motion or on an application made by the assessee, provided orders have been passed by an authority subordinate to him. The application made by the assessee shall be accompanied by a fee of Rs. 500. The Principal Commissioner or Commissioner may call for the record of any proceeding under this Act on the basis of which such order has been passed and may make such inquiry or cause such inquiry to be made. He may pass such orders thereon as he thinks fit as are not prejudicial to the assessee. The Principal Commissioner or Commissioner, under this section can cancel the assessment and direct the Assessing Officer to make a fresh assessment but such direction shall not be prejudicial to the assessee.

The Principal Commissioner or Commissioner shall not revise any order under this section in the following cases:

(a)     where the order has been made more than one year previously, the Principal Commissioner or Commissioner shall not, on his own motion, revise such an order; or

(b)     where the application for revision by the assessee has been made after one year from the date on which the order in question was communicated to him or the date on which he otherwise came to know of it, whichever is earlier.

However if the Principal Commissioner or Commissioner is satisfied that the assessee was prevented by sufficient cause from making the application within the prescribed period he may admit an application made after the expiry of that period.

Example: Assessing Officer has passed an order on 15.11.2018 which was received by the assessee on 19.11.2018. In this case CIT can make a revision order suo moto up to 15.11 .2019 whereas the assessee can file application under section 264 up to 19.11.2019.

(c)      where an appeal against the order lies to the Commissioner (Appeals) but it has not been made and the time within which such appeal may be made has not expired; and the assessee has not waived his right of appeal; or

(d)     where the order has been made the subject of an appeal to the Commissioner (Appeals) i.e. where an appeal has been filed to CIT (Appeal) on any issue relating to such order.

See also  First Appeal Filed by the Assessee

Time limit for passing the revision order under section 264:

On application made by the assessee under this section, the Principal Commissioner or Commissioner shall pass an order within one year from the end of the financial year in which the application is made by the assessee. In computing the period of limitation of one year, the following period shall be excluded:

(1)     the time taken in giving an opportunity to the assessee to be re-heard under the proviso to section 129, and

(2)     any period during which any proceeding under this section is stayed by an order or injunction of any court.

No time limit in the following case:

However, an order of revision 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, National Tax Tribunal, high Court or the Supreme Court.

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