Section 263 revision: merger, limitation, notice and the set-aside

This is Part 2 of a three-Part series on revision under section 263 of the Income-tax Act, 1961 and section 377 of the Income-tax Act, 2025. This Part covers the limits on the power that do not turn on the merits of the assessment: the record, merger in the first appeal, the two-year limit, the hearing, the form of the order, the fresh assessment, the choice between revision and reassessment, and the writ remedy. Part 1 covers the twin test, inquiry and Explanation 2; Part 3 covers search assessments and approvals, the appeal, and section 377 in full.

Take a notice under section 263 that arrives in January, a little under two years after the end of the financial year in which the assessment was made. It proposes to treat the assessment as erroneous and prejudicial to the interests of the revenue on two or three issues. In March an order follows that sets the assessment aside and directs the Assessing Officer to make it again.

By then the assessee may have appealed the assessment, and the appeal may be pending or decided. The assessment may have been reopened, rectified, or redone after an earlier set-aside. An audit party may have raised the objection that the notice repeats. Each of these facts bears on whether the Commissioner has the power at all, and none requires the assessee to show that the Assessing Officer was right. In this Part “the Commissioner” means the revising authority, whichever of the four ranks named in section 263(1) he is; which ranks may revise what is taken up in Part 3.

Key points

• The Commissioner may look at all records relating to the proceeding that are available when he examines the case, including material that came in after the assessment order (Explanation 1(b); Supreme Court, 2 December 1997). Whether later information from outside the proceeding can make an earlier order “erroneous” is open.
• Where the order was appealed, the power extends only “to such matters as had not been considered and decided in such appeal” (Explanation 1(c); Supreme Court, 23 January 1996). In Gujarat a matter bound up with what the Commissioner (Appeals) decided is treated as considered and decided (5 September 2000; 4 February 2008).
• Whether the Commissioner can revise while the first appeal is pending is open. The Madras High Court (14 November 2018) and the Allahabad High Court (20 August 2019) say he cannot. Our view is that an issue outside the appeal can be revised during its pendency.
• The order must be “made” within two years from the end of the financial year in which the order revised was passed; it need not be served within that time (Supreme Court, 7 October 2021). Section 263 has no sixty-day floor; section 377(7) of the 2025 Act adds one, in our view for revisions under that Act only.
• After a reassessment, the two years run from the original assessment order for any issue that was not a subject of the reassessment (Supreme Court, 27 July 2007; Bombay High Court, 23 April 2010 and 14 October 2026).
• A fresh order made on the Commissioner’s own limited set-aside does not restart limitation for untouched issues (Gujarat High Court, 2 July 2008); the Kerala High Court has held that a fresh assessment after a limited set-aside in appeal does, where the set-aside was made within the original two years (30 October 2009).
• No show cause notice is required as such, but the assessee must have a full opportunity to controvert the facts on which the Commissioner decides (Supreme Court, 11 May 2016, para 11). The defect, where there is one, is of natural justice and not of jurisdiction; whether the order is then annulled or sent back to the Commissioner is open.
• Where the Assessing Officer made no inquiry, the Commissioner may cancel the assessment and leave the merits to the fresh assessment. Where he did inquire, the Commissioner must himself find the error, unless the inquiry was so superficial that he records that failure and the prejudice (Supreme Court, order of 4 April 2025).
• In Gujarat the fresh assessment is confined to the items the Commissioner dealt with (5 October 2005). It must be made within twelve months from the end of the financial year in which the section 263 order was passed (section 153(3)).
• The Punjab and Haryana and Calcutta High Courts have held that the Tribunal cannot sustain the order on a ground the Commissioner did not take.
• For tax year 2026-27 onwards the same rules are in section 377 of the Income-tax Act, 2025. Revisions for earlier tax years, whenever begun, remain under section 263 (section 536(2)(c) of the 2025 Act; a block assessment under the 2025 Act apart, see Part 3, question 13).

The record: what the Commissioner may look at

The text and the two Supreme Court decisions

Section 263(1) empowers the Commissioner to “call for and examine the record of any proceeding under this Act”. Explanation 1(b) defines the word:

“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 Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner;

The record is fixed at the time of the Commissioner’s examination, not of the assessment order. In Commissioner of Income-tax v. Shree Manjunathesware Packing Products & Camphor Works (Supreme Court, 2 December 1997) the Income-tax Officer had referred the cost of construction of a cinema theatre to the Valuation Officer and, the report not having come by the limitation date, completed the assessment on the assessee’s figure. The report came later, showed a much higher cost, and the Commissioner revised on it. The Supreme Court upheld him. The Commissioner may hold his own inquiry, and “as a result of the enquiry he may come in possession of new material and he would be entitled to take that new material into account”; so “there is no reason why the material which had already come on record though subsequently to the making of the assessment cannot be taken into consideration by him”.

South India Steel Rolling Mills v. Commissioner of Income Tax (Supreme Court, 25 February 1997) concerned an event. A firm had been allowed development rebate; a partner died before the eight years required by the Act had run and the firm stood dissolved; the Commissioner withdrew the rebate. No question as to the Commissioner’s competence had been raised before the Commissioner or the Tribunal, but the Court added: “Even otherwise there is no merit in this contention.” The dissolution “took place prior to the passing of the order by the commissioner and it could, therefore, be taken into consideration by him”. Nor did the special power of amendment in section 155 exclude section 263: the two “are distinct powers”.

The outer limit

The cut-off is the Commissioner’s own examination. In Commissioner of Income Tax v. Vam Resorts & Hotels Pvt. Ltd. (Allahabad High Court, 20 August 2019) the Revenue relied on the additions made in the fresh assessment that followed. The Bench refused (para 26): “record” means “the record available at the time of examination by the Commissioner of Income Tax and not any material or record available subsequent to his examination or exercise of power under Section 263”. The Jharkhand High Court took the opposite course in The Principal Commissioner of Income Tax, Dhanbad v. Smt. Manju Devi Chourasia (13 February 2024, para 11), treating the higher income assessed in the fresh assessment as showing, prima facie, a loss of revenue. In our view the Allahabad reading is the one the Explanation supports: a revision is tested on what the Commissioner had when he acted.

Material from outside the proceeding

Both Supreme Court decisions concerned material tied to the assessment itself. Whether later information from another proceeding (a search on a supplier, a statement in another case, a later year’s assessment) can make a properly made assessment “erroneous” is argued as question 7; the boundary with section 147 is taken up under “Revise or reopen”.

Audit objections and proposals from below

A revision may begin with an audit objection or with a proposal sent up by the Assessing Officer. The source does not matter. What matters is whether the Commissioner formed his own view, because the section speaks of what “he considers”.

For the assessee there are three decisions. In Jeewanlal (1929) Ltd. v. Additional Commissioner of Income-tax (Calcutta High Court, single judge, 12 December 1975) the Revenue’s own affidavit showed how the proceeding had begun; the Court held (para 4) that “the Additional Commissioner did not exercise his discretion and judgment”, and quashed the notice. In B and A Plantation and Industries Ltd. v. Commissioner of Income-tax (Gauhati High Court, single judge, 18 December 2006) the Court found the revision “entirely based on the objection raised by the internal audit authority” (para 32) and noted (para 36) that “What the Commissioner has, in effect, directed is that in terms of the objections raised by the audit party, the books of account be verified.” In Principal Commissioner Income Tax, Surat-2 v. M/s Shreeji Prints Pvt. Ltd. (Gujarat High Court, 3 February 2020) the Tribunal had inferred, from the identical language of the audit objection and the notice, that the Commissioner had not gone through the record. The High Court reproduced that order and dismissed the Revenue’s appeal on the Tribunal’s findings of inquiry and a plausible view (paras 6, 7), without itself ruling on the audit point.

The Gujarat High Court returned to the subject in The Principal Commissioner of Income Tax 1 v. Kadamwala Industries Private Limited (4 August 2026). In its own paragraph 6 the Court said that, “As recorded by the Tribunal, it appears” that the Commissioner had assumed jurisdiction “on the basis of the audit objections only without referring to any other corroborative material on record” to invoke Explanation 2, and it dismissed the Revenue’s appeal.

For the Revenue the authority is Commissioner of Income-tax v. Seshasayee Paper and Boards Ltd. (Madras High Court, 30 April 1998), which reversed a Tribunal finding that the Commissioner had surrendered his judgment to the audit party: an audit report does not bind the Commissioner, he may inquire into what it points out, and on the order before the Court he had applied his own mind. B and A Plantation itself accepts (para 31) that a Commissioner who reaches his own finding on an audit report may act.

The decisions discussed here do not deal separately with a revision that begins with the Assessing Officer’s own proposal; in our view the same test applies.

Section 377(2)(b) of the 2025 Act defines “record” in the same way, by reference to examination “by the Competent Authority”, without the words “shall be deemed always to have included”.

Merger: what the first appeal takes out of reach

How the law came to its present shape

Section 263 reaches an order “passed therein by the Assessing Officer”. Once an appellate authority has dealt with that order, the question is how much of it is still the Assessing Officer’s. The rule is on the provision page for the doctrine of merger in revision; the case law follows.

The Supreme Court considered the question under section 33B of the 1922 Act in Commissioner of Income-tax, Bombay v. M/s. Amritlal Bhogilal & Co. (28 April 1958). The Income-tax Officer had granted registration to a firm and assessed it as a registered firm; for two years the Appellate Assistant Commissioner had decided the firm’s appeals against the assessments, and for the third the appeal was pending; the Commissioner then cancelled the registration. The Court accepted that the assessment orders, having been modified in appeal, “had ceased to be the orders of assessment passed by the Income-tax Officer himself”, so that the Commissioner could not revise them. The order of registration was different. It was “an independent and separate order”; the Department had no appeal against it and could not challenge it in the assessee’s appeal; and so “what merges in the appellate order is the Income-tax Officer’s order under appeal and not his order of registration which was not and could never become the subject-matter of an appeal before the appellate authority”. The decision is about an order that lay outside the appeal altogether; it does not say how much of an assessment order merges when only part of it is appealed.

On that question the Bombay position is recorded in Ritz Ltd. and another v. Union of India and others (Bombay High Court, single judge, 23 March 1990): “once an order of assessment is the subject-matter of appeal, the whole of it merges in that of the appellate order” (para 8). As the Supreme Court recounts in Manjunathesware, the Explanation to section 263(1) was substituted by the Finance Act, 1988 with effect from 1 June 1988, and the Memorandum to the Finance Bill, 1989 (para 28, as quoted by the Court) said it had been meant to clarify that the Commissioner “is competent to revise an order of assessment passed by the Assessing Officer on all matters except those which have been considered and decided in an appeal”. The Finance Act, 1989 then amended the Explanation with retrospective effect from 1 June 1988 (Arbuda Mills, para 5). Clause (c) now reads:

where any order referred to in this sub-section and passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, 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.

Ritz confined the amended clause to action taken after 1 June 1988. That reading did not survive. In Commissioner of Income Tax, Gujarat-I v. Shri Arbuda Mills Ltd. (Supreme Court, three judges, 23 January 1996) the Income-tax Officer had allowed three claims; the assessee’s appeal concerned other items; the Commissioner revised the three. The Court held (para 5) that the power “shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee”. Commissioner of Income Tax, Kohlapur v. Jaykumar B. Patil (Supreme Court, 13 December 1996) followed it on questions framed in terms of “issues not touched by the CIT(A) in his appellate order”.

Clause (c) names only “the Principal Commissioner or Commissioner”, although sub-section (1) has named four ranks since 1 November 2020. What follows from that for a revision by a Principal Chief Commissioner or Chief Commissioner is argued in Part 3 (question 13).

The settled core

Two propositions follow and are not in dispute.

First, what the appellate authority did not consider and decide remains revisable. In Gujarat, Commissioner of Income-tax v. Paushak Limited (17 February 1997) reached that result on general principle, without referring to clause (c): on “those aspects which never arose in appeal” the Commissioner “had ample authority” (para 3). Commissioner of Income-tax v. Panna Knitting Industries (Gujarat High Court, 5 December 2000) applied clause (c) to three heads of weighted deduction under section 35B that the Assessing Officer had allowed, where the appeal concerned only a fourth.

Second, what the appellate authority did consider and decide is no longer revisable. In CIT v. Mehsana District Co-op. Milk Producers (Gujarat High Court, 2 April 2003) the relief under section 80J had been dealt with by the Commissioner (Appeals) before the revisional order was made, and so (para 5) “There was, therefore, no order of the Income Tax Officer which could have been revised by the Commissioner under section 263 on the question of grant of benefit of section 80J”. (The same judgment, at para 6, applies the rule that an order made on a superior officer’s directions is revisable, the assessee’s counsel conceding the point; see Part 1, and for approvals in search cases Part 3.)

Considered and decided: matters bound up with the appeal

The contest is over matters outside the grounds of appeal but close to what was decided.

For the assessee. In Commissioner of Income Tax v. Shashi Theatre (P) Ltd. (Gujarat High Court, 5 September 2000) the Assessing Officer allowed investment allowance under section 32A on some items and refused it on others. The assessee succeeded in appeal on the refused items. The Commissioner then sought to withdraw the allowance on the items the Assessing Officer had allowed. The High Court held (para 4) that to decide the refused items the appellate authority had to go into the validity of the grant on the allowed ones; that the total claim was before him; and that the Revenue’s objection “could and ought to have been raised before the Appellate Authority”. It answered the reference “irrespective of doctrine of merger”, on the last part of clause (c) alone (para 6).

Commissioner of Income Tax v. Nirma Chemicals Works P. Ltd. (Gujarat High Court, 4 February 2008) applied the same reasoning to section 80-I. The Assessing Officer had allowed the deduction after reducing it; the Commissioner (Appeals) restored the full claim; the Commissioner then sought to deny eligibility. The Court held that the appellate authority, in deciding quantum, was “duty bound to examine” whether the claim met the section, so that eligibility was “very much subject matter of the appeal” (para 15), and that Shashi Theatre “concludes the issue” (para 21). Its second ground was that two views were possible (paras 19, 20). In Principal Commissioner Income Tax, Valsad v. M/s Bhagat Textile Engineers (Gujarat High Court, 12 June 2019) the Tribunal had applied Shashi Theatre, among other grounds, to depreciation that had entered the working of a disallowance under section 80-IB decided in appeal; the High Court saw no error and treated the Revenue’s appeal as covered by Commissioner of Income-tax v. Arvind Jewellers (19 July 2002; see Part 1), without itself discussing merger (para 4).

For the Revenue. In Panna Knitting the assessee argued that the Commissioner (Appeals), whose powers are co-extensive with the Assessing Officer’s, could have withdrawn the deduction on the other three heads. The Bench accepted the premise and rejected the conclusion (para 8): clause (c) lets the Commissioner reach “such matters which have escaped the attention of the appellate authority”. That the appellate authority could have dealt with a matter is not enough.

Reconciling the two. Panna Knitting, decided three months after Shashi Theatre, does not refer to it. In Nirma the assessee’s counsel offered the reconciliation (paras 7 and 9, submissions, not the Court’s finding): section 35B listed separate heads of expenditure, each with its own conditions, whereas investment allowance and section 80-I are single deductions whose grant on any part presupposes eligibility for the whole. The Court’s own reasoning (paras 15, 16, 21) runs on the same line. The working test in Gujarat is this: an independent item that the appeal did not touch is revisable; a matter that the appellate authority had to pass on in order to decide what was before him is not.

A ground raised in the appeal and then not pressed, or not dealt with, is harder. Jeewanlal was such a case. The ground was taken in the appeal and not pressed, because the Income-tax Officer had meanwhile rectified the assessment in the assessee’s favour, and the appeal was disposed of without deciding it; the Additional Commissioner then proposed to revise the rectification (para 1). The Court held that the point, which “could have been the subject-matter of appeal and decision”, had merged, and that to allow the position to be reversed would “deprive the assessee of a forum of appeal” (para 3). That was in 1975, before clause (c), which asks for both consideration and decision. Our view is that on the present text such a ground stays open to revision, though an assessee who gave the ground up because the point had been conceded can still press the second reason in Jeewanlal. Among the decisions discussed here none considers the point under clause (c).

Shree Siddhi Infrabuild: not a return to total merger

In Shree Siddhi Infrabuild Private Limited v. Principal Commissioner of Income Tax (Gujarat High Court, 28 January 2025) assessments had been reopened after a search on another group, additions under section 68 were made in reassessment, and the Commissioner (Appeals) deleted them. The Principal Commissioner then revised the reassessment orders on disallowance under section 14A, which had been inquired into in the original assessments and formed no part of the reopening or the appeal. Quashing the revision in writ, the Court said (para 34(ii)) that the reassessment order “was subject matter of Appeal before the CIT (Appeals) and therefore, as per the principle of merger, the order passed in the re-assessment proceedings has already merged”.

That sentence should not be read as reviving total merger. Section 14A was not considered or decided by the Commissioner (Appeals), and para 34(ii) does not refer to Explanation 1(c), although the judgment elsewhere reproduces passages from Nirma Chemicals Works and Arbuda Mills that turn on it. The decision is fully supported by its other grounds: inquiry in the original assessment (paras 25, 26, 34(i)) and limitation from the original orders (paras 29 to 31). A Division Bench could not in any case depart from Arbuda Mills. An assessee may cite para 34(ii); he should not rest on it.

Section 377(2)(c)

Section 377(2)(c) of the 2025 Act keeps the rule: the powers of the Competent Authority (all four ranks, by section 377(8)(a)) “shall extend to such matters as had not been considered and decided in such appeal”. The references to 1 June 1988 and the words “shall be deemed always to have extended” are dropped.

Revision while the appeal is pending, withdrawn or dismissed

Pending appeal

Clause (c) speaks of matters “considered and decided” in an appeal. It says nothing in terms about an appeal that is still pending. Whether pendency is a bar is argued as question 5; the authorities are these.

In Smt. Renuka Philip v. The Income Tax Officer (Madras High Court, 14 November 2018) the Assessing Officer had, in a reassessment, refused exemption under section 54 and allowed it under section 54F; while the assessee’s appeal claiming section 54 was pending, the Commissioner revised the allowance under section 54F. The Bench said of clause (c) (para 22): “The above explanation makes it clear that when the appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act is barred.” The Commissioner had said that the appeal concerned section 54 and had nothing to do with the allowance under section 54F; the Bench called that finding “wholly unsustainable” (para 22), held that “the larger issue was pending before the Commissioner of Appeals”, and said that jurisdiction was wrongly assumed “on this ground also” (para 23), the other grounds being that the Assessing Officer had applied his mind and taken a possible view (paras 20, 24).

Vam Resorts, where Renuka Philip was cited (para 9), took the same view. The assessee’s appeal against a disallowance of Rs.1,20,000 out of development expenses of Rs.7,16,62,142 was pending when the Commissioner directed the Assessing Officer to examine sections 40A(3) and 40(a)(ia); the Revenue’s case was that the rest of those expenses had been accepted without inquiry (para 7). The Bench held (para 25) that clause (c) “provides that when an appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act by CIT is barred”, and repeated the point at para 28 along with a finding that the revision rested on suspicion. It did not ask whether the matters in revision were the matter in appeal.

Against these stands Amritlal Bhogilal. For the third year in that case the firm’s appeal against the assessment “was pending at the material time” when the Commissioner cancelled the registration, and the Supreme Court upheld him: “until the appeal is finally disposed of the said order subsists and is effective in law”.

The Tribunal is divided. The Rajkot Bench, in Prakashbhai Gordhanbhai Togadiya v. Pr. CIT (25 June 2024, paras 23, 25), relying on Arbuda Mills and on a decision of the Jaipur Bench which it reproduced, held that the Commissioner can assume jurisdiction during the pendency of the appeal: the Commissioner (Appeals) had not yet decided the appeal, and the revision was in any case on the part of the addition that the Assessing Officer had not made. The Mumbai Bench, in M P Trading Company v. PCIT (4 August 2026, para 37), followed the two High Courts where the revision sought to enlarge the very addition in appeal.

One practical answer does not depend on the question. On the issue that is in appeal, the Commissioner (Appeals) can himself enhance: under section 251(1)(a) he may “confirm, reduce, enhance or annul the assessment”. The Gujarat High Court made the point in JMC Projects (India) Limited v. Principal Commissioner of Income Tax (Central) (21 December 2015, para 15), when quashing a section 263 notice that sought a better basis for an addition already under appeal. The Supreme Court held on 7 April 1967, in Commissioner of Income-Tax, Calcutta v. Rai Bahadur Hardutroy Motilal Chamaria, on section 31(3) of the 1922 Act, that enhancement is confined to sources of income which the Income-tax Officer had considered; within that limit the appellate authority’s competence “ranges over the whole assessment” and is not restricted to what the assessee complains of. For a source of income that the Assessing Officer did not consider at all, enhancement is not available, and the Revenue must look to section 263 or to reassessment.

Appeal withdrawn, or dismissed without a decision on the merits

An appeal may end without any decision on the points raised: it is withdrawn, or dismissed for delay, for a defect or for non-appearance. None of the decisions discussed here deals with section 263 after such an order. What remains revisable is argued as question 6; our view is that the whole of the Assessing Officer’s order does, subject to the two years.

Limitation: the two years under section 263(2)

The rule and how to count

(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.

Time runs from the end of the financial year, not from the date of the order. Orders passed on 5 April 2023 and on 31 March 2024 both fall in financial year 2023-24, and each can be revised up to 31 March 2026. What the sub-section bars is the order: a notice issued within the two years does not save an order made after them, and notices issued after the period had run have been quashed (see the writ section below).

The period is counted from the order revised, not from the assessment year. Unlike section 153, and apart from the two exclusions in the Explanation below sub-section (3), the section has no extension for a reference to the Transfer Pricing Officer or any other event, and no sixty-day floor: the first proviso after Explanation 1 to section 153 names sub-sections (1), (1A), (2), (3) and (8) of that section only.

“Made”, not served

In The Commissioner of Income Tax, Chennai v. Mohammed Meeran Shahul Hameed (Supreme Court, 7 October 2021) the section 263 order was dated 26 March 2012 and, on the assessee’s case, reached him only on 29 November 2012. The Tribunal and the Madras High Court held the order barred. The Supreme Court reversed (para 4.3): “the word used is “made” and not the order “received” by the assessee. Even the word “dispatch” is not mentioned in Section 263 (2).” Receipt of the order “has no relevance for the purpose of counting the period of limitation”.

The holding carries a condition: it applies “once it is established that the order under Section 263 was made/passed within the period of two years”. The Department’s position there was that the order had also been dispatched within time, on 28 March 2012. The decision closes the argument from late service; where the date of making is genuinely in dispute, that condition has still to be met, ordinarily from the date of the Document Identification Number and of upload. Service still matters for the appeal: time under section 253(1)(c) runs from communication of the order (Part 3).

Which order starts the clock

The two years run from “the order sought to be revised”, and which order that is depends on where the alleged error lies.

After a reassessment

Commissioner of Income Tax, Chennai v. M/s. Alagendran Finance Ltd. (Supreme Court, 27 July 2007) is the governing decision. Assessments for three years had accepted the assessee’s treatment of its lease equalisation fund. They were reopened and reassessed on three other items. The Commissioner then revised on the lease equalisation fund, within two years of the reassessment orders and well beyond two years from the original ones. The Court held that “The proceedings for reassessment have nothing to do with the said head of income” and that merger did not apply (para 7); that although on a reopening “the whole proceedings would start afresh”, this does not mean that “the entire proceeding of assessment would be deemed to have been reopened” where the subject matter of the reassessment is “distinct and different” (para 10); and (para 15) that “the period of limitation provided for under Sub-section (2) of Section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment”.

The Bombay High Court worked the rule out in Ashoka Buildcon Ltd v. Assistant Commissioner of Income Tax (23 April 2010). The original assessment was made on 27 December 2006, so the two years ended on 31 March 2009. It was reopened on a claim under section 72A alone. On 30 April 2009 the Commissioner issued a section 263 notice against the reassessment order raising seven other issues. The Court stated the rule both ways (para 10): “On items which do not form part of the reassessment, the original assessment continues to hold the field”, and limitation runs from the original order; but for issues that formed the subject matter of the reassessment “the commencement of limitation would be with reference to the order of reassessment”. The notice was set aside (para 13).

The same line has been followed in The Commissioner of Income Tax-3 v. ICICI Bank Ltd (Bombay High Court, 8 February 2012), M/s. Indira Industries v. Principal Commissioner of Income Tax (Madras High Court, 14 June 2018), Commissioner of Income Tax v. M/s. Ganga Textiles Ltd (Madras High Court, 1 July 2025), and, on 14 October 2026, in two orders of the Bombay High Court declining to admit the Revenue’s appeals: Principal Commissioner of Income Tax v. Housing Development & Infrastructure Ltd. and Principal Commissioner of Income Tax v. Gulab Badgujar (HUF). In the first of these the original search assessment was dated 30 December 2011; orders giving effect to the Tribunal, a rectification and a reassessment on another matter followed; the revision of 26 March 2018 concerned a reserve allowed in the original order. The Tribunal held that time had ended on 31 March 2014, and the High Court saw no substantial question of law (paras 3 to 5). In Gujarat, Shree Siddhi Infrabuild applied Alagendran Finance and Indira Industries (paras 29 to 31).

The Explanation 3 argument

The Revenue’s answer in these cases was that, under the main part of section 147 and Explanation 3 to it as the section then stood (inserted, as the Bombay High Court records, by the Finance (No. 2) Act, 2009 with retrospective effect from 1 April 1989), an Assessing Officer who had reopened an assessment could assess any other income that came to his notice, whether or not it figured in the recorded reasons. So his failure to deal with another item was said to be an error in the reassessment order, revisable within two years of that order.

The Bombay High Court has rejected the argument three times: in Ashoka Buildcon (para 10), on first principle and on Alagendran Finance; in ICICI Bank (para 7), where it said that the Explanation only enabled the Assessing Officer to assess other issues once an assessment was reopened and “will not obviate the bar of limitation under Section 263(2)”; and in Housing Development & Infrastructure, where it treated the point as covered.

Two qualifications keep part of the Revenue’s case alive. Ashoka Buildcon noted (para 10) that “There is nothing on the record of the present case to indicate that there was any other income which had come to the notice of the Assessing Officer” during the reassessment; where the record shows that the other item did come to his notice, the omission is arguably an error of that proceeding. And where the reassessment order redoes the whole assessment, the original order is gone: in Income-Tax Officer and Anr. v. K.L. Srihari and Ors. (Supreme Court, 25 March 1998), an order dismissing special leave petitions, the Court was satisfied that the reassessment order “makes a fresh assessment of the entire income” and that the earlier order had been effaced; the wider question referred to three judges “is left open”. Ashoka Buildcon (para 11) distinguished it on that ground. Alagendran Finance was decided before Explanation 3 was inserted.

Section 147 as it now stands carries a single Explanation, which lets the Assessing Officer assess any issue that has escaped assessment and “comes to his notice subsequently in the course of the proceedings under this section”. The decisions discussed here were given on the earlier text; in our view the Bombay High Court’s answer, that a power to assess more does not move the date from which section 263(2) runs, meets the same argument on the present one.

A reassessment order revised on an issue outside the reopening

Even where such a revision is in time there is a second answer: an Assessing Officer does not err by not doing what he had no power to do.

In The Commissioner of Income Tax II v. Software Consultants (Delhi High Court, 17 January 2012) the assessment was reopened on fixed deposits of Rs.20 lakhs. In the reassessment the Assessing Officer accepted the explanation and made no addition on that account; he also summoned some of the share applicants and recorded their statements (para 5). The Commissioner revised because that inquiry into share application money was inadequate (para 7). Applying to section 147 as it then stood the rule that where no addition is made on the recorded reason none can be made on any other, the Court held (para 14): “Sequitur is that the Assessing Officer could not have made an addition on account of share application money in the assessment proceedings under Section 147/148. Accordingly, the assessment order is not erroneous.”

The Ahmedabad Bench of the Tribunal went further in M/s. Harsiddh Quarry Works v. The Pr. CIT-1, Ahmedabad (12 January 2024). The reopening concerned the stamp duty value of a property; the Principal Commissioner directed an addition for the unexplained source of the price. The Bench held (paras 7.2, 7.3) that the power to take up other income in a reassessment is the Assessing Officer’s, on his own satisfaction, and that the Principal Commissioner cannot use section 263 to bring in an issue that was not the subject of the reopening. Shree Siddhi Infrabuild (para 34(i)) is to similar effect for an issue already inquired into in the original assessment: the Assessing Officer “could not have again made any inquiry for the said issue”.

The Revenue’s counter is that where an addition is made on the recorded reason and another item comes to the officer’s notice, his failure to pursue it is his error. Software Consultants turned on the fact that no addition had been made on the recorded reason (paras 9, 14); it does not cover a reassessment in which one was.

Rectification under section 154

Commissioner of Income Tax, Bhopal v. Ralson Industries Ltd (Supreme Court, 4 January 2007) should not be cited on this subject for more than it decides. The Tribunal had held that the issue had merged in a section 154 order made on a rectification notice about the same deduction, although that order made no change on the point. The Supreme Court disagreed. The two powers “are distinct and different”, and “only because an order of assessment has undergone rectification at the hands of the Assessing Officer, in our opinion, the same would not mean that revisional authority shall be denuded of exercising its revisional jurisdiction”. The judgment under appeal was set aside and the Commissioner was directed “to have a fresh look at the matter in the light of the order of rectification passed by the assessing authority”.

Ralson does not decide from which order the two years run. On principle the answer follows Alagendran Finance: for an error that the rectification did not touch, the order sought to be revised is the original one. Housing Development & Infrastructure is an instance, though the contrary was not argued there. The view in B and A Plantation (para 32), that an assessment merges in an order dropping rectification proceedings, cannot stand with Ralson.

Orders giving effect to an appellate or revisional order

Two High Courts differ. In Commissioner of Income Tax v. Gujarat Forging Pvt Ltd (Gujarat High Court, 2 July 2008) the Commissioner had, for one year, revised the assessment on weighted deduction under section 35B and set it aside “on this particular point”, and for another had set it aside to the same extent on the assessee’s application under section 264. The fresh orders repeated without change the relief under section 80J allowed in the original assessments. The Commissioner then revised the fresh orders on section 80J, within two years of them and far beyond two years from the originals. The High Court held the revision barred. The Commissioner in the first round “did not direct wholly a fresh assessment”; “The mistake, if any, was committed by the Assessing Officer in his original order of assessment and not while passing fresh orders as directed by the Commissioner”; and Alagendran Finance “would apply on all fours”.

M/s. Panchaman Traders v. The Commissioner of Income Tax (Kerala High Court, 30 October 2009) goes the other way. The original assessment of 7 February 1995 computed income from arrack business under section 44AC. On the assessee’s appeal against other additions the Commissioner (Appeals), on 13 December 1995, set the assessment aside and remanded it for reconsideration of those additions. The fresh assessment of 6 March 1998 repeated that computation, although the Supreme Court had by then declared the law differently, and the Commissioner revised on 30 March 2000, within two years from the end of that financial year. The Court upheld him (para 4): “If the result of appeal is setting aside the assessment though for limited purposes, still in our view no order survives to be revised by the Commissioner under Section 263 on any point originally decided”. Conversely, “if the CIT (Appeals) had not set aside the original assessment in appeal, limitation for revision under Section 263 has to be worked out from the date of original assessment”.

The two courts agree that an order merely giving effect to a modification leaves time running from the original order, and that a whole fresh assessment restarts it. Gujarat Forging concerned a set-aside by the Commissioner himself, limited in terms; Panchaman Traders a set-aside in appeal for a limited purpose. Under section 251(1)(a) as it now stands the Commissioner (Appeals) may confirm, reduce, enhance or annul an assessment, and may set it aside and refer the case back only where the appeal is against an assessment made under section 144 (the proviso). A set-aside in appeal therefore comes today from the Tribunal, or from the Commissioner (Appeals) on a best judgment assessment. Whether the two decisions conflict, and what follows in Gujarat for a limited set-aside in appeal, is argued as question 8.

Sub-section (3), the exclusions and the Relaxation Act

Orders giving effect to the Tribunal or a court

(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, the High Court or the Supreme Court.

On its words the sub-section describes the order that is revised. It does not name the Commissioner (Appeals), so an order giving effect to a first appellate order stays under sub-section (2), as in Panchaman Traders; nor the Commissioner’s own orders under section 263 or section 264, as in Gujarat Forging. Whether it opens the whole of an effect-giving order is part of question 8; whether it also covers a revision order made again on the Tribunal’s direction, as the Gauhati High Court took it to do in 1968, is in question 9.

Exclusions, and the sixty-day floor in section 377

The Explanation below sub-section (3) excludes two periods in computing the two years. The first is “the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129”, where the Commissioner changes during the proceeding and the assessee demands a rehearing. The second is the period of a court’s stay, which since 1 April 2025 is the period “commencing on the date on which stay on any proceeding under this section was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissioner”. The Finance Act, 2025 substituted those words for “any period during which any proceeding under this section is stayed by an order or injunction of any court”, so the Revenue gains the days between the vacating order and receipt of its certified copy.

If a stay is granted when twenty days of the two years remain, the Commissioner has those twenty days, and no more, once the vacating order is received.

For tax year 2026-27 onwards, section 377(4) and (5) repeat sub-sections (2) and (3), and sub-section (6) lists the two exclusions, the rehearing now being under section 244(2) of the 2025 Act and clause (b) referring, as the Explanation below section 263(3) does, to receipt by “the jurisdictional Principal Commissioner or Commissioner”. Sub-section (7) is new:

(7) If after the exclusion of the period provided in sub-section (6), the time limit for completion, as provided in sub-section (4) is less than sixty days, such remaining period shall be extended to sixty days and such period of limitation shall be deemed to have been extended accordingly.

In the example above a Competent Authority acting under section 377 would have sixty days, not twenty. A revision for a tax year beginning before 1 April 2026 stays under section 263 whenever it is begun (section 536(2)(c) of the 2025 Act; a block assessment under the 2025 Act apart, see Part 3, question 13, and which Act governs your appeal). Section 263 has no floor, and section 536(2)(c) keeps such a revision under the repealed Act “as per the procedure specified in the repealed Income-tax Act”; in our view the floor in section 377(7) is therefore not available to it. The contrary argument is on the provision page for section 377. An assessment order for tax year 2026-27 passed on, say, 10 December 2028 could be revised under section 377 up to 31 March 2031.

The Relaxation Act, 2020

Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 provided that where a time limit under a specified Act for “passing of any order” by any authority (clause (a)) fell during the period from 20 March 2020 to 31 December 2020 (or a later notified date), and the action had not been completed, the limit “shall, notwithstanding anything contained in the specified Act, stand extended to the 31st day of March, 2021” or a later notified date.

For orders passed in financial year 2017-18 the two years ended on 31 March 2020. In M/s. Sultan Enterprises Pvt. Ltd. v. Principal Commissioner of Income Tax (Orissa High Court, 8 August 2024) the assessment order was dated 18 December 2017 and the revision order 18 March 2021; the Revenue had relied on the Relaxation Act before the Tribunal, the assessee appealed from the Tribunal’s order, and the Bench found no substantial question of law. In Excel Enterprises v. Principal Commissioner of Income Tax (ITAT Mumbai, 28 February 2023), on an assessment order of 15 December 2017 and a revision order of 31 March 2021, the Tribunal held the revision barred. The conflict is argued in question 8.

Section 254(3A): Tribunal orders sent electronically

The Finance Act, 2026 inserted section 254(3A) in the 1961 Act with effect from 30 March 2026. For orders of the Tribunal passed on or after 1 October 2026, the Tribunal is to send a copy to the jurisdictional Principal Commissioner or Commissioner electronically on the designated portal, “and the provisions relating to time limits under this Act for any appeal, reference or revision shall apply accordingly”. Section 363(10)(b) of the 2025 Act, as substituted by the same Finance Act, is in similar terms, without the date and with the words “or otherwise” added after “revision”.

In section 263 the two years run from the order revised and sub-section (3) has no time limit, so the reference to revision has little to attach to. Our view is that section 254(3A) imports no limit; it fixes the date of receipt for periods that depend on it, such as the Assessing Officer’s time under section 153(3), (5) and (6).

The notice and the hearing

No notice is required as such

Section 263 requires the Commissioner to act “after giving the assessee an opportunity of being heard”. It does not mention a notice. On section 33B of the 1922 Act, in the same words, the Supreme Court held in Gita Devi Aggarwal v. Commissioner of Income-Tax, West Bengal (31 July 1969, para 5) that the section “merely requires that an opportunity of being heard should be given to the assessee and the stringent requirement of service of notice under Section 34 cannot, therefore, be applied”. In C.I.T., West Bengal II, Calcutta v. M/s. Electro House (2 September 1971) it reversed a High Court which had held the Commissioner’s notice invalid and his jurisdiction therefore wanting: the hearing is required “before reaching his decision and not before commencing the enquiry”, and “Breach of the principles of natural justice may affect the legality of the order made but that does not affect the jurisdiction of the Commissioner.”

Commissioner of Income Tax, Mumbai v. Amitabh Bachchan (Supreme Court, 11 May 2016) restated this for section 263 (para 10): the power “is not contingent on the giving of a notice to show cause”, and failure to give a hearing “would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice”.

But the basis must be put

In Amitabh Bachchan the notice listed eleven issues; the order recorded no finding on most of them and reached adverse conclusions on matters the notice had not mentioned. The Tribunal held the order bad, so far as it rested on those matters, for that reason alone, and rejected the Commissioner’s reasons on the three issues common to the notice and the order. The Supreme Court disagreed: there is nothing in the section, it said (para 11), “to require the C.I.T. to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact”. The same paragraph states the safeguard:

while the C.I.T. is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the C.I.T. prior to the finalization of the decision.

The test (para 13) was whether the assessee “actually and really, did not have the opportunity to contest the facts” on which the Commissioner concluded. He had: the hearing ran over many days, his representative attended throughout, and the conclusions were drawn from the assessment record, which was “open for scrutiny by the assessee” (paras 13, 14). The Tribunal’s view on the findings beyond the notice was rejected (para 14); of the three common issues the Court upheld the Commissioner on the third (para 21) and did not go into the other two (para 16); his order was restored (para 22).

Rampyari Devi Saraogi v. Commissioner of Income-tax, West Bengal (Supreme Court, 1 May 1967) marks the other boundary. The notice said that inquiries showed she neither resided nor carried on business at the address declared, and that the Income-tax Officer had accepted her capital, gifts and income without inquiry. The order relied in addition on facts gathered in those inquiries which had not been communicated. The Court held (para 5) that this “was supporting material and did not constitute the basic grounds” of the order, and (para 6) that even had it been disclosed “the result would have been the same”; besides, she would have a full opportunity before the Income-tax Officer.

The two decisions give a workable rule. The assessee must have had a real opportunity to meet the basic grounds, that is, the errors the Commissioner proposes to correct and the facts on which he says they are errors: by notice, at the hearing, or because the basis is the assessment record that was open to him throughout (Amitabh Bachchan, para 14). Supporting material need not be put, unless its absence caused prejudice.

Where the ground was never put

Revision orders have been set aside on this ground before and after Amitabh Bachchan. In each of the four decisions set out first the revision also failed on another ground.

In The Commissioner of Income Tax-XIII v. Shri Ashish Rajpal (Delhi High Court, 14 May 2009) the notice referred to four issues and the order to nine. The Commissioner could have put the further issues at the hearing, but the order sheets, which the Court called for, showed nothing (paras 8, 17.1). It held (para 17.1) that the section requires “that the assessee must have an opportunity of being heard in respect of those errors which the Commissioner proposes to revise”, and rejected the Revenue’s fallback that the new points could be answered before the Assessing Officer: “This defect cannot be cured by first reopening the assessment and then granting an opportunity to the assessee”. Rampyari was distinguished as a case of supporting material.

In Commissioner of Income Tax, Delhi (Central)-I v. Contimeters Electricals Pvt. Ltd. (Delhi High Court, 2 December 2008) the notice alleged that an audit report had not been filed with the return; the order added that the assessee’s activity did not qualify for the deduction at all. The Tribunal held that the second ground, with which the assessee “was not even confronted”, could not found the revision, and the High Court was “satisfied with the findings and the approach taken”.

The third situation is Explanation 2. In Shreeji Prints the Commissioner’s order applied Explanation 2 although the notice had not mentioned it. The Tribunal held that invoking it “without confronting the assessee” was “not appropriate and sustainable in law”. The Gujarat High Court recorded that finding (para 5) and dismissed the Revenue’s appeal on the Tribunal’s findings of fact; the Supreme Court dismissed the Revenue’s special leave petition on 27 August 2021 by an order that gives no reasons. The Bombay High Court has held the same in its own words: in Commissioner of Income Tax (Exemptions), Mumbai v. Impact Foundation (India) (4 May 2026, para 13), “the show-cause notice was required to specify that the aforesaid Explanation is to be invoked against the Assessee, and if the show-cause notice does not mention that the Explanation is to be invoked, then the provisions of Section 263 of the Act cannot apply”, and an order made without confronting the assessee with it “was not appropriate and sustainable in law”.

In Gujarat, Commissioner of Income-tax v. D.N. Dosani (5 October 2005, para 11) puts the principle shortly: the Commissioner “could not have treated any further item or part of the assessment order as being erroneous and prejudicial to the interests of the revenue without giving the assessee an opportunity of being heard”.

In their results Ashish Rajpal, Contimeters, Shreeji Prints and Impact Foundation are consistent with Amitabh Bachchan: in each the assessee had no opportunity at all on the ground. Some of the reasoning goes further, as the Revenue can fairly say: the Tribunal in Contimeters invoked a rule that the department cannot travel beyond the show cause notice, and Impact Foundation (para 13) makes the notice itself the requirement, whereas Amitabh Bachchan holds that no notice is required and that the Commissioner is not confined to its terms (paras 10, 11). An order is bad not because it goes beyond the notice but because the assessee had no real opportunity on the ground. In our view the assessee raises the point by showing that the ground is not in the notice; whether it was put at the hearing is then answered from the record of the revision proceeding, as in Ashish Rajpal.

In each of those four cases the revision order was simply set aside; whether the matter can instead be sent back to the Commissioner is question 9.

The Document Identification Number

The Board’s Circular No. 19 of 2019 on the Document Identification Number applies to a section 263 order. In The Pr Commissioner of Income Tax v. Shri H K Suresh (Karnataka High Court, 7 July 2026) the number for a section 263 order of 15 March 2021 was conveyed by a separate intimation letter of the same date. Restoring to the Tribunal an appeal in which the revision had been quashed, the High Court held that quoting the number is mandatory, but that an order is invalid under the circular “only where no DIN is generated or communicated at all” (conclusions (i) and (ii)). It decided on the circular, though the Revenue had also relied on section 292BA, inserted by the Finance Act, 2026; that section and the Gujarat decisions on the number are in Part 2 of the series on faceless assessment.

The form of the order: modify, cancel or set aside

What the section allows

Section 263(1) lets the Commissioner pass “such order thereon as the circumstances of the case justify, including”, for an assessment, “an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment”, and, since 1 April 2022, an order modifying or cancelling the Transfer Pricing Officer’s order under section 92CA.

Must the Commissioner find the error himself

The older Gujarat authority favours the Revenue. In Additional Commissioner of Income-tax v. Mukur Corporation (Gujarat High Court, 18 December 1975) the Income-tax Officer had allowed two substantial deductions without making the inquiry the facts called for; one of them came into question through an affidavit sworn after the assessment (para 3). The Commissioner cancelled the assessment and directed a fresh one, expressing only prima facie views, and the Tribunal set his order aside for want of a firm conclusion. The High Court reversed: where the Commissioner directs a fresh assessment, “the only proper course for the Commissioner was not to express any final opinion as regards the controversial points” (para 29). The Court had itself found that the Income-tax Officer “had erred in not making proper inquiry” and that the revenue was prejudiced (paras 19, 20, 25).

The other line, set out in Part 1 (“Must the Commissioner decide, or may he send it back”), begins with Commissioner of Income-tax v. Gabriel India Ltd. (Bombay High Court, 15 April 1993), where the Income-tax Officer had inquired and the Commissioner sent the matter back without saying that the allowance was wrong: further inquiry can be directed “only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue” (para 15). Income Tax Officer v. DG Housing Projects Ltd (Delhi High Court, 1 March 2012, para 17) is to the same effect. In Globus Infocom Ltd v. Commissioner of Income Tax Delhi-IV (Delhi High Court, 13 August 2014) the Commissioner had said it was possible that there was an attempt to inflate expenses on the trading activity; that, the Court held (para 9), was “no finding and adjudication by the Commissioner”.

The Supreme Court has spoken to the distinction in two orders dismissing special leave petitions by the Revenue. In The Principal Commissioner of Income Tax 1 v. NYA International (17 February 2025), arising from the Gujarat High Court, it said that “This is not a case of ‘no inquiry and verification’, but as made out by the Revenue, a case of wrong conclusion”, in which the Commissioner should have examined the merits himself. In Pr. Commissioner of Income Tax-1, Chandigarh v. M/s. V-Con Integrated Solutions Pvt. Ltd. (4 April 2025) it said that the power is to be exercised by going into the merits and not by a remand, and gave the Revenue its opening: a “superficial and random investigation” may justify a remit, if the Commissioner records the failure and establishes both the error and the prejudice (the passage is set out in Part 1).

After Explanation 2

Explanation 2 deems an order erroneous if “in the opinion of” the Commissioner it was passed without inquiries or verification which should have been made. In two decisions of 2026 where the Commissioner had invoked Explanation 2 the High Courts applied this line. In Kadamwala, where the whole assessment had been set aside, the Gujarat High Court held that where the Assessing Officer has inquired and reached a satisfaction, “the Pr.CIT cannot impose his own opinion” (para 8). In Impact Foundation the Bombay High Court agreed with the Tribunal that the Commissioner must make his own inquiry before holding the order erroneous (para 10), and held the order unsustainable so far as it invoked Explanation 2 without confronting the assessee with it (para 13). The debate, with the Revenue’s case on the words “in the opinion of” and the Jharkhand High Court’s contrary approach, is in Part 1 (questions 1 and 3).

Reconciling the two lines

Part 1 reconciles the lines by what the Assessing Officer did, and the form of the order follows. Where there was no inquiry on a matter that called for one, the want of inquiry is the error; the Commissioner finds that error and may leave the merits to the fresh assessment (Rampyari, Amitabh Bachchan and, as we read it, Mukur). Where the Assessing Officer inquired and accepted the claim, an error in his conclusion is one the Commissioner must find for himself (Gabriel India, DG Housing, Globus, and the Supreme Court’s orders of 2025).

For an inquiry that was made but is said to be wanting, a remit needs a recorded finding of the kind V-Con and DG Housing (para 16) describe. The Revenue will place Mukur here, since the Court spoke of an officer who “did not care to probe further into the details”, of a want of “proper inquiry” and of “not making any further inquiry into the details” (paras 19, 20, 25). We read it as a case of points not inquired into at all, in which the Commissioner’s notice had itself recorded the failure to make the necessary inquiry on both deductions (para 3). Where a thin inquiry falls is open (Part 1, question 1).

Whole assessment or the issue only

The whole assessment may be cancelled, as in Rampyari and Amitabh Bachchan, where the failure of inquiry ran through the assessment. But the order must be supported by what the Commissioner found: “the entire order may be erroneous and prejudicial to the interests of the revenue, but the record of Section 263 proceedings must reflect that” (Dosani, para 10). Where the operative part says “set aside” in general words but the notice and the body of the order deal with particular issues, the courts read the order as confined to them: against the Revenue in Dosani, and against the assessee in Commissioner of Income-Tax v. Geo Industries and Insecticides (I) Pvt. Ltd. (Madras High Court, 12 June 1998, para 7), where the assessee was not allowed “to pick out one portion of the order of the Commissioner” and say that the whole assessment had been set aside.

The fresh assessment: scope and time

Scope: Gujarat and Madras

In Dosani the notice and order dealt with two items; the operative paragraph set the assessments aside; the Assessing Officer then made additions on other items. The Gujarat High Court held (para 15) that he “was entitled to consider only those two items which had been considered by the CIT and was not entitled to consider any other item afresh for making additions”. Otherwise the hearing the section requires before the Commissioner “stands obliterated or is made redundant” (para 9). For anything else the Assessing Officer must use section 154 or section 147; the Act provides “separate keys for separate locked doors” (para 12).

Geo Industries had said something wider. In the fresh assessment after a set-aside confined to the loss of two departments, the assessee claimed a new deduction of Rs.79,000, which the Income-tax Officer refused to consider. The Madras High Court held that he was bound to examine it: his duty “does not begin and end with carrying out the directions of the Commissioner”, and outside the direction his powers are traceable to section 143(3) (para 9). Dosani (para 14) agreed with the earlier part of that judgment and respectfully disagreed with this part.

Dosani concerned new additions by the Assessing Officer; Geo Industries a new claim by the assessee. Whether an assessee in Gujarat can raise a fresh claim in an assessment that Dosani confines to the Commissioner’s items was not before the Court in Dosani, para 14 notwithstanding. Where the whole assessment has been validly cancelled the position is different: in Rampyari (para 6) the assessee was to have full opportunity to show whether the income originally assessed was correct.

Time

Under section 153(3) a fresh assessment in pursuance of an order under section 263 “setting aside or cancelling an assessment” may be made within twelve months from the end of the financial year in which that order is passed (nine months for orders passed before 1 April 2019). An order passed on 20 January 2026 falls in financial year 2025-26, so the fresh assessment must be made by 31 March 2027. If an exclusion under Explanation 1 to section 153 leaves less than sixty days, the first proviso after that Explanation extends the period to sixty days.

Where effect is to be given “otherwise than by making a fresh assessment”, section 153(5) allows three months from the end of the month in which the section 263 order is passed, extendable by six months (on the same example, 30 April 2026, extendable to 31 October 2026), and the time in sub-section (3) where verification or a hearing is required.

Section 153(6)(i) (a finding or direction), section 153(5A) (the Transfer Pricing Officer’s order) and the corresponding periods under the 2025 Act (section 286(1), Table, Sl. Nos. 5, 8, 9, 10 and 11, with the sixty-day floor in section 286(4)) are in the concordance below. See also the article on the reference to the Valuation Officer and section 153.

The fresh assessment is a separate appealable order: in Amitabh Bachchan (para 24), where it had been set aside in appeal only because the revision order had been set aside, the Supreme Court on restoring the revision left the assessee free to test it on the merits. Whether in a search case it needs a fresh approval under section 153D, and what happens to it when the section 263 order is set aside in appeal, are in Part 3.

Before the Tribunal: can the order be sustained on another ground

The assessee’s appeal against a section 263 order lies to the Tribunal under section 253(1)(c) (Part 3). The Punjab and Haryana High Court drew from the exclusive nature of the Commissioner’s jurisdiction, and from the fact that the Revenue has no appeal against his order, a rule about what the Tribunal can do. In Commissioner of Income-tax v. Jagadhri Electric Supply & Industrial Co. (17 March 1981) the Tribunal had found the Commissioner’s reason untenable but noted a different change in the firm’s constitution that might have supported him. The High Court held (para 22):

The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well.

The Revenue’s argument, which the Court rejected (para 18), was that the Tribunal, being “seized of the whole matter in appeal”, could pass any order it thought proper, and that an illegality in the Income-tax Officer’s order “could not be allowed to continue” because the Commissioner had missed it. The Calcutta High Court adopted the passage in Commissioner of Income-Tax v. Howrah Flour Mills Ltd. (17 December 1998, paras 17 to 19) and declined to let the Revenue argue new grounds in the reference: an assessee who appeals against a section 263 order “does not cause a reopening of his assessment order wholesale and in all respects”.

The Supreme Court has agreed with Jagadhri, but on a different point: in Commissioner of Income Tax, Kanpur v. Nitya Nand Devkinandan (8 July 1997) it accepted that decision’s view that the continuation of a firm’s registration is an order to which section 263 applies. It did not consider the passage on the Tribunal’s powers, so among the decisions discussed here the rule rests on High Court authority: Jagadhri, Howrah Flour Mills, and a decision of the Kerala High Court which the latter (paras 17, 18) records as following Jagadhri.

The Revenue’s argument has force, since an appellate body ordinarily may support an order on any ground open on the record. In our view the nature of the power answers it: the section requires the Commissioner’s own opinion, formed after hearing the assessee, and a ground first found by the Tribunal has had neither. An assessee can hold the Revenue to the grounds in the order, and should say so in the grounds of appeal.

Revise or reopen

Against a completed assessment the Revenue has, as the Supreme Court put it in Amitabh Bachchan (para 9), the power to reopen under section 147 “and/or” to revise under section 263, each “within the areas specifically delineated by the Act”, and “the exercise of power under one provision cannot trench upon the powers available under another provision of the Act”.

The boundary was drawn, for section 147, in the majority opinion of a Full Bench of the Delhi High Court in Commissioner of Income Tax-VI, New Delhi v. Usha International Limited (21 September 2012; opinion of Sanjiv Khanna J., paras 13 to 16 and 25). Where the Assessing Officer examined a matter and applied the law wrongly or drew a wrong inference, a reassessment is a change of opinion, and “resort to Section 263 of the Act is available and should be resorted to” (para 15). Where new facts or material come to light, or the Assessing Officer formed no opinion at all, reassessment is open. The last limb carries the majority’s own caveat (para 39) that a matter may have been examined without any written query where it was too apparent to need one; and R.V. Easwar J., in a separate opinion, did not accept that limb where full and true particulars had been furnished in an assessment under section 143(3) (his paras 16, 18, 23). Ralson holds that the availability or use of section 154 does not exclude section 263; South India Steel says the same of section 155.

For the Department the choice has consequences. Section 263 must be completed within two years and needs a finding of error by the Commissioner; reassessment has its own notice, sanction and limitation requirements under section 148 and the sections around it. Since the Finance Act, 2026 it also carries the dispute about which officer may issue the notice: section 147A, inserted with effect from 1 April 2021, provides that the Assessing Officer for the purposes of sections 148 and 148A means an Assessing Officer other than the National Faceless Assessment Centre or an assessment unit. Two High Courts have struck the section down and the matter is before the Supreme Court; see Part 2 of the faceless series.

For the assessee the wrong choice is an argument in each direction. If the Commissioner uses section 263 on information that came from outside after the assessment, the assessee says the case is one for section 147 (question 7). If the Assessing Officer reopens a matter that was examined, the assessee says the remedy was section 263, now barred. A failed revision does not by itself bar the other routes: Ashoka Buildcon (para 12) clarified that its decision “would not preclude the Revenue from taking recourse to any other remedy that may be available in law”.

Writ petition against the notice

The Supreme Court on the appeal

The Supreme Court’s two decisions on section 33B of the 1922 Act point the assessee to the appeal. In Gita Devi (paras 2, 4) the appeal under section 33B(3) would have been more appropriate because questions of fact about service were involved, and the High Court “would have been justified in the circumstances of this case in dismissing the writ petition of the appellant in limine”. The Court also set out (para 3), from an earlier decision of its own, when the High Court may be approached in tax matters: where fundamental rights are infringed, “or where on undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess”. In Rampyari (para 7) nothing prevented the assessee from appealing and asking the Tribunal to go into the lack of opportunity.

Where the writ has been entertained

The High Courts have nevertheless interfered at the stage of notice in two classes of case.

The first is limitation apparent on the face of the notice. In Ashoka Buildcon, as seen above, such a notice was set aside. In Indira Industries the Madras High Court reversed a single judge who had declined to interfere with a show cause notice that was barred by limitation (para 3(xxiii)).

The second is want of a jurisdictional foundation on undisputed facts, and here the decisions are from Gujarat. In JMC Projects the assessments, made after a search, had rejected the books and estimated profit, adding more than the amount the Commissioner now proposed to disallow as bogus sub-contract expenses. The Court held that “powers under section 263 of the Act are not meant for improving an order of assessment” (para 14), and that, the question being “the very foundation of the notice and jurisdiction of the Commissioner”, there was no occasion to relegate the petitioner to the appeal (para 17). In Aryan Arcade Ltd v. Commissioner of Income Tax - I (10 August 2017) and Aryan Arcade Ltd v. Pr. Commissioner of Income Tax Rajkot - I (28 August 2018) notices were set aside: in the first because the record showed that the claim had been examined and the view taken was plausible; in the second because one ground rested on a comparison the Court called “wholly erroneous” (para 12) and on the other there had been “full inquiry” (para 14). The Revenue’s objection that only a show cause notice had been issued (paras 5 and 10 respectively) did not prevail. In Dilip Patel v. The Principal Commissioner of Income Tax (Central) (1 May 2026) the Court quashed notices against an assessment in which the Assessing Officer had made an addition on the Valuation Officer’s report. It held (para 8, on maintainability) that an alternative remedy “is not an absolute bar” and that the writ petition was maintainable. In Shree Siddhi Infrabuild the assessee withdrew its appeals to the Tribunal and the Court entertained the writ petitions against the orders on the question of jurisdiction (paras 12, 32, 33).

How to choose

None of the Gujarat decisions deals with what the Supreme Court said in Gita Devi and Rampyari about the appeal, but they fit the exception Gita Devi itself records: jurisdiction wanting on undisputed facts. In JMC Projects the Court noted that “Facts are not seriously in dispute” (para 8). Dilip Patel states the writ jurisdiction more widely, as available “even involving disputed questions of fact”; that goes further than Gita Devi and should not be relied on where the facts are in dispute. A writ petition is realistic where the notice is out of time on undisputed dates, where the matter was decided in appeal, or where the notice itself shows that the Assessing Officer inquired. A petition against the notice does not stop the two years unless a stay is granted; a petition against the order does not stop the time for appeal to the Tribunal.

Gujarat: what the record shows

The decisions of the Gujarat High Court and of the Ahmedabad and Rajkot Benches of the Tribunal discussed in this Part, by subject and in date order within each:

• Merger and Explanation 1(c): Paushak Limited (17 February 1997); Shashi Theatre (P) Ltd. (5 September 2000); Panna Knitting Industries (5 December 2000); Mehsana District Co-op. Milk Producers (2 April 2003); Nirma Chemicals Works P. Ltd. (4 February 2008); M/s Bhagat Textile Engineers (12 June 2019), treated as covered by Arvind Jewellers (19 July 2002; see Part 1); Shree Siddhi Infrabuild Private Limited (28 January 2025, para 34(ii)).
• Limitation: Gujarat Forging Pvt Ltd (2 July 2008); Harsiddh Quarry Works (ITAT Ahmedabad, 12 January 2024); Shree Siddhi Infrabuild (limitation from the original assessments; the revision orders were dated 30 March 2021 and the judgment does not discuss the Relaxation Act).
• Notice, the order and the fresh assessment: Mukur Corporation (18 December 1975); D.N. Dosani (5 October 2005); M/s Shreeji Prints Pvt. Ltd. (3 February 2020); Kadamwala Industries Private Limited (4 August 2026).
• Pending appeal: Prakashbhai Gordhanbhai Togadiya (ITAT Rajkot, 25 June 2024).
• Writ: JMC Projects (India) Limited (21 December 2015); Aryan Arcade Ltd (10 August 2017 and 28 August 2018); Shree Siddhi Infrabuild (writ entertained against the revision orders); Dilip Patel (1 May 2026).

On these decisions the Gujarat High Court has not decided questions 5, 6, 7, 8(b), 8(c) or 9; limitation after a limited set-aside in appeal; a fresh claim by the assessee in a fresh assessment confined by Dosani; or a missing Document Identification Number on a section 263 order.

Open questions, argued both ways

The open questions in this Part are numbered 5 to 9; question 8 has three limbs. Part 1 carries questions 1 to 4 and Part 3 questions 10 to 14.

Question 5: can the Commissioner revise while the first appeal is pending?

For the assessee. Renuka Philip (paras 22, 23) and Vam Resorts (paras 25, 28) hold that he cannot: the first treated the allowance revised as part of the larger issue under appeal, the second did not ask whether the matters were the same. The Mumbai Bench of the Tribunal has followed them. There is sense in the rule. The Commissioner (Appeals) has the assessment before him with a power of enhancement; if the Commissioner sets aside the same order while that appeal is pending, two authorities are seized of one order. In Renuka Philip itself the Commissioner (Appeals), when he came to decide the appeal, observed that the merits of the section 54F deduction could not be looked into because the revision order had been passed, and yet directed the Assessing Officer to restrict that deduction proportionately (para 11). The Kerala High Court in Panchaman Traders (para 4) saw nothing wrong in the Commissioner waiting for the appellate order and then revising on matters not considered in appeal. And JMC Projects (para 15) treated the pending appeals, and the appellate Commissioner’s powers in them, as a reason why revision was unnecessary.

For the Revenue. In Amritlal Bhogilal the Supreme Court upheld the cancellation of a registration order while the firm’s appeal against the assessment was pending: no question of merger arose, the order under appeal subsists until the appeal is disposed of, and the courts “would not be justified in imposing additional limitations on the exercise of the said power on hypothetical considerations of policy or the extraordinary nature of the power”. Neither Renuka Philip nor Vam Resorts notices that decision, or deals with the words “considered and decided” in clause (c): a pending appeal has done neither, so on the text everything is still open. If items outside the appeal are revisable after it is decided (Arbuda Mills), they should be revisable before. The Commissioner cannot safely wait, because the two years run from the Assessing Officer’s order whatever happens in the appeal. And on a source the Income-tax Officer never considered, enhancement in appeal is not available on Chamaria. The Rajkot Bench in Togadiya has taken this view.

Where it stands. We have not seen a decision of the Gujarat High Court on pendency. In Renuka Philip and Vam Resorts the pending appeal was one of several grounds, and in Renuka Philip the Court treated the matter revised as within the appeal. Amritlal Bhogilal, for its part, concerned an order of registration that could never have been part of the appeal, and the Court stressed that the Department had no remedy in that appeal; it does not decide the case of an issue on which the Commissioner (Appeals) can enhance.

Our view is that the answer differs with the issue. On an item that is not in the appeal, revision during pendency is permitted by the section and is consistent with Amritlal Bhogilal; Renuka Philip and Vam Resorts read into clause (c) a bar that its words do not contain. On the very issue under appeal the text does not bar revision, but the argument for restraint is strong. An assessee whose appeal is pending should take the objection in either case: as a main ground where the revision is on the issue under appeal (Renuka Philip; JMC Projects), and as a subsidiary ground where it is not (Vam Resorts, paras 25, 28), knowing that in our view it should not succeed there. He should also ask the Commissioner (Appeals) to decide the appeal, since a matter considered and decided in appeal before the revision order is made is out of reach on Mehsana District Co-op. Milk Producers.

Question 6: what remains revisable after an appeal is withdrawn, or dismissed without a decision on the merits?

For the Revenue. Everything. In Kunhayammed & Ors v. State of Kerala & Anr (Supreme Court, three judges, 19 July 2000) the first conclusion is that a decision merges where the superior forum “modifies, reverses or affirms the decision put in issue before it”. An order permitting withdrawal, or dismissing the appeal for delay, for a defect or for non-appearance, does none of these. Clause (c) is narrower still: it protects only matters “considered and decided”, and Arbuda Mills applies that test item by item. The assessee who abandons his appeal cannot be better placed than one who never filed it.

For the assessee. The third conclusion in Kunhayammed says that merger depends on “the content or subject-matter of challenge laid or capable of being laid”, and the judgment also says that where the appellate jurisdiction has been invoked, even a dismissal without reasons results in merger. A first appeal is a matter of right; once it is dismissed, the assessment stands by force of the appellate order. Chamaria, a case about the limits of enhancement, records in passing as well established under the 1922 Act that an assessee who has filed an appeal cannot, by withdrawing it, prevent the appellate authority from settling the real sum to be assessed: if the authority lets the appeal go, the Revenue has had its opportunity in that forum. On this view the grounds actually raised should be treated as concluded.

Where it stands. Kunhayammed is a decision about the refusal of special leave under Article 136 of the Constitution, and its statements about dismissal without reasons concern appeals to the Supreme Court after leave is granted; they cannot be transposed to an order of the Commissioner (Appeals) that does not reach the merits. Clause (c), moreover, does not ask what merged; it asks what was considered and decided.

Our view is that after a withdrawal or a dismissal without a decision on the merits the whole of the Assessing Officer’s order remains revisable, within the two years. An appeal should not be withdrawn in the expectation that the assessment is thereby put beyond section 263. Where the Commissioner (Appeals) has in fact dealt with a point before disposing of the appeal on another ground, the assessee should rely on the appellate order itself.

Question 7: can material from outside the proceeding, arising after the assessment, make the order erroneous?

For the Revenue. Explanation 1(b) fixes the record at the time of examination. Manjunathesware lets the Commissioner gather new material by his own inquiry; South India Steel allowed an event after the assessment to be taken into account; DG Housing (para 17) says that nothing bars the Commissioner from relying on new material to show that the order is erroneous. Under Explanation 2 an order passed without inquiries “which should have been made” is deemed erroneous in the Commissioner’s opinion, and later information may be the best evidence of what should have been asked. In Mukur the revision was prompted by an affidavit sworn after the assessment (para 3), and the Gujarat High Court upheld it, on the footing that the officer had failed to probe facts available at the time (para 19).

For the assessee. The section says “is erroneous”. The reasoning of the Calcutta High Court which the Supreme Court set out in Manjunathesware was that the section uses those words “and not the words “has become subsequently erroneous”“. The Supreme Court rejected that reasoning as a limit on the record; it did not hold that an order right on everything then knowable becomes erroneous because of something learnt later. Both its decisions concerned matters that belonged to the assessment: a valuation the Income-tax Officer had himself called for, and an event on which the rebate allowed in that assessment depended. Where the Assessing Officer asked what the case called for and had no means of knowing what a later search would show, there was no inquiry “which should have been made”, and no error. The Act deals with that situation in section 147, and the majority opinion in Usha International (para 16) puts new facts and material there. To use section 263 instead is to avoid the conditions of reassessment, which Amitabh Bachchan (para 9) says one power may not do to another.

Where it stands. None of the decisions discussed here decides the point in terms for third-party or later-year material; in Mukur the later affidavit was the occasion, and the error found was a failure to probe at the time. South India Steel dealt with it as an alternative, though Manjunathesware later relied on that passage. In Gulab Badgujar the revision was founded on a document seized in a search on another group; it failed because the issue was outside the reassessment, and the Court did not have to say whether such a document could found a revision.

Our view is that later material is admissible as evidence of an error that existed when the order was made: a fact then true that the inquiry the case called for would have revealed, or a claim never examined. It cannot convert into an error an order that was correct and adequately inquired into on what the Assessing Officer had and could reasonably have obtained. There the Department’s remedy is reassessment.

Question 8: three questions on limitation (a limited set-aside, sub-section (3), the Relaxation Act)

(a) Does a fresh order after a limited set-aside restart the two years for issues it did not touch?

For the assessee. Gujarat Forging says no: on what the fresh order leaves alone the mistake, if any, is in the original order. The Tribunal’s reasoning, which the High Court approved, was that otherwise every later order would enlarge the period indefinitely. Dosani supports the premise: in Gujarat the Assessing Officer acting on a limited set-aside has no power over other items, so he cannot err in respect of them.

For the Revenue. Panchaman Traders says yes, at least where the assessment was set aside within the original two years: until the fresh order is made there is no order to revise, and that order is the only assessment in existence. The two cases are not alike: Gujarat Forging concerned set-asides by the Commissioner himself “on this particular point”, which left the rest of the assessment standing; an appellate set-aside, even for a limited purpose, does not. Gujarat Forging itself distinguishes a direction for “wholly a fresh assessment”, and K.L. Srihari shows that an order assessing the entire income afresh effaces the earlier one. In Panchaman Traders the law had also changed between the two orders.

Where it stands. In Gujarat Gujarat Forging governs a fresh order made on the Commissioner’s own limited set-aside. It does not protect an assessee whose assessment was set aside as a whole, whether by the Commissioner, the Commissioner (Appeals) or the Tribunal, so the wording of the earlier set-aside, read as Dosani reads it, is decisive. A limited set-aside in appeal (today the Tribunal’s or, under the proviso to section 251(1)(a), the Commissioner (Appeals)’s) was not before the Court in Gujarat Forging (for the Tribunal’s set-aside sub-section (3) must also be met; see (b)). Our view is that the same reasoning should apply to it, because an officer acting on a limited remand has no power over what was not sent back and cannot err on it, and that Panchaman Traders is best understood as a case in which the error revised was committed afresh in the second order.

(b) Does sub-section (3) lift the bar for the whole of an order giving effect to the Tribunal or a court?

For the Revenue. The sub-section applies “in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction” of the three bodies named, and allows revision of such an order “at any time”. It identifies the order, not the issue; nothing in the words confines the revision to the part that carries out the direction.

For the assessee. The cases on sub-section (2) after a reassessment proceed issue by issue. On a matter the effect-giving order does not touch, the order that contains the error is the original one, which was not passed in consequence of any appellate finding. To read sub-section (3) as opening every issue for ever because the Tribunal gave relief on one would defeat Alagendran Finance and Gujarat Forging and remove finality from every assessment that has been to the Tribunal. In Housing Development & Infrastructure orders giving effect to the Tribunal had intervened, and the two years were still counted from the original order.

Where it stands. The decisions discussed here do not construe sub-section (3) on this point; in Housing Development & Infrastructure it was not invoked. Our view is that it reaches only what the effect-giving order does in consequence of the finding or direction; an error in the original assessment that the direction did not concern stays under sub-section (2).

(c) Did the Relaxation Act extend a period under section 263(2) that ended on 31 March 2020?

For the Revenue. Section 3(1), set out above, covers a time limit for the passing of any order which falls between 20 March 2020 and 31 December 2020, “notwithstanding anything contained in the specified Act”, and a limit ending on 31 March 2020 falls within those dates. In Sultan Enterprises the assessee argued that a mandatory limit could be relaxed only by amending the Income-tax Act; the Bench held that legislative competence “is outside scope of the appellate jurisdiction of the High Courts” under section 260A (para 10) and left the Tribunal’s reading undisturbed.

For the assessee. Excel Enterprises held, on a period that also ended on 31 March 2020, that it had already elapsed on that day and that an Act deemed to have come into force on that day could not enlarge it. Section 263(2) is, moreover, a prohibition (“No order shall be made”), and a general relaxation should not be read as reviving a power that had ended.

Where it stands. The Orissa High Court’s order was made at the stage of admission and did not examine the construction of section 3(1). The Tribunal’s reasoning in Excel Enterprises does not deal with the words of the section, which reach time limits falling on or after 20 March 2020. Our view is that the Revenue’s reading is correct for a period ending on or after that date, and that a period which ended earlier was not revived. An appeal against a revision order of March 2021 for an assessment order of 2017-18 should therefore be fought on the other grounds.

Question 9: where the ground was never put to the assessee, is the order annulled or sent back to the Commissioner?

For the assessee. In the four decisions where a ground was never put, the revision order was set aside and nothing more. The stronger point is limitation. Section 263(2) forbids the making of an order after two years, and by the time an appeal is heard the two years have gone. On its words sub-section (3) describes the order that is revised, an order passed to give effect to the Tribunal or a court; it does not speak of a revision order made again. Section 263 has no provision, such as section 153 has for assessments, for an order made again on set-aside. In Commissioner of Income-Tax v. Sabitri Devi Agarwalla (Gauhati High Court, 29 August 1968), for the year governed by section 33B of the 1922 Act, which had no such sub-section, the Court upheld the Tribunal’s refusal to send the matter back to the Commissioner. It declined to follow a decision of the Bombay High Court which, as it records (para 18), had confined the two-year bar to orders the Commissioner makes of his own motion: an order made on remand “does not cease to be an order passed by the Commissioner”, and once the two years have passed the assessee “acquires a right to rely upon that order without question” (para 25). It also treated the Tribunal’s power to remand as a discretion: “There can be no obligation to exercise this power” (para 18).

For the Revenue. The defect is not jurisdictional (Electro House; Amitabh Bachchan, para 10), and Rampyari (para 6) shows that the breach must have caused prejudice. The ordinary consequence of such a breach is that the matter goes back to the stage at which it occurred; the first order was made within time, and a remand continues that proceeding (Sabitri Devi Agarwalla, para 15: “The sin attaches to the proceedings at the stage when an irregularity or illegality has supervened”). On limitation the Revenue has two answers. One is the Bombay view recorded in that judgment (paras 17, 18), that the two-year bar is “only confined to the orders of the Commissioner passed suo motu” and does not reach an order he is required to pass in pursuance of an appellate order. The other is sub-section (3): for the year governed by section 263 the Gauhati High Court held the Tribunal not justified in refusing to direct the Commissioner to pass a fresh order after a further hearing, because “Section 263(3) now clearly provides an answer to this question” (para 26). In Ralson Industries the Supreme Court, reversing a judgment that had left a revision set aside for want of jurisdiction, directed the Commissioner “to have a fresh look at the matter”; the assessment order was of March 1995 and the judgment of January 2007. In Jagadhri the question whether the Tribunal should have remanded the case to the Commissioner was referred but did not survive, the assessee’s counsel having conceded that the finding of a breach of natural justice could not stand (paras 7, 8).

Where it stands. Among the decisions discussed here Sabitri Devi Agarwalla alone holds that the matter should have been sent back to the Commissioner; the defect there was invalid service of the notice, and the Court noted that the Tribunal had been largely influenced by section 33B and had not referred to section 263 at all (para 27). The Court assumed the construction of sub-section (3) without examining its words, treating the sub-section as the legislature’s answer to the gap in section 33B, on which there was “no scope for any controversy now” (para 20). Ralson is not a decision on the point either: the direction followed the reversal of a finding that the Commissioner lacked jurisdiction, not a breach of hearing, and section 263(2) was not discussed. In Ashish Rajpal, Contimeters, Shreeji Prints and Impact Foundation the revision failed on other grounds as well, so none tests what follows where want of opportunity is the only defect.

Our view is that sub-section (3), read as it is worded, describes the order revised and does not save a second revision order, and that the Gauhati High Court was right against the Bombay view: sub-section (2) bars the making of an order however the matter comes before the Commissioner. Annulment is therefore the correct result where the two years have expired by the time the defect is found; within the two years the question is academic, since the Commissioner can issue a fresh notice. But a Tribunal asked to remand will be shown Sabitri Devi Agarwalla and Ralson, so want of opportunity should be taken with the grounds on limitation and the merits, not alone. The breach is tested, and proved, as set out under “Where the ground was never put”.

On a live file

1. Fix the Act and the order. A tax year beginning before 1 April 2026 is under section 263 whenever the revision is begun (section 536(2)(c) of the 2025 Act; a block assessment under the 2025 Act apart, see Part 3, question 13); tax year 2026-27 onwards is under section 377. Identify which order the notice seeks to revise: the original assessment, a reassessment, a rectification, an effect-giving order or a fresh assessment.
2. Compute limitation issue by issue. Find the order in which each issue was actually dealt with, take the end of the financial year in which it was passed and add two years. Where the issue goes back to the original assessment, plead Alagendran Finance, Ashoka Buildcon and, in Gujarat, Gujarat Forging and Shree Siddhi Infrabuild. Check for a rehearing under the proviso to section 129 and any stay.
3. Check whether an earlier set-aside was whole or limited. Read its operative part with the notice and reasoning (Dosani).
4. Check the appeal position. List what the Commissioner (Appeals) considered and decided, from his order and not only from the grounds (Shashi Theatre; Nirma Chemicals Works). If the appeal is pending, take the objection as question 5 advises, ask for an early disposal, and do not withdraw the appeal.
5. Ask for the basis. If the notice refers to an audit objection, a proposal or outside information, ask for a copy and for inspection, and compare the notice with the audit memo. For outside material, state when it came into existence and what was asked and answered in the assessment, and submit that the remedy, if any, is under section 147. Record in writing every ground raised orally and reply to it.
6. Note what is not in the notice. If Explanation 2, or a clause of it, is not mentioned, say so in the reply (Shreeji Prints; Impact Foundation).
7. Show what the Assessing Officer asked. File the questionnaires, replies and order sheets of the assessment. Where the Assessing Officer inquired, submit that the Commissioner must decide the merits himself (Gabriel India; DG Housing; Kadamwala; the Supreme Court’s orders of 2025), meet any suggestion that the inquiry was superficial (V-Con), and address the merits fully.
8. Read the order when it comes. Check its date, its Document Identification Number and the date of upload against 31 March. Compare the grounds with the notice and the hearing record, and note whether the set-aside is whole or confined to issues.
9. Appeal. File under section 253(1)(c) within time from communication. Take limitation, merger and want of opportunity as separate grounds, never want of opportunity alone (question 9), and plead that the order can be supported only on the Commissioner’s reasons (Jagadhri; Howrah Flour Mills).
10. Take part in the fresh assessment. Diarise the date under section 153(3). Object in writing if the Assessing Officer goes beyond the Commissioner’s items (Dosani). Appeal the fresh order separately.
11. Writ only on undisputed facts. A stay is excluded from the two years; under section 263 the Commissioner resumes with whatever time was left, and in our view the sixty-day floor of section 377(7) is not available to him.

Concordance: Income-tax Act, 1961 and Income-tax Act, 2025

Subject	Income-tax Act, 1961	Income-tax Act, 2025	What changed
Power to revise; orders that may be made	Section 263(1)	Section 377(1)	“Competent Authority” (section 377(8)(a)): the same four ranks
Meaning of “record”	Explanation 1(b) to section 263(1)	Section 377(2)(b)	“shall be deemed always to have included” dropped
Matters not considered and decided in appeal	Explanation 1(c) to section 263(1)	Section 377(2)(c)	“Competent Authority”; 1 June 1988 and deeming words dropped
Two-year limit	Section 263(2)	Section 377(4)	Same words
Orders giving effect to the Tribunal, a High Court or the Supreme Court	Section 263(3)	Section 377(5)	“Irrespective of” in place of “Notwithstanding”
Exclusion of rehearing and stay	Explanation below section 263(3)	Section 377(6)(a) and (b)	Same two exclusions
Sixty-day floor after an exclusion	None	Section 377(7)	New
Rehearing on change of incumbent	Proviso to section 129	Section 244(2)	Same substance
Fresh assessment after a set-aside in revision	Section 153(3): twelve months from the end of the financial year of the order	Section 286(1), Table, Sl. No. 5: one year	Same period
Effect otherwise than by a fresh assessment	Section 153(5): three months, extendable by six; time in sub-section (3) where verification or a hearing is needed	Section 286(1), Table, Sl. No. 10: six months, extendable to nine; Sl. No. 9: one year where verification or a hearing is needed	Basic period longer; verification case counted from the end of the month
Assessment giving effect to a finding or direction	Section 153(6)(i): twelve months from the end of the month in which the order is received or passed	Section 286(1), Table, Sl. No. 8(i): one year	Same period
Effect to the Transfer Pricing Officer’s order after revision	Section 153(5A): two months from the end of the month of receipt	Section 286(1), Table, Sl. No. 11: two months	Same period
Sixty-day floor for the Assessing Officer	First proviso after Explanation 1 to section 153	Section 286(4)	Same floor for the fresh assessment; section 286(4) refers to the periods in sub-section (1) generally
Tribunal’s order sent electronically	Section 254(3A)	Section 363(10)(b)	Both from the Finance Act, 2026; section 363(10)(b) has no date and adds “or otherwise”
Revision in the assessee’s favour	Section 264	Section 378	See section 264

Decisions referred to in this Part

Decision	Court and date	Cited for
Shree Manjunathesware Packing Products & Camphor Works	Supreme Court, 2 December 1997	Later material in the record
South India Steel Rolling Mills	Supreme Court, 25 February 1997	Later event; section 155
Vam Resorts & Hotels Pvt. Ltd.	Allahabad High Court, 20 August 2019	Outer limit of record; pending appeal
Smt. Manju Devi Chourasia	Jharkhand High Court, 13 February 2024	Fresh assessment looked at to show prejudice
Amitabh Bachchan	Supreme Court, 11 May 2016	Notice and opportunity; separate powers
Jeewanlal (1929) Ltd.	Calcutta High Court, 12 December 1975	Audit suggestion; earlier view on merger
B and A Plantation and Industries Ltd.	Gauhati High Court, 18 December 2006	Audit objection
M/s Shreeji Prints Pvt. Ltd.	Gujarat High Court, 3 February 2020; Supreme Court, order of 27 August 2021 dismissing the special leave petition	Audit objection; Explanation 2 not put
Kadamwala Industries Private Limited	Gujarat High Court, 4 August 2026	Audit objections; Commissioner cannot impose his own opinion where inquiry made
Seshasayee Paper and Boards Ltd.	Madras High Court, 30 April 1998	Audit report and Commissioner’s own mind
M/s. Amritlal Bhogilal & Co.	Supreme Court, 28 April 1958	Registration order not merged; pending appeal
Ritz Ltd. and another	Bombay High Court, 23 March 1990	The earlier total-merger view
Shri Arbuda Mills Ltd.	Supreme Court, 23 January 1996	Items not in appeal revisable
Jaykumar B. Patil	Supreme Court, 13 December 1996	Same
Paushak Limited	Gujarat High Court, 17 February 1997	Allowances not in appeal do not merge
Panna Knitting Industries	Gujarat High Court, 5 December 2000	Independent heads that escaped the appellate authority
Mehsana District Co-op. Milk Producers	Gujarat High Court, 2 April 2003	Matter decided in appeal not revisable
Shashi Theatre (P) Ltd.	Gujarat High Court, 5 September 2000	Single claim considered and decided
Nirma Chemicals Works P. Ltd.	Gujarat High Court, 4 February 2008	Eligibility bound up with quantum
Shree Siddhi Infrabuild Private Limited	Gujarat High Court, 28 January 2025	Para 34(ii); limitation; writ
Smt. Renuka Philip	Madras High Court, 14 November 2018	Pending appeal a bar
Prakashbhai Gordhanbhai Togadiya	ITAT Rajkot, 25 June 2024	Pending appeal no bar
M P Trading Company	ITAT Mumbai, 4 August 2026	Pending appeal a bar
JMC Projects (India) Limited	Gujarat High Court, 21 December 2015	Enhancement in appeal; writ
Rai Bahadur Hardutroy Motilal Chamaria	Supreme Court, 7 April 1967	Limits of enhancement; observation on withdrawal
Kunhayammed & Ors v. State of Kerala & Anr	Supreme Court, 19 July 2000	When merger results
Mohammed Meeran Shahul Hameed	Supreme Court, 7 October 2021	Made, not served
M/s. Alagendran Finance Ltd.	Supreme Court, 27 July 2007	Limitation after reassessment
Ashoka Buildcon Ltd	Bombay High Court, 23 April 2010	Issue-wise rule; Explanation 3 to section 147 as it then stood
ICICI Bank Ltd	Bombay High Court, 8 February 2012	Same Explanation
M/s. Indira Industries	Madras High Court, 14 June 2018	Time-barred notice quashed in writ
M/s. Ganga Textiles Ltd	Madras High Court, 1 July 2025	Revision order barred; time from the original assessment
Housing Development & Infrastructure Ltd.	Bombay High Court, 14 October 2026	Same, with intervening effect-giving and rectification orders; Revenue’s appeal not admitted
Gulab Badgujar (HUF)	Bombay High Court, 14 October 2026	Issue outside the reassessment; seized document; Revenue’s appeal not admitted
K.L. Srihari and Ors.	Supreme Court, order of 25 March 1998 dismissing special leave petitions	Whole reassessment effaces original
Software Consultants	Delhi High Court, 17 January 2012	Issue outside the reopening
M/s. Harsiddh Quarry Works	ITAT Ahmedabad, 12 January 2024	Same
Ralson Industries Ltd	Supreme Court, 4 January 2007	Rectification does not oust revision; direction to the Commissioner
Gujarat Forging Pvt Ltd	Gujarat High Court, 2 July 2008	Commissioner’s limited set-aside does not restart limitation
M/s. Panchaman Traders	Kerala High Court, 30 October 2009	Fresh order after a set-aside in appeal a new proceeding
M/s. Sultan Enterprises Pvt. Ltd.	Orissa High Court, 8 August 2024	Relaxation Act and section 263(2)
Excel Enterprises	ITAT Mumbai, 28 February 2023	Contrary view on the Relaxation Act
Gita Devi Aggarwal	Supreme Court, 31 July 1969	No notice required; appeal the more appropriate remedy
M/s. Electro House	Supreme Court, 2 September 1971	Notice not jurisdictional
Rampyari Devi Saraogi	Supreme Court, 1 May 1967	Basic grounds and supporting material
Shri Ashish Rajpal	Delhi High Court, 14 May 2009	Issues not put; defect not curable later
Contimeters Electricals Pvt. Ltd.	Delhi High Court, 2 December 2008	Ground neither in the notice nor put
Impact Foundation (India)	Bombay High Court, 4 May 2026	Explanation 2 not put; own inquiry
D.N. Dosani	Gujarat High Court, 5 October 2005	Scope of order and fresh assessment
Sabitri Devi Agarwalla	Gauhati High Court, 29 August 1968	Remand to the Commissioner; sub-section (3)
Shri H K Suresh	Karnataka High Court, 7 July 2026	Document Identification Number on a section 263 order
Mukur Corporation	Gujarat High Court, 18 December 1975	No final conclusion where proper inquiry not made
Gabriel India Ltd.	Bombay High Court, 15 April 1993	Finding of error before remand
DG Housing Projects Ltd	Delhi High Court, 1 March 2012	No remit to find error; new material
Globus Infocom Ltd	Delhi High Court, 13 August 2014	“Possible” error is no finding
NYA International	Supreme Court, order of 17 February 2025 dismissing the special leave petition	No inquiry distinguished from wrong conclusion
M/s. V-Con Integrated Solutions Pvt. Ltd.	Supreme Court, order of 4 April 2025 dismissing the special leave petition	Merits, not remand; remit where the investigation was superficial
Geo Industries and Insecticides (I) Pvt. Ltd.	Madras High Court, 12 June 1998	Order in context; assessee’s fresh claim
Jagadhri Electric Supply & Industrial Co.	Punjab and Haryana High Court, 17 March 1981	No other ground before the Tribunal
Howrah Flour Mills Ltd.	Calcutta High Court, 17 December 1998	Same
Nitya Nand Devkinandan	Supreme Court, 8 July 1997	Agreement with Jagadhri on a different point
Usha International Limited	Delhi High Court, Full Bench (majority opinion), 21 September 2012	Boundary between revision and reassessment
Aryan Arcade Ltd	Gujarat High Court, 10 August 2017	Notice quashed in writ
Aryan Arcade Ltd	Gujarat High Court, 28 August 2018	Notice quashed in writ
Dilip Patel	Gujarat High Court, 1 May 2026	Writ maintainable
M/s Bhagat Textile Engineers	Gujarat High Court, 12 June 2019	Tribunal order applying Shashi Theatre among other grounds left undisturbed; appeal treated as covered by Arvind Jewellers
Arvind Jewellers	Gujarat High Court, 19 July 2002	Decision treated as covering Bhagat Textile Engineers

The twin test, inquiry and Explanation 2, with open questions 1 to 4, are in Part 1: Section 263 revision: the twin test, inquiry and Explanation 2. Search assessments and approvals, the appeal, the comparison with section 264 and section 377 in full, with open questions 10 to 14, are in Part 3: Section 263 in search cases, the appeal, and section 377 of the 2025 Act.

This note is general commentary on the law as at 11 November 2026 and is not advice on any matter. The position in a particular case depends on its own facts.