Section 263 revision: the twin test, inquiry and Explanation 2

This is Part 1 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 power itself: who exercises it and over which orders, the twin test of error and prejudice, the line between no inquiry and inadequate inquiry, and Explanation 2 with its counterpart in section 377(3). Part 2 covers the record, merger, limitation, the notice, the form of the order and the fresh assessment; Part 3 covers search assessments and approvals, the Transfer Pricing Officer’s order, the appeal, the comparison with section 264 and section 377 of the 2025 Act.

A scrutiny assessment for assessment year 2023-24 is completed in February 2025 with one small disallowance. In January 2027 a notice arrives from the Principal Commissioner. It says that the assessment record has been examined, that the Assessing Officer accepted unsecured loans, or a deduction, or the purchase price of a property, without the inquiries which should have been made, that the order is therefore erroneous in so far as it is prejudicial to the interests of the revenue, and that it is proposed to cancel it and direct a fresh assessment. It usually cites Explanation 2.

What is at stake is a second assessment on a question the assessee believed was closed. The notice is answered on two things: what the assessment record shows the officer asked and was told, and whether the Commissioner has identified an error that cost tax, as distinct from a wish that more had been asked. Explanation 2 has been in section 263 since 1 June 2015, but the Delhi, Gujarat, Bombay and Punjab and Haryana High Courts have gone on applying the older distinction between no inquiry and inadequate inquiry to orders passed after that date, and in 2025 the Supreme Court, refusing leave to the Revenue in two cases, distinguished a failure to inquire from a wrong conclusion reached after inquiry. The Revenue’s side is not weak: an order passed without inquiry has been revisable since 1967, and the Explanation is written in terms of the Commissioner’s opinion.

Key points

• Section 263(1) requires the order to be both erroneous and prejudicial to the interests of the revenue. The Supreme Court held in Malabar Industrial (10 February 2000) that if either is absent the section cannot be used, and restated on 18 September 2026 that “Both conditions must co-exist”.
• Since 1 November 2020 the power is given to four ranks, and since 1 April 2022 it reaches an order of the Transfer Pricing Officer as well as of the Assessing Officer. An order made on directions under section 144A is within it; the Punjab and Haryana High Court has held, on section 143(1)(a) as it stood for assessment year 1989-90, that an intimation is not, and decisions of other High Courts were cited to it the other way.
• A view that was one of two open in law cannot be revised “unless the view taken by the Income-tax Officer is unsustainable in law”. Whether two views existed is tested on the date of the Commissioner’s order (Max India, 1 November 2007). The Supreme Court’s decisions of 6 April 2023 and 18 September 2026 show that a view is not protected merely because an authority or a Board memorandum can be cited for it.
• Prejudice is wider than loss of tax, but it must be caused by the error. The Gujarat High Court held on 4 August 2026, in a case where the officer had called for and received details, that even where Explanation 2(a) is invoked the want of further confirmations, without material to show a resulting loss, does not justify revision.
• An order passed without any inquiry is erroneous for that reason alone. Where the officer raised queries and received replies, the order is not erroneous because it is silent on the point, and inadequacy of inquiry is not by itself a ground (Delhi, Gujarat, Bombay and Punjab and Haryana High Courts; the Jharkhand High Court has reasoned the other way).
• Explanation 2, in force from 1 June 2015, deems an order erroneous and prejudicial if, in the opinion of the revising authority, one of four conditions is met. No decision of the Supreme Court discussed here construes it. The Gujarat High Court treats the twin conditions as still “the basis for assuming jurisdiction”.
• The Revenue’s strongest material is the text of Explanation 2 and the Supreme Court’s own qualification that “a superficial and random investigation” may justify a remit (order of 4 April 2025 dismissing a special leave petition).
• The Bombay High Court has held Explanation 2 prospective (5 August 2022); the Jharkhand High Court has called it clarificatory (13 February 2024); the Delhi and Gujarat High Courts have left the point open. For an order passed on or after 1 June 2015 the dispute matters only if the test is the assessment year.
• Where the Assessing Officer did inquire, the Commissioner must decide the point himself; a set-aside for inquiry is open only where there was no inquiry or, on the wording of the Supreme Court’s order of 4 April 2025, a superficial one. If he relies on Explanation 2, the Bombay High Court (4 May 2026) requires the notice to say so.
• There is little authority on clauses (c) and (d) of Explanation 2; whether clause (d) reaches a decision rendered after the assessment order is open. For tax year 2026-27 onwards the provision is section 377 of the Income-tax Act, 2025, where the four clauses are operative text in sub-section (3). A revision begun on or after 1 April 2026 of an order for an earlier tax year remains under section 263 (a block assessment under the 2025 Act apart; see Part 3, question 13).

What section 263 is, and who exercises it

The Revenue has no appeal against an assessment order. As the Delhi High Court put it in Income Tax Officer v. DG Housing Projects Ltd (1 March 2012, para 10), “Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer”, and section 263 is the provision by which a superior officer may correct one. Sub-section (1) now reads:

The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer or the Transfer Pricing Officer, as the case may be, is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify

The orders he may pass include one “enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment”. No order can be made after two years from the end of the financial year in which the order sought to be revised was passed (sub-section (2), subject to sub-section (3) and the exclusions in the Explanation below it), and the order is appealable to the Appellate Tribunal. Limitation is dealt with in Part 2 and the appeal in Part 3.

Four ranks. With effect from 1 November 2020 the Principal Chief Commissioner and the Chief Commissioner were added to the Principal Commissioner and Commissioner (Act No. 38 of 2020; in sub-section (1) the words were substituted again by Act No. 13 of 2021 with retrospective effect from the same date). The four ranks appear in sub-section (1), in Explanation 1(b) and in the opening of Explanation 2. Clause (c) of Explanation 1 still speaks of “the powers of the Principal Commissioner or Commissioner”, and the sub-heading in the Act still reads “Revision by the Principal Commissioner or Commissioner”; what follows from that is argued in Part 3 (question 13). This Part uses “Commissioner” for whoever exercised the power.

The nature of the power. The Supreme Court described it in Commissioner of Income Tax, Shimla v. M/s Greenworld Corporation, Parwanoo (6 May 2009, para 29) as “in the nature of supervisory jurisdiction”. The Bombay High Court analysed it in Commissioner of Income-tax v. Gabriel India Ltd. (15 April 1993, para 14). Calling for the record is an administrative act, but forming the opinion that the order is erroneous in so far as it is prejudicial “is a quasi-judicial act”. Hence “There must be materials available from the records called for by the Commissioner”, and a court may examine whether the objective facts on which the power depends were there.

The Delhi High Court in CIT v. M/s. Vikas Polymers (16 August 2010) drew the consequence. The power is “a quasi judicial power hedged in with limitation and not an unbridled and unchartered arbitrary power” (para 12), and (para 14):

it is a pre-requisite that the Commissioner must give reasons to justify the exercise of suo moto revisional powers by him to re-open a concluded assessment. A bare reiteration by him that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interest of the revenue, will not suffice.

The other revision. Section 264 runs in the assessee’s favour: it reaches “any order other than an order to which section 263 applies”. The two are compared in Part 3; the limits of section 264 are the subject of a separate article.

Which orders can be revised

Orders made on a superior’s directions. Explanation 1(a) declares that the expression includes an assessment made “on the basis of the directions issued by the Joint Commissioner under section 144A” (directions which, under that section, “shall be binding on the Assessing Officer”) and an order made by a Joint Commissioner exercising the powers of an Assessing Officer. The argument that an order made on a superior’s directions is in substance the superior’s, and so outside a provision about the Assessing Officer’s order, was rejected by the Supreme Court in T.N. Civil Supplies Corporation Ltd. v. Commissioner of Income-tax (order of 16 January 2003), on an order passed with the approval of the Inspecting Assistant Commissioner under the then section 144B. The Court declined to disturb the uniform view of the High Courts and added (para 5) that there was “no scope for limiting the phrase” so as to exclude orders passed on the directions of a superior authority under section 144A or 144B; the passage is set out in Part 3.

The Gujarat High Court applied it in the case of Mehsana District Co-op. Milk Producers (2 April 2003, para 6), the assessee’s counsel conceding the point. Whether the same reasoning disposes of an assessment approved under section 153D in a search case is taken up in Part 3.

Orders of the Transfer Pricing Officer. The Finance Act, 2022 (Act No. 6 of 2022) inserted, with effect from 1 April 2022, the words “or the Transfer Pricing Officer, as the case may be” in sub-section (1) and in Explanations 1 and 2, inserted Explanation 1(a)(iii) and Explanation 3, and recast the closing words of sub-section (1) into clauses (i) to (iii), of which (ii) and (iii) are new. Explanation 3 gives the expression the meaning it has in section 92CA. Whether such an order could be revised before that date is question 14 in Part 3.

An intimation under section 143(1). In Commissioner of Income-tax v. Kartar Singh and Co. P. Ltd. (Punjab and Haryana High Court, 12 December 2007) a return for assessment year 1989-90 had been processed under section 143(1)(a), and the Commissioner cancelled the result and directed that a net profit rate be applied. The High Court held (para 7) that “the omission of the expression “intimation” from Section 263 of the Act establishes the intention of Parliament to limit the power of revision of a Commissioner of Income-tax only to cases where an order has been passed”. The judgment records that the Revenue relied on decisions of the Bombay and Madras High Courts for the opposite view; the Bench ruled for the assessee without discussing them. The decision concerns section 143(1)(a) as it stood for that year, and the question is not settled across High Courts.

Matters decided in appeal. Where the assessment has been the subject of an appeal, the power extends only “to such matters as had not been considered and decided in such appeal” (Explanation 1(c)). In Mehsana District Co-op. Milk Producers (para 5) a deduction had been dealt with by the Commissioner (Appeals) before the revision order, so that on it “There was, therefore, no order of the Income Tax Officer which could have been revised”. The doctrine of merger is treated in Part 2.

The twin test: Malabar Industrial

The decision

The Malabar Industrial Co. Ltd. v. Commissioner of Income-tax, Kerala State (Supreme Court, 10 February 2000) is the starting point. The assessee had agreed to sell a rubber estate; the purchaser paid Rs.3,66,649 for an extension of time, which the assessee showed in an annexure to its return for assessment year 1983-84 as compensation for loss of agricultural income. The Income-tax Officer accepted this and made a nil assessment. The Commissioner, after notice, held the amount taxable as income from other sources. The assessee argued that “mere loss of tax could not be treated as prejudicial to the interests of the revenue”. The Court answered by stating the test:

The Commissioner has to be satisfied of twin conditions, namely, (i). the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent – if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue – recourse cannot be had to Section 263(1) of the Act.

“Erroneous”. The provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer”. The content of the word is this:

An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The last head is the one under which no-inquiry cases fall, and it was the head applied in Malabar itself: the officer “accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry”.

“Prejudicial to the interests of the revenue”. The phrase “is of wide import and is not confined to loss of tax”. The Court rejected, as “too narrow to merit acceptance”, a Madras view that it required something subversive of the administration of revenue, and held that “If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue”. The words “not confined to loss of tax” were said in answer to an assessee who argued that loss of tax was not enough. They widen the limb; they do not mean that prejudice can be found where no tax has been or could be lost.

The Court then limited the limb from the other side, in the passage which the Supreme Court itself referred to in Max India as paragraph 10 of the judgment:

The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law.

The first sentence ties prejudice to the error. The rest protects a course the Act itself allows (a method of accounting, a basis of apportionment) and a view on a debatable question, both subject to the closing words.

What was decided. The revision was upheld. The officer had made no inquiry, the Commissioner had himself decided that the receipt was taxable, and the Supreme Court agreed on the merits. It was not a set-aside by a Commissioner who did not know whether tax had been lost.

The roots: section 33B of the 1922 Act

Malabar cites two decisions under section 33B of the Indian Income-tax Act, 1922, the predecessor of section 263, for the proposition that “where a sum not earned by a person is assessed as income in his hands on his so offering”, the order accepting it is erroneous and prejudicial. The two decisions do different work.

Rampyari Devi Saraogi v. Commissioner of Income-tax, West Bengal (1 May 1967) is the authority on want of inquiry: an order accepting a return without any inquiry, where the circumstances called for one, may be cancelled for a fresh assessment. A new assessee filed voluntary returns for nine years with a declaration about initial capital, ornaments and presents received at the time of marriage and other gifts, which “should have put any Income-tax Officer on his guard” (para 5); the officer nevertheless passed the assessment orders without making any inquiry. The Commissioner cancelled the assessments and directed fresh ones after proper inquiry. The point argued in the Supreme Court was want of opportunity; the Court held that the undisclosed facts were supporting material only and that “on the face of the record the orders were prejudicial to the interest of the revenue” (para 6). The words Malabar attributes to the two cases are not in Rampyari.

Tara Devi Aggarwal v. Commissioner of Income-tax, West Bengal, Calcutta (27 November 1972) is the authority for those words, and for the proposition that prejudice is not confined to under-assessment of the person before the officer. The assessee argued that an order which assessed her to tax could not prejudice the revenue. The Court answered that where income not earned is offered in one person’s hands so that someone else, who would have been assessed to a larger amount, escapes, “an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue”, and added that Rampyari “lends support to this view”.

Greenworld and the restatement of 18 September 2026

In Greenworld Corporation the Supreme Court tied the second limb to the first. The conditions “are conjunctive and not disjunctive” (para 23); an assessment “should not be interfered with only because another view is possible” (para 24); and the power exists only if “(1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the revenue” (para 29). The prejudice must come from the error identified. The assessment there had been made, outside any statutory procedure, on the dictates of the then Commissioner, whose successor issued the notice under section 263; the Court held (para 35) that an assessment made “on the dictates of the higher authorities being wholly without jurisdiction, it was a nullity”. That is to be distinguished from an order made on directions under section 144A.

In Orient Crafts Limited v. Commissioner of Income Tax, New Delhi (2026 INSC 1018, 18 September 2026) the Court summarised Malabar (para 12C): “Both conditions must co-exist; if an Order is erroneous but not prejudicial, or prejudicial but not erroneous, this provision is unavailable”, and “The Commissioner cannot use this power to correct every minor mistake made by an AO”. What the decision adds concerns the limits of the two-views rule.

Two views, and what “unsustainable in law” has come to mean

The rule for the assessee

CIT v. Max India Ltd. (Supreme Court, order of 1 November 2007) concerned the word “profits” in the proviso to section 80HHC(3). The Commissioner’s order was dated 5 March 1997. The Revenue argued that a retrospective amendment of 2005 showed the Assessing Officer’s view to have been unsustainable in law. The Court rejected the argument (para 2): “when the order of the Commissioner was passed there were two views on the word “profits” in that section”, and the amendment, “even though retrospective”, would not attract section 263, “particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order”. The date for testing whether two views existed is therefore the date of the Commissioner’s order, as Orient Crafts (para 12A) repeats. The amendment relied on came after that order; the decision does not deal with a change in the law between the assessment and the revision.

In Commissioner of Income Tax, Mumbai v. Amitabh Bachchan (11 May 2016, para 21) the Court gave the reason for the rule:

There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority.

DG Housing (para 18) holds that in such a case “the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous”. In Principal Commissioner of Income Tax-01, New Delhi v. M/s Brahma Centre Development Pvt. Ltd. (Delhi High Court, 5 July 2021, para 11.1) the test is that “the error should be one that is not debatable or a plausible view”.

The Revenue’s side of the rule

The exception is part of the rule, and decisions of the Supreme Court show how much it can carry.

Amitabh Bachchan itself. The assessee had claimed additional expenses in a revised return and then withdrew the claim. The Assessing Officer issued a notice to show cause why the expenses should not be treated as unexplained expenditure under section 69C, the assessee replied that the claim stood withdrawn, and the officer did not pursue the matter. The assessee called this a possible view. The Court disagreed (para 21): making such a claim and then abandoning it “gives rise to the necessity of further enquiry in the interest of the Revenue”, and the notice “could not have been simply dropped on the ground that the claim has been withdrawn”. An inquiry begun and dropped without a conclusion is not a view.

The Commissioner of Income Tax 7 v. M/s. Paville Projects Pvt. Ltd. (6 April 2023). The Assessing Officer had accepted, as cost of improvement in computing capital gains on the sale of a building, payments made to three shareholders under an interim arbitral award. The Tribunal and the Bombay High Court set the revision aside on Malabar, and the assessee told the Supreme Court that the officer’s view was supported by a decision of the Bombay High Court. The Supreme Court restored the revision, saying (para 7.2):

However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under Section 263.

The judgment does not explain why a view for which a High Court decision was cited was not a possible view. It is authority for the principle that the bar applies only where the officer’s view is in fact tenable, and for the result.

Orient Crafts. The Assessing Officer had completed a scrutiny assessment, after a notice under section 143(2) with a questionnaire, and the deduction claimed under section 80HHC stood allowed. The assessee’s case was that he had followed a Board memorandum of 23 February 1998 which equated premium on the sale of export quota with the items in section 28(iiia) and (iiic), and that the memorandum bound him. The Commissioner set the assessment aside. The Delhi High Court upheld him, holding, as the Supreme Court summarises it (para 6E), that the officer “failed to conduct basic inquiries or apply the statutory criteria for export incentives”. The Supreme Court noted (para 14) that the High Court had not approved the fiction created by the memorandum, found the High Court’s view on all the relevant issues “available and tenable”, and declined to interfere (para 15). The plea that the officer had followed a memorandum binding on him did not save the assessment.

Where that leaves the rule

None of these decisions defines “unsustainable in law”, but they mark its limits.

First, the phrase describes the officer’s view, not the Commissioner’s preference: DG Housing (para 10) reads “erroneous” as postulating “an error which makes an order unsustainable in law”. Second, the test is applied to the law as it stood when the Commissioner acted (Max India).

Third, the rule presupposes a view. Malabar was a case of no inquiry, with no view to protect. The Gujarat High Court’s formulation in Commissioner of Income-tax v. Arvind Jewellers (19 July 2002, para 7) is that “the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken”. The Jharkhand High Court made the point from the Revenue’s side in The Principal Commissioner of Income Tax, Dhanbad v. Smt. Manju Devi Chourasia (13 February 2024, para 13): “when there is no opinion at all on a particular subject, we are of the considered view that there cannot be any change of opinion”. The assessee must first show from the record that the officer addressed the question.

Fourth, citing an authority or a circular is not the end of the matter (Paville Projects; Orient Crafts): the assessee should be ready to show that it was on the point and was not contradicted by a decision binding in the jurisdiction.

Prejudice as a separate requirement

Prejudice does not follow automatically from error. The decisions treat it as a separate requirement.

For the assessee. Greenworld requires prejudice “by virtue of the order being erroneous”. Gabriel (para 12) said that “Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed”.

The Gujarat High Court dealt with the point in Rayon Silk Mills v. Commissioner of Income-tax ((1996) 221 ITR 155, 9 November 1995), a reference for assessment year 1974-75. The Commissioner had directed the Income-tax Officer to examine a goodwill account created in the firm’s books by a credit to the partners’ accounts, on the footing that the officer had not examined it at all. The Court first found that premise wrong on the record, which held the assessee’s detailed submission to the officer on the account, although “the assessment order does not speak about the examination of good will account as such” (para 6). It then held, apart from that (para 9), that prejudice had not been shown: “The conclusion of the CIT that the order is prejudicial to the interest of Revenue is not a matter of subjective satisfaction of the CIT. That is to be founded on the objective material” (para 8). Since on settled law no profit or gain could arise to the firm from creating such an account, the order “could not have been said to be an order prejudicial to the interest of Revenue, qua the goodwill account” (para 11). The Court kept section 263 open where, after an inquiry by the officer, the Commissioner “finds the conclusion of the ITO to be erroneous and prejudicial”; but the power is not conferred “to direct for making an enquiry on mere suspicion to disturb a completed assessment” (para 6).

Recent decisions apply it.

• The Principal Commissioner of Income Tax 1 v. Kadamwala Industries Private Limited (Gujarat High Court, 4 August 2026). The assessment for assessment year 2017-18 had been set aside because confirmations had not been obtained from all lenders and trade creditors. The Bench held (para 7.1) that this, “without there being any material on record to show that not providing confirmation or inquiry has resulted into any loss to the Revenue”, did not justify invoking the section.
• Pr. Commissioner of Income Tax -2, Delhi v. M/s Clix Finance India Pvt. Ltd. (Delhi High Court, 1 March 2024). The Tribunal found that no deduction had in fact been allowed for the provision said to have been wrongly allowed, so that “there is no error or prejudice to the interest of revenue”; the High Court accepted the finding (paras 28, 29).
• The Principal Commissioner of Income-tax (Central), Ahmedabad v. Rajesh Balvantrai Brahambhatt (Gujarat High Court, 7 September 2026). The Tribunal had noted that the seized material on which the revision rested had already been brought to tax in a later year, so that “the Revenue’s interests already stand duly safeguarded and there is no prejudice”. The High Court was “in complete agreement with the reasons assigned by the Tribunal” (para 14).

For the Revenue. The answer is in Malabar: where the revenue “is losing tax lawfully payable by a person, it will certainly be prejudicial”. Tara Devi shows that the loss need not be in the hands of the person assessed. In Rampyari the Supreme Court did not ask for a computation: the orders were prejudicial “on the face of the record”, and the assessee was left to show in the fresh assessment “whether the income assessed in the assessment orders which were originally passed was correct or not”. In Additional Commissioner of Income-tax v. Mukur Corporation (Gujarat High Court, 18 December 1975) the officer had allowed two substantial deductions without probing facts that were on the record, and the Court held (para 25) that “want of this inquiry has resulted in prejudice to the interest of the revenue”. In Manju Devi Chourasia (para 11) the Jharkhand High Court pointed to the fresh assessment made after the revision, which had raised the income from Rs.11,56,390 to Rs.2,62,78,410, and said that “prima facie it appears that there was a loss of revenue”.

Where the two lines meet. In Rampyari, Malabar and Mukur the item left unexamined was one likely to yield tax if examined. In Rayon Silk Mills the Court found that the officer had in fact inquired, and held in addition that the item could not yield tax whatever an inquiry found. Kadamwala is nearer the line, since loans and creditors are items on which section 68 can bite; the officer there had asked for and received details, so that the Commissioner’s case was one of further inquiry and not of none. How far Explanation 2 changes this is question 3.

No inquiry and inadequate inquiry

The Assessing Officer as investigator

That a failure to inquire is itself an error was reasoned out by the Delhi High Court in Gee Vee Enterprise v. Additional Commissioner of Income-tax (7 October 1974), a decision dismissing writ petitions at the threshold because an appeal lay to the Tribunal. As reproduced in DG Housing (para 12):

The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry.

So “the word “erroneous” in section 263 includes the failure to make such an inquiry”. Gabriel (para 14) took this into its definition: an erroneous order is one “which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste”.

The limit: an inquiry was made

Gabriel is also the source of the limit. The Income-tax Officer had asked about a deduction and the assessee had answered in writing; the assessment order said nothing about it. The Bench held (para 15):

Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be “erroneous” simply because in his order he did not make an elaborate discussion in that regard.

The distinction was stated by the Delhi High Court in Commissioner of Income Tax v. Sunbeam Auto Ltd. (ITA No. 1399 of 2006, decided on 11 September 2009). The passage, as reproduced in Clix Finance (para 22) and in DG Housing (para 15), reads:

Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of “lack of inquiry” that such a course of action would be open.

The sentence before it is as important: “one has to see from the record as to whether there was application of mind”. The same Court followed the decision in Commissioner of Income Tax v. Anil Kumar Sharma (24 February 2010, paras 6 and 7), declining to disturb a finding of the Tribunal that the record showed application of mind although the assessment order did not.

The three classes in DG Housing

DG Housing does not divide cases into two. The Assessing Officer had examined the sale of a property and accepted the declared price; the Commissioner thought it understated, held that the consideration “has not been properly examined”, and set the assessment aside. The Delhi High Court distinguished (paras 11, 14, 16, 19):

1. No inquiry. “lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue”, and a set-aside is open.
2. Inquiry made, finding said to be wrong. The Commissioner “has to come to the conclusion and himself decide that the order is erroneous”, and “cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous”.
3. Inquiry made but said to be inadequate. Here “again the CIT must give and record a finding that the order/inquiry made is erroneous”, which he can do by making the verification himself.

For the third class the Bench added a sentence on which the Revenue relies:

In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable.

The Court read the Commissioner’s finding as no more than that the order “may be erroneous” (para 19); the revision failed. Globus Infocom Ltd v. Commissioner of Income Tax Delhi-IV (Delhi High Court, 13 August 2014) applied the same reasoning to an order saying that it was “possible” that expenses had been inflated.

The Supreme Court’s orders of 2025

In 2025 the Supreme Court dismissed two special leave petitions of the Revenue with short reasons. They are orders refusing leave, made without the respondent being represented, and neither mentions Explanation 2; but both arise from assessment orders passed after 1 June 2015.

The Principal Commissioner of Income Tax 1 v. NYA International. A reassessment completed on 31 December 2019 had been opened on two recorded reasons: an undisclosed bank account and a deduction under section 10AA. The deduction was disallowed; no addition was made for the bank account. The Principal Commissioner set the order aside for want of inquiry into the account. The Gujarat High Court, before which the Revenue’s questions relied on Explanation 2(a), dismissed its appeal on 18 September 2023, holding (para 5) that it was not open to the revisional authority “to arrive at conclusions merely on the basis of a subjective exercise”. The Supreme Court, on 17 February 2025, called the petition “misconceived” and said:

This is not a case of ‘no inquiry and verification’, but as made out by the Revenue, a case of wrong conclusion. The difference between the two situations is clear and has different consequences.

In the second situation “the Commissioner of Income Tax should have examined the merits and only on reaching a finding that the re-assessment order was erroneous and prejudicial to the interest of the Revenue made an addition”.

Pr. Commissioner of Income Tax-1, Chandigarh v. M/s. V-Con Integrated Solutions Pvt. Ltd. (assessment year 2018-19). The Assessing Officer had issued a questionnaire on share capital and received the documents; the Principal Commissioner remanded for more. The Punjab and Haryana High Court held on 12 September 2024 (para 6) that he had “not pointed out any further enquires, which were required to be made by the Assessing Officer”, and that “Simply by holding that the Assessing Officer was required to make more enquiries, would not be a valid ground”. The Supreme Court’s order of 4 April 2025 found the High Court’s order “correct on facts and in law”, and continued:

The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee. In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate.

It ended with a qualification:

There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue.

After 2015 in the High Courts

In Clix Finance the Revenue relied on the Explanation although the assessment (2005) and the revision (2007) preceded it. The Delhi High Court held (para 27) that “inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act”. In Brahma Centre Development, on assessment orders of 2017, the same Court assumed that clauses (a) and (b) applied and held (para 10.1) that “Inadequacy in conduct of enquiry cannot be the reason based on which powers under Section 263 of the Act can be invoked”.

In Gujarat, Kadamwala Industries found (para 5) that the officer had called for details of the loans and trade payables by a show cause notice and had considered the reply; the Tribunal’s finding, reproduced at para 3.3, was that the assessment order referred to neither. The Principal Commissioner of Income Tax-1, Rajkot & Anr. v. Valour Autopack (21 September 2026) concerned a faceless assessment for assessment year 2021-22; the Revenue’s first question relied on Explanation 2(a). The Bench held (para 4) that “how much inquiry is to be conducted, is the exclusive domain of the Assessing Officer to decide”. Brahambhatt applied the distinction to assessments made after a search: a notice under section 142(1) had confronted the assessee with the seized documents, the officer had “consciously accepted the explanation”, and the Principal Commissioner, “considering the same incriminating material, affirmed a different opinion” (para 14). The question the Revenue had framed about the approval under section 153D was not decided (see Part 3).

The Bombay High Court reached the same result in Commissioner of Income Tax (Exemptions), Mumbai v. Impact Foundation (India) (4 May 2026), on an assessment order of 12 December 2019 revised under Explanation 2 because the officer had not called for a break-up and evidence of the application of accumulated income: “the order of the AO could not be revised by the CIT (Exemptions), merely on the ground that further details were required to be called for”.

Must the assessment order discuss the issue

On these authorities, no. The test is the record, not the order: Gabriel; the Sunbeam passage; Clix (para 20: clause (a) “does not warrant recording of the said enquiry or verification in its entirety in the assessment order”); Brahma (para 10.1); Vikas Polymers (para 13); and the Supreme Court’s remark about the pen of the Assessing Officer. In Gujarat the point goes back to Rayon Silk Mills, where inquiry was found on the record although the order was silent, and Commissioner of Income Tax v. Nirma Chemicals Works P. Ltd. (4 February 2008, para 18), before reproducing the passage from Rayon Silk Mills, put it shortly:

An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome.

Aryan Arcade Ltd v. Commissioner of Income Tax - I (Gujarat High Court, 10 August 2017, para 9) applied it: “The fact that the Assessing Officer did not elaborate this issue in the year of assessment would be of no consequence.”

Manju Devi Chourasia goes the other way. The Revenue’s case was that the return had been selected for scrutiny for a large increase in unsecured loans. The Tribunal held that the officer, having received the material and explanation he called for, had “come to a definite conclusion”. The Jharkhand High Court called that observation perverse because the officer “has not uttered a single word with regard any enquiries and/or verification made by him” on the source of the capital (para 13), and restored the revision. The judgment does not refer to Gabriel, the Sunbeam line or DG Housing, and pre-dates the Supreme Court’s order in V-Con. Its reasoning from the silence of the order is against the weight of authority; its result is easier to defend on the Commissioner’s finding that one lender had declared an income of Rs.4,25,598 against loans running into crores.

The Revenue’s side at full strength

• An order that accepts the return on a point which called for inquiry, without making any, is erroneous and prejudicial without more: Rampyari; Tara Devi; Malabar; Gee Vee; and, as we read it, Mukur. The decisions on inadequate inquiry leave this untouched.
• A query is not always an inquiry. In Bachchan a notice had been issued and a reply received, and the Supreme Court still held that the matter “needed further investigation”.
• The Supreme Court’s 2025 wording is not binary: a “superficial and random investigation” may justify a remit. DG Housing accepts a class where the record “per se justified and mandated” further inquiry, and the Ahmedabad Tribunal accepts “a very gross case of inadequacy in inquiry” (Torrent Pharmaceuticals Ltd. v. DCIT, 8 August 2018, para 9.5).
• In Orient Crafts the Supreme Court left standing a revision of a scrutiny assessment made after a questionnaire, on the High Court’s view that the officer had failed “to conduct basic inquiries or apply the statutory criteria”.
• Since 1 June 2015 there is the text of Explanation 2(a).

The working distinction is whether the record shows a query and a reply on the point. If it does not, the assessee is in Rampyari territory and must defend on prejudice or on the merits. If it does, the Commissioner must decide the point himself or make the “clear, unambiguous and not debatable” finding that DG Housing requires.

Explanation 2: the text and where it came from

Explanation 2 to section 263(1) now reads:

Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,—

(a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

It was inserted by the Finance Act, 2015. Clause 65 of the Finance Bill, 2015 provided that it “shall be inserted with effect from the 1st day of June, 2015”.

The Memorandum explaining the Bill says only this about purpose: “The interpretation of expression “erroneous in so far as it is prejudicial to the interests of the revenue” has been a contentious one”, and the amendment is proposed “In order to provide clarity on the issue”. It ends: “This amendment will take effect from 1st day of June, 2015.” It does not call the amendment clarificatory or declaratory, does not say that it applies to earlier orders or earlier assessment years, and does not mention any decision or the distinction between no inquiry and inadequate inquiry. The Notes on Clauses state no purpose and give the same date.

The text has these features.

It deems both limbs. What is deemed is the whole expression of sub-section (1), “erroneous in so far as it is prejudicial to the interests of the revenue”, not merely error.

The trigger is an opinion. The deeming operates “if, in the opinion of” the revising authority one of the conditions is met.

Clause (a) has a standard built into it. It is not “without making inquiries”, but without making inquiries or verification “which should have been made”. Something outside the Commissioner’s preference has to supply the “should”.

Clause (b) has no such qualifier, but a narrower subject. It applies where the order allows “any relief” and does so “without inquiring into the claim”. Its language describes the absence of inquiry into a claim, not its insufficiency. The Revenue can read “inquiring into the claim” as inquiry into each condition of the relief, so that a query on one condition leaves the claim uninquired into on the others. Our view is that clause (b) restates, for claims of relief, the rule in Malabar and Rampyari that a claim accepted with no inquiry makes the order erroneous, and adds nothing to clause (a) where some inquiry into the claim was made.

Explanation 2 and the twin test

No decision of the Supreme Court discussed in this Part construes Explanation 2. The High Courts and the Tribunal have, and nearly all read it as leaving the earlier law in place.

Gujarat. In Kadamwala Industries the Revenue’s questions relied on Explanation 2(a) and on Paville Projects. The Bench described the Explanation (para 7) as one that “can be pressed into service by deeming fiction”, held (para 7.1) that where clause (a) is relied on “the Section can be pressed into service only when Pr.CIT is of the opinion that the order is erroneous as well as prejudicial to the interest of the Revenue”, and concluded (para 7.2):

there is twin conditions with regard to the assessment order being erroneous and prejudicial to the interest of the Revenue which is the basis for assuming jurisdiction under Section 263 of the Act and Explanation-2 only provides for deeming fiction when these two conditions are fulfilled

The paragraph goes on to say that the order is deemed erroneous and prejudicial when the Assessing Officer “has not made sufficient inquiry”. Those words can be read as accepting that an insufficient inquiry triggers the deeming. Read with paragraph 7.1 and the result, the holding is that the Commissioner must still show error and prejudice on the material.

In The Principal Commissioner of Income Tax-1 v. Kutch District Co.Op. Milk Producers Union Ltd. (18 March 2025) the Revenue pleaded clauses (a) and (d). The Bench reproduced the findings of the Rajkot Bench of the Tribunal and said (para 7): “We are in complete agreement with the aforesaid findings of the learned ITAT.” Those findings included a passage quoted from an order of the Tribunal’s Mumbai Bench: clause (a) applies “if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such case”, and the Explanation “does not authorise or give unfettered powers” to revise every order. The words are a Tribunal’s, adopted at two removes.

Principal Commissioner Income Tax, Surat-2 v. M/s Shreeji Prints Pvt. Ltd. (3 February 2020) holds less than is sometimes claimed for it. The assessment order was of 14 March 2016. The Principal Commissioner directed a fresh assessment on two unsecured loans. The Surat Bench of the Tribunal cancelled the revision, reproducing the reasoning of the Ahmedabad Bench in Torrent Pharmaceuticals. The High Court set out the Tribunal’s paragraphs, recorded (para 5) its finding that the Explanation had been applied without being mentioned in the show cause notice, recorded (para 6) its finding of fact that the officer had inquired in detail and taken a plausible view, and held (para 7): “In view of such finding of facts arrived by the Tribunal, no questions of law much less of any substantial questions of law arise”. The High Court did not itself interpret Explanation 2. The Supreme Court dismissed the Revenue’s special leave petition on 27 August 2021 by an order that gives no reasons; it decides nothing on the Explanation.

The Ahmedabad Tribunal. The reading that the limits of clause (a) are implicit in it therefore originates with the Tribunal, in Torrent Pharmaceuticals (paras 9.2 to 9.5), on an assessment order of 26 December 2016. The Explanation “being clarificatory would not lead to dilution of the basic requirements of Section 263(1) of the Act” (para 9.2). The words “which should have been made” test the officer’s action “on the touchstone of reasonableness and rationality in approach” (para 9.3); the question is what circumstances “ought to have provoked such enquiry by a reasonable person instructed in law” (para 9.4). And (para 9.5):

Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO.

This cuts both ways: it holds the Commissioner to an objective standard, and it concedes that a gross inadequacy, or an inquiry the record itself demanded, is within clause (a).

Delhi. Clix Finance (para 19) treats the two-pronged test as the law and Explanation 2 as something that “delineates certain conditions and circumstances” for it. Brahma Centre Development assumed that clauses (a) and (b) applied.

Bombay. In The Pr. Commissioner of Income Tax-14, Mumbai v. Shivshahi Punarvasan Prakalp Ltd. (5 August 2022) the Bench, holding the Explanation inapplicable to a revision of 2011, observed (para 31) that “with the introduction of Explanation 2 with effect from 1st June, 2015 even cases of inadequate or improper enquiry may be covered albeit not for the assessment year in question”. The remark was not necessary to the decision, but it is a High Court’s reading that the Explanation changed the law. Four years later the same High Court, in Impact Foundation, on an order to which the Explanation had been applied, held, agreeing with the Tribunal (para 10), that where the officer had inquired the Commissioner, “before holding that an order is erroneous, should conduct necessary inquiries or verification in order to ascertain that the findings arrived by the AO on that issue are erroneous, perverse and/or unsustainable in law”. It does not refer to the remark in Shivshahi.

Jharkhand. Manju Devi Chourasia is the Revenue’s decision. The Court held that the Tribunal “has utterly failed to consider” the amendment, restored a set-aside for inquiry into creditworthiness, and treated the Commissioner’s order as one made “after complying with the twin conditions” (para 11).

“In the opinion of”. The readings that confine these words are the passage adopted in Kutch District (the opinion “cannot be taken as final one”), NYA International in the Gujarat High Court, and, on the parent words “if he considers”, Gabriel (para 14). For the Revenue there are the words themselves and Gee Vee, which thought that “The superior officer could be trusted with a larger power”. The better view is that an opinion required for the exercise of a quasi-judicial power is one formed on the record and open to examination in appeal.

Must Explanation 2 be put to the assessee. In Shreeji Prints (para 5) the Gujarat High Court recorded the Tribunal’s view that “invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law”. In Impact Foundation (para 13) the Bombay High Court held in its own words that “the show-cause notice was required to specify that the aforesaid Explanation is to be invoked against the Assessee”, reproducing paragraph 5 of the Gujarat order in support. In both cases the revision failed on the merits as well. The Revenue’s answer is Amitabh Bachchan (paras 10, 11): the power “is not contingent on the giving of a notice to show cause”, and nothing in the section requires the Commissioner “to confine himself to the terms of the notice”, provided a full opportunity is given. The Supreme Court restated this in Orient Crafts (para 12B) on 18 September 2026, after Impact Foundation: the Commissioner “is not confined to the terms of the initial notice, provided the Assessee has a full opportunity to controvert the new facts”. The statement in Impact Foundation that without the mention the section “cannot apply” sits uneasily with both. The law on the notice is in Part 2.

Is Explanation 2 prospective

Prospective. Shivshahi holds so in terms (para 16: “this Explanation is prospective and is applicable with effect from 1st June, 2015”; para 32). The assessment order, the notice of 18 March 2011 and the revision order of 31 March 2011 all preceded the date, so the Bench did not have to choose a connecting event.

Clarificatory. Manju Devi Chourasia (para 13) says that the Explanation was incorporated “with the expression “it is hereby declared”; meaning thereby to say that the same is clarificatory in nature and it will apply even to the assessments made prior to the amendment”. The assessment order there was dated 3 December 2015, so the statement was not needed for the result; the judgment cites no authority for it and does not notice Shivshahi.

Left open. In Brahma Centre Development the Revenue argued that the Explanation was declaratory and so applied to assessment years 2012-13 and 2013-14. The Delhi High Court assumed applicability and said (para 15) that it “need not detain” itself on the question, an inquiry having in fact been made. In The Pr. Commissioner of Income Tax 1, Surat v. Pradeep Vallabhbhai Chhatrala (Gujarat High Court, 11 September 2026) the Surat Bench, as the High Court records it (para 3.5), had allowed the assessee’s appeal on the ground that clause (c) “would not be applicable for the Assessment Year 2014-15”, having come into effect from 1 June 2015, although the assessment order was dated 9 November 2016. The High Court found the direction under revision to have become futile, and said (para 7): “we decline to answer the questions proposed by the Revenue in the facts of the case, keeping the same open to be considered in appropriate case”. In Clix Finance (para 30) the Delhi High Court referred to the Explanation, which “markedly specifies various conditions” for the power, on an assessment of 2005 revised in 2007, without asking whether it applied.

Which date. If the Explanation is prospective, the connecting event could be the assessment year, the assessment order, the notice or the revision order. No High Court decision discussed here chooses between them where they fall on different sides of 1 June 2015; the Surat Bench in Chhatrala used the assessment year, and the Revenue there the date of the assessment order.

The question matters less each year. An order passed before 1 June 2015 could be revised, under section 263(2) and leaving aside the exclusions and sub-section (3), at the latest by 31 March 2018, so disputes about such orders survive only in pending appeals. For an order passed on or after 1 June 2015 the dispute matters only on the assessment-year view, and then only for an earlier assessment year. The point is argued as question 2.

Explanation 2(c) and 2(d)

Clause (c): Board orders, directions and instructions under section 119

The authority is thin. The Delhi Bench of the Tribunal, in WSP Consultants India Private Ltd. v. Pr. CIT (27 March 2024), held, as one of its grounds for quashing the revision (para 16.1), that circulars of the Board in the form of explanatory notes to a Finance Act “cannot be considered to be issued u/s 119”, and that the exercise of jurisdiction under clause (c) for a departure from them was bad. Its other ground was that the assessment order, passed without a draft order under section 144C, was void and so not open to revision (paras 15, 17; Part 3, question 12). In Chhatrala the Principal Commissioner invoked clause (c) because the officer had not referred specified domestic transactions to the Transfer Pricing Officer as Instruction No. 3/2016 of 10 March 2016 required; the High Court did not reach the clause. No decision discussed in this Part upholds a revision on clause (c).

The document relied on must be shown to be an order, direction or instruction of the Board under section 119, the power to issue “orders, instructions and directions to other income-tax authorities” for the proper administration of the Act. Our view is that the clause looks to the instructions in force when the order was made: the words are “has not been made in accordance with”, and no decision discussed here decides whether a later instruction can be relied on. Clause (c) deems an order that departs from the Board to be erroneous and prejudicial; it does not make an order that follows the Board safe. Orient Crafts is a pre-2015 case, but it shows the converse: the assessee’s case was that the officer had applied a Board memorandum in its favour, and the revision stood.

Clause (d): decisions of the jurisdictional High Court or the Supreme Court

The clause was pleaded in Kutch District. The Revenue relied on a decision of the Gujarat High Court concerning interest earned by a co-operative society on deposits. The Tribunal held that the decision “was on the aspect of reopening of assessment under Section 147 of the Act and not directly on the issue” of the deduction claimed, and the High Court agreed with its findings without discussing clause (d) separately. The decision relied on must be on the point.

Settled by the words. A decision of a High Court other than the jurisdictional one does not trigger the clause; it is at most material on whether two views exist. The decision need not be in the assessee’s own case. It must be “prejudicial to the assessee”.

Interplay with the two-views rule. A decision of the jurisdictional High Court or the Supreme Court against the assessee, in existence when the officer decided, makes the contrary view unsustainable in law in that jurisdiction, and clause (d) then adds nothing to Malabar. A decision of another High Court leaves two views open unless the jurisdictional High Court or the Supreme Court has spoken.

Left open. Whether the clause reaches a decision rendered after the assessment order but before the revision; what follows where the decision relied on is under appeal, has been stayed, or has been doubted by a later Bench; and whether a decision distinguishable on facts can found the opinion. These are argued as question 4.

Must the Commissioner decide, or may he send it back

The assessee’s line. Where the Assessing Officer inquired, the Commissioner must reach his own conclusion that the order is wrong. Gabriel (para 15): “Further inquiry and/or fresh determination can be directed by the Commissioner 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.” DG Housing (para 17): “An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible.” The same paragraph notes that nothing prevents the Commissioner from collecting additional material to show the error. The Supreme Court’s orders of 2025, set out above, are to the same effect.

After 2015 the Gujarat and Bombay High Courts have held to this. In Kadamwala Industries the Principal Commissioner had remanded; the Bench held (para 8) that “when the Assessing Officer has made the inquiry and has arrived at a satisfaction, the Pr.CIT cannot impose his own opinion”. In Impact Foundation the Commissioner had directed the officer to obtain details and conduct third party verification; the Bench agreed with the Tribunal (para 10) that he should have made the necessary inquiries himself.

The Revenue’s line. The section says that the Commissioner may act “after making or causing to be made such inquiry as he deems necessary”, and may pass an order “cancelling the assessment and directing a fresh assessment”. The Gujarat High Court read those words in Mukur Corporation. The Additional Commissioner had cancelled an assessment and directed a fresh one without allowing the assessee to cross-examine a witness and without a final conclusion on two deductions; the Tribunal set his order aside because he had only “substantial doubts”. The High Court reversed. It did not find “any justification for the view that in every case the Commissioner is expected to make an inquiry before passing the final order” (para 27), and held (para 29):

there is nothing in section 263(1) to show that before passing the final order under that section, the Commissioner must necessarily and in all cases record final conclusions about the points in controversy before him.

Gee Vee is to the same effect, and Manju Devi Chourasia restored a set-aside for inquiry.

Reconciling them. The two lines answer different facts. In Mukur the Court had first found that the Income-tax Officer “did not care to probe further into the details” and “had erred in not making proper inquiry into the matter” (para 19), to the prejudice of the revenue. The Revenue can cite those words for an inquiry that fell short. We read the case as one of points not inquired into: the error was the want of inquiry, and the Commissioner had identified it with material; what he could leave open was the final answer on the deductions. Rampyari and Tara Devi are the same. So, in effect, is Amitabh Bachchan, where the officer dropped his notice without reaching a conclusion and the Supreme Court restored a revision that set the assessment aside for a fresh one: an inquiry abandoned is treated as no inquiry on that point. The Sunbeam judgment, as reproduced in Kadamwala (para 9), draws the same line: the Commissioner is not in all cases “bound to express final view”, but “the least that was expected was to record a finding that order sought to be revised was erroneous and prejudicial to the interest of the revenue”. In Gabriel, DG Housing, NYA International, V-Con, Kadamwala and Impact Foundation the officer had inquired, so the only possible error was in the conclusion, and that the Commissioner had to demonstrate himself.

Where there was no inquiry, the Commissioner must find that fact and show why an inquiry was called for and how its absence prejudiced the revenue; he need not decide the merits, and may set aside. Where there was an inquiry, he must decide the merits or, in the narrow class the Supreme Court and the Delhi High Court have left open, record a clear finding that the inquiry was so superficial, or the further inquiry so plainly demanded by the record, that the order cannot stand.

Section 377(3) of the Income-tax Act, 2025

For tax year 2026-27 onwards revision is under section 377 of the Income-tax Act, 2025. Sub-section (1) repeats section 263(1) with the “Competent Authority”, defined in sub-section (8)(a) as the same four ranks. Explanation 1 becomes sub-section (2) and Explanation 2 becomes sub-section (3):

(3) An order passed by the Assessing Officer or the Transfer Pricing Officer, shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Competent Authority, the order—

(a) is passed without making inquiries or verification which should have been made; or (b) is passed allowing any relief without inquiring into the claim; or (c) has not been made in accordance with any order, direction or instruction issued by the Board under section 239; or (d) has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

The clauses are operative text. The words “it is hereby declared” are gone. The argument that the provision merely clarifies what the main section always meant has no application to section 377, and needs none, since every order for tax year 2026-27 onwards will be passed with the sub-section in force.

The argument from structure changes with it. Under section 377 the deeming rule is a sub-section of equal rank and not an Explanation, and the Revenue will say that this strengthens it. The assessee’s answer is that the words that carry the limits are unchanged (“which should have been made”; “without inquiring”), and that a re-enactment in the same words after a decade of largely consistent High Court reading does not signal a change of meaning. Our view is that the case law on Explanation 2 carries over.

“or” follows each of clauses (a), (b) and (c). In Explanation 2 the word appears only after clause (c). The clauses have always been treated as alternatives; the 2025 text puts that beyond argument.

The cross-references move. Section 119 becomes section 239; the Transfer Pricing Officer’s order is “an order under section 166”; and in sub-section (2)(a) the reference to directions under section 144A becomes a reference to directions of the Joint Commissioner under section 272.

Which Act applies. Section 536(2)(c) of the 2025 Act continues the 1961 Act for proceedings initiated on or after 1 April 2026, expressly including “revision”, “in respect of any tax year beginning before the 1st April, 2026”. The revision in the opening illustration, begun in January 2027 against an assessment for assessment year 2023-24, is under section 263 with Explanation 2. Section 377(3) will first be applied to orders for tax year 2026-27 (a block assessment under the 2025 Act apart; see Part 3, question 13). The general rule is explained in which Act governs your appeal, and the transition for revision is taken further in Part 3.

Gujarat: what the record shows

The Gujarat High Court’s decisions discussed in this Part, in date order:

1. Mukur Corporation, 18 December 1975: failure to make “proper inquiry” into two deductions was error and prejudiced the revenue; the Commissioner, setting aside, need not record final conclusions on the merits.
2. Rayon Silk Mills, 9 November 1995: the officer was found to have examined the account although the order was silent; prejudice must be founded on objective material, and where no tax could arise from the item the order is not prejudicial.
3. Arvind Jewellers, 19 July 2002: material considered and a view taken; “the mere fact that a different view can be taken, should not be the basis for an action under Section 263” (para 7).
4. Mehsana District Co-op. Milk Producers, 2 April 2003: an order made on a superior’s directions can be revised; an issue decided in appeal cannot; a consistent and rational apportionment is not erroneous (para 7).
5. Nirma Chemicals Works, 4 February 2008, and Aryan Arcade, 10 August 2017: the assessment order need not give reasons for claims allowed.
6. Shreeji Prints, 3 February 2020: the Surat Bench’s findings left undisturbed as findings of fact; special leave petition dismissed on 27 August 2021 without reasons.
7. NYA International, 18 September 2023: a recorded reason for reopening on which no addition was made is not a case of no inquiry; special leave petition dismissed with reasons on 17 February 2025.
8. Kutch District Co.Op. Milk Producers Union, 18 March 2025: agreement with the Rajkot Bench’s reading of clause (a); the decision relied on under clause (d) was not on the point.
9. Kadamwala Industries, 4 August 2026: Explanation 2 is a deeming fiction, the twin conditions remain the basis of jurisdiction, and prejudice needs material.
10. Rajesh Balvantrai Brahambhatt, 7 September 2026: assessments after a search, completed on 29 September 2022; seized material confronted and the explanation consciously accepted.
11. Pradeep Vallabhbhai Chhatrala, 11 September 2026: clause (c) invoked; whether Explanation 2 applies to assessment year 2014-15 where the assessment order is of 9 November 2016 left open.
12. Valour Autopack, 21 September 2026: faceless assessment for assessment year 2021-22; the extent of inquiry is for the Assessing Officer.

The decisions since 2020 are consistent. In most of them the Revenue framed its question on Explanation 2, and, Chhatrala apart, each appeal was dismissed without a question of law being admitted, mainly on the Tribunal’s findings that queries had been raised and answered. Most are short oral orders, several made without the assessee appearing.

They do not decide: whether Explanation 2 is prospective and by what date; what “in the opinion of” requires; whether a gross inadequacy of inquiry falls within clause (a); anything on clause (b) separately; or the scope of clauses (c) and (d). Mukur remains good authority for the Revenue where a point was not inquired into and, as the Revenue will say, where the inquiry fell short of “proper inquiry”.

Open questions, argued both ways

Four questions in this Part are open. Part 2 carries questions 5 to 9 and Part 3 questions 10 to 14.

Question 1: does Explanation 2(a) reach an inadequate inquiry?

For the Revenue. The clause does not say “without making any inquiry”. It says “without making inquiries or verification which should have been made”, and it adds verification to inquiry: an officer who accepts an answer without verifying it has passed an order without verification which should have been made. The clause would be surplus if it covered only a total absence of inquiry, which was already error under Rampyari and Malabar; Parliament acted because the expression had been “a contentious one”, and the contention was this very line. The Bombay High Court read it so in Shivshahi (para 31), and Manju Devi Chourasia restored a revision on clause (a) where creditworthiness had not been verified. Mukur found error in not making “proper inquiry” and “any further inquiry into the details” (paras 19, 25). The assessee’s own authorities concede ground: Torrent (para 9.5), the “per se” passage in DG Housing and the closing words of the Supreme Court’s order in V-Con. So does paragraph 7.2 of Kadamwala.

For the assessee. The standard in the clause is “should have been made”, and that is not the Commissioner’s preference. Torrent (paras 9.3, 9.4) and the passage adopted in Kutch District read it as the inquiry a reasonable and prudent officer would have made, with the burden on the Commissioner. If every inadequacy he perceived sufficed, every assessment would be revisable; Torrent (para 9.5) says that “this is not intended by the Explanation”. The test in the sub-section is unchanged, and Kadamwala so holds. Every High Court decision discussed in this Part that reached the question on a post-2015 order, other than Manju Devi, has applied the old distinction: Brahma, NYA International, Kutch District, V-Con, Kadamwala, Brahambhatt, Valour Autopack and Impact Foundation. The Supreme Court’s orders of 2025 distinguish, for such orders, a failure to investigate from a wrong conclusion. The remark in Shivshahi was not needed for the decision and was not followed in Impact Foundation; Manju Devi reasons from the silence of the order.

Where it stands. No decision of the Supreme Court discussed in this Part construes clause (a). The High Courts are close to uniform for the assessee, but mostly on findings of fact, and the Revenue’s textual argument, that “verification which should have been made” must add something, is not answered in terms in any of their decisions.

Our view is that clause (a) reaches an inadequate inquiry only in the class that Torrent, DG Housing and V-Con describe: where the Commissioner shows, by a specific finding, what inquiry or verification the record itself demanded, that it was not made, and that its omission cost tax. It does not reach a case where the officer asked the relevant question and the Commissioner would have asked a further one.

Question 2: is Explanation 2 prospective, and which date governs?

For the Revenue. The words “it is hereby declared” are the formula of a declaratory provision, and the Memorandum says the Explanation was inserted “to provide clarity” on an expression already in the section. A provision that declares the meaning of existing words speaks from the date of those words (Manju Devi Chourasia, para 13; and Torrent, para 9.2, calls it clarificatory). The commencement date fixes when the text entered the statute book, not the orders to which it applies. In any event the Explanation concerns the Commissioner’s power, and a change in the conditions of a power applies to every exercise of it after commencement. At the least, as the Revenue argued in Chhatrala, an assessment order passed after that date was passed when the Explanation “was already on the statute”.

For the assessee. Shivshahi is a direct holding that the Explanation is prospective. Parliament gave it a commencement date and did not use the words “shall be deemed always” that it used twice in Explanation 1 of the same sub-section; the sub-section itself shows that retrospective operation, where intended, is expressed. The words “it is hereby declared” appear with “shall be deemed”, and a deeming provision creates a fiction for the future. If the Explanation merely declared existing law, the Bombay High Court could not have said (para 30) that before it the section covered “a case of no enquiry but not a case of inadequate enquiry”. The Board’s explanatory circular, No. 19/2015 of 27 November 2015, as reproduced in Torrent (para 9.1), says of its applicability only that the amendment “has taken effect from 1st day of June, 2015”.

Which date. The assessment-year test has no footing in the text: the Explanation does not alter the computation of income for any year; it deems something about “an order passed by the Assessing Officer”. An officer passing an order on or after 1 June 2015 knows the standard to which it will be held.

Where it stands. Bombay has held the Explanation prospective; Jharkhand has said, obiter, that it is clarificatory; Delhi and Gujarat have left the question open; none of these High Courts has chosen the connecting date.

Our view is that the Explanation is prospective and that the governing event is the passing of the order sought to be revised: it applies to an order passed on or after 1 June 2015, whatever the assessment year, and not to an earlier one. On that view the assessment-year test is wrong, and so is the Revenue’s widest claim. An assessee whose order was passed after 1 June 2015 for an earlier assessment year (2014-15 in Chhatrala) should take the point, since it is open in Gujarat, but should not rest the case on it. The question does not arise under section 377(3).

Question 3: does the deeming dispense with proof of prejudice, and with the Commissioner’s own finding?

For the Revenue. A deeming provision is to be given its full effect, and what is deemed is the entire expression on which jurisdiction depends. Where an inquiry was not made nobody knows whether tax was lost, and to require proof of loss before the inquiry can be ordered would defeat the provision. Rampyari did not require a computation. Mukur holds that a Commissioner who cancels the assessment and directs a fresh one need not, and should not, express a final opinion. Manju Devi treated a set-aside with a direction to inquire as compliance with the twin conditions.

For the assessee. The deeming attaches to a state of facts: that inquiries “which should have been made” were not. Whether an inquiry should have been made cannot be judged without asking what it was for, and an inquiry that could not affect the tax payable is not one that should have been made (Rayon Silk Mills, on its second ground). Kadamwala (para 7.1) requires material of a resulting loss even where the Explanation is invoked. The Supreme Court’s order in V-Con requires the Commissioner, even in a case fit for remit, to “establish both the error and the prejudice caused to the Revenue”. On the second limb, the Supreme Court’s orders in NYA International and V-Con, dismissing special leave petitions, say, and Kadamwala and Impact Foundation hold, for post-2015 orders, that where the officer inquired the Commissioner must decide the merits. Vikas Polymers (para 14) requires reasons that “irresistibly lead to the conclusion” that the order was both erroneous and prejudicial; a recital of the Explanation is not a reason.

Where it stands. The Gujarat High Court has answered the first limb for the assessee in Kadamwala, in a short order that does not examine the argument that the deeming covers prejudice as well as error. On the second limb the authorities are consistent, with Mukur, on our reading, confined to cases of no inquiry.

Our view is that the deeming removes one argument only: the assessee can no longer say that a failure to inquire, as such, is not an error. The Commissioner must still show, in a reasoned order, which inquiry should have been made and why, and that the item was one on which tax could have been lost. Where there truly was no inquiry into such an item, the Revenue need show no more and a set-aside is lawful. Where there was an inquiry, the Explanation does not convert the Commissioner’s doubt into a finding.

Question 4: does Explanation 2(d) reach a decision rendered after the assessment order, or one contradicted elsewhere?

For the Revenue. A court declares the law as it has always been; a binding decision shows that the officer’s view was wrong when he took it. The clause says “any decision” and has no words confining it to decisions already rendered. Max India directs that the law be taken “as it stood on the date when the Commissioner passed the order”, and on that date the binding decision exists and no second view is open in the jurisdiction. A decision under appeal binds until it is set aside or stayed, and the clause asks only whether it was “rendered”.

For the assessee. The clause speaks of an order that “has not been passed in accordance with” a decision. An order cannot be passed in accordance with, or contrary to, a decision that does not exist; the natural meaning is a decision the officer could have followed. Clause (c), on the same wording, is best read as confined to instructions in force when the order was made, and the clauses should be read alike. Section 263 corrects an order that was wrong when it was passed; it is not a means of bringing completed assessments up to date with later decisions. The date test in Max India was stated to protect a view that was open when the Commissioner acted, in a case where the change in the law came after his order; it was not stated to enlarge his power. Where the decision relied on has been stayed, or is contradicted by a later decision of the same court, a conflict of binding authority is the plainest case of two views.

Where it stands. No decision discussed in this Part decides the point. Kutch District shows only that the decision must be directly on the issue. Max India is the nearest authority; its date test, taken literally, favours the Revenue where the decision was rendered before the revision order, though the amendment in that case came after it.

Our view is that clause (d) is confined to decisions rendered before the order sought to be revised was passed. That gives “has not been passed in accordance with” its ordinary meaning and keeps clause (d) in step with clause (c). A later decision remains relevant in a different way: if the Commissioner proceeds on the main part of sub-section (1), it bears on whether the officer’s view was unsustainable in law on the date of the revision order, and there the Revenue’s argument from Max India is at its strongest.

On a live file

1. Fix the Act and the date. If the tax year of the order under revision began before 1 April 2026, the revision is under section 263 whenever begun (section 536(2)(c) of the 2025 Act); otherwise under section 377. A block assessment under the 2025 Act is a case apart (Part 3, question 13). Count the two years under section 263(2) or section 377(4) from the end of the financial year in which the order was passed (Part 2).
2. Check who has issued the notice and against what. The authority must be one of the four ranks holding jurisdiction, and the order must be one of the Assessing Officer or the Transfer Pricing Officer. If the return was only processed under section 143(1), consider the objection in Kartar Singh (decided on section 143(1)(a) as it stood for assessment year 1989-90; other High Courts were cited the other way). If the issue was decided in an appeal, take Explanation 1(c).
3. Classify each item in the notice as (i) no inquiry, (ii) inquiry made but conclusion said to be wrong, or (iii) inquiry made but said to be inadequate (DG Housing). The defence and the permissible order differ for each.
4. Record which clause of Explanation 2 is alleged. If the notice does not mention the Explanation, say so in the reply, and object if the order later relies on it (Impact Foundation, para 13). If clause (c) is alleged, ask for the instruction and check that it was issued under section 119 and before the assessment order. If clause (d) is alleged, check that the decision is of the jurisdictional High Court or the Supreme Court, is on the point, pre-dates the assessment order, and has not been stayed or overruled.
5. Build the inquiry record. File, in date order: the notices under section 143(2) and section 142(1), every reply with its acknowledgement and enclosures, notices to third parties and their responses, any show cause notice in the assessment and the reply, and the order sheet; in a faceless assessment, the e-proceedings history. Tie each item in the section 263 notice to the query and reply that dealt with it.
6. Where the record shows no query on an item, do not argue inadequate inquiry. Defend on prejudice (show with a computation that the item could not have yielded tax) and on the merits, with the evidence that would have been produced to the officer, and ask the Commissioner to decide the item himself on that evidence.
7. Plead the two-views rule with its authority. Identify the view the officer took, the decision or circular that supports it, and its standing on the date of the Commissioner’s order (Max India). Deal in advance with Paville Projects and Orient Crafts.
8. Do the prejudice arithmetic. For each item state the tax effect if the Commissioner were right. If it is nil (a loss year, a timing difference, income already taxed in another year or another hand), say so with figures (Kadamwala, para 7.1; Brahambhatt).
9. Ask what further inquiry the Commissioner has in mind. If the notice says only that proper inquiry was not made, ask for the specific inquiry or verification said to be missing and why it was called for (V-Con, Punjab and Haryana High Court, para 6).
10. Put the merits before the Commissioner. Where the officer did inquire, the Commissioner must decide (NYA International; V-Con); file the evidence on the merits so that the record shows he could have.
11. Read the order against the notice. Check whether it finds error and prejudice item by item, whether it relies on a clause or ground not in the notice, and whether it decides or merely directs inquiry. These are the grounds of the appeal to the Tribunal, which lies within two months from the end of the month in which the order is communicated (Part 3).

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

Subject	Income-tax Act, 1961	Income-tax Act, 2025	What changed
The power to revise	Section 263(1)	Section 377(1)	Same words; “Competent Authority” in place of the four ranks; section 166 in place of section 92CA
Who exercises it	Named in section 263(1)	Section 377(8)(a)	Defined once as the same four ranks
Orders included	Explanation 1(a), referring to sections 144A, 120 and 92CA	Section 377(2)(a), referring to sections 272, 241 and 166	“For the removal of doubts” and the reference to 1 June 1988 dropped
The record	Explanation 1(b)	Section 377(2)(b)	“shall be deemed always to have included” dropped
Matters not decided in appeal	Explanation 1(c) (“the powers of the Principal Commissioner or Commissioner”)	Section 377(2)(c) (“the powers of the Competent Authority”)	All four ranks covered; “shall be deemed always to have extended” dropped
Deemed error and prejudice	Explanation 2(a) to (d)	Section 377(3)(a) to (d)	Operative sub-section; “it is hereby declared” dropped; “or” after each of clauses (a), (b) and (c)
Board orders, directions and instructions	Section 119	Section 239	Cross-reference only
Meaning of Transfer Pricing Officer	Explanation 3, by reference to section 92CA	Section 377(8)(b), by reference to section 166(17)	Cross-reference only
Two-year limit	Section 263(2)	Section 377(4)	Same period; override in section 377(5), exclusions in (6), and a sixty-day floor in (7) which section 263 does not have (Part 2)
Revision in the assessee’s favour	Section 264	Section 378	Compared in Part 3
Earlier tax years	Section 263 continues to apply	Section 536(2)(c)	Revision begun on or after 1 April 2026 for a tax year beginning before that date stays under the 1961 Act (a block assessment under the 2025 Act apart; see Part 3, question 13)

Decisions referred to in this Part

Decision	Court and date	Cited for
The Malabar Industrial Co. Ltd.	Supreme Court, 10 February 2000	The twin conditions; erroneous; prejudicial; two views
Orient Crafts Limited	Supreme Court, 18 September 2026	Restatement, including on the notice; plea that the officer followed a Board memorandum did not prevent revision
Max India Ltd.	Supreme Court, 1 November 2007	Two views tested on the date of the Commissioner’s order
Kadamwala Industries Private Limited	Gujarat High Court, 4 August 2026	Explanation 2 a deeming fiction; prejudice needs material
DG Housing Projects Ltd	Delhi High Court, 1 March 2012	Three classes of case; Commissioner must find error himself
M/s Greenworld Corporation, Parwanoo	Supreme Court, 6 May 2009	Conditions conjunctive; prejudice by virtue of the error
Gabriel India Ltd.	Bombay High Court, 15 April 1993	Quasi-judicial opinion; silent order; no remand without a finding
M/s. Vikas Polymers	Delhi High Court, 16 August 2010	Commissioner must give reasons
T.N. Civil Supplies Corporation Ltd.	Supreme Court, 16 January 2003	Orders passed on a superior’s directions
Mehsana District Co-op. Milk Producers	Gujarat High Court, 2 April 2003	Order on directions revisable; merged issue not; rational method
Kartar Singh and Co. P. Ltd.	Punjab and Haryana High Court, 12 December 2007	Intimation under section 143(1)(a)
Rampyari Devi Saraogi	Supreme Court, 1 May 1967	Order without inquiry (section 33B, 1922 Act)
Tara Devi Aggarwal	Supreme Court, 27 November 1972	Income not earned but offered (section 33B, 1922 Act)
Amitabh Bachchan	Supreme Court, 11 May 2016	Possible-view rule and its limit; notice not a condition of the power
M/s Brahma Centre Development Pvt. Ltd.	Delhi High Court, 5 July 2021	Application of mind seen from the record; prospectivity left open
M/s. Paville Projects Pvt. Ltd.	Supreme Court, 6 April 2023	Two-views bar only where the view is tenable
Arvind Jewellers	Gujarat High Court, 19 July 2002	Material considered and a view taken
Smt. Manju Devi Chourasia	Jharkhand High Court, 13 February 2024	Revenue: silent order; Explanation 2 clarificatory
Rayon Silk Mills	Gujarat High Court, 9 November 1995	Inquiry found on the record though the order was silent; prejudice founded on objective material
M/s Clix Finance India Pvt. Ltd.	Delhi High Court, 1 March 2024	Inquiry need not be recorded in the order; inadequacy not a ground
Rajesh Balvantrai Brahambhatt	Gujarat High Court, 7 September 2026	Seized material confronted; no prejudice
Mukur Corporation	Gujarat High Court, 18 December 1975	Revenue: failure to make “proper inquiry”; no final conclusion needed on a set-aside
Gee Vee Enterprise	Delhi High Court, 7 October 1974	Assessing Officer as investigator
Sunbeam Auto Ltd.	Delhi High Court, 11 September 2009 (as reproduced in Clix Finance and DG Housing)	Lack of inquiry and inadequate inquiry
Anil Kumar Sharma	Delhi High Court, 24 February 2010	Application of mind seen from the record though the order is silent
Globus Infocom Ltd	Delhi High Court, 13 August 2014	A “possible” error is not a finding
NYA International	Gujarat High Court, 18 September 2023; Supreme Court, order of 17 February 2025 dismissing the special leave petition	No inquiry and wrong conclusion distinguished
M/s. V-Con Integrated Solutions Pvt. Ltd.	Punjab and Haryana High Court, 12 September 2024; Supreme Court, order of 4 April 2025 dismissing the special leave petition	Further inquiry to be specified; superficial and random investigation
Valour Autopack	Gujarat High Court, 21 September 2026	Extent of inquiry is for the Assessing Officer
Impact Foundation (India)	Bombay High Court, 4 May 2026	Further details not a ground; Explanation 2 to be put in the notice
Nirma Chemicals Works P. Ltd.	Gujarat High Court, 4 February 2008	Order need not give reasons for claims allowed
Aryan Arcade Ltd	Gujarat High Court, 10 August 2017	Silence of the order of no consequence
Torrent Pharmaceuticals Ltd.	ITAT Ahmedabad, 8 August 2018	Limits of Explanation 2(a) implicit in it
Kutch District Co.Op. Milk Producers Union Ltd.	Gujarat High Court, 18 March 2025	Reasonable and prudent officer; clause (d)
M/s Shreeji Prints Pvt. Ltd.	Gujarat High Court, 3 February 2020; Supreme Court, order of 27 August 2021 dismissing the special leave petition	Tribunal’s findings left undisturbed
Shivshahi Punarvasan Prakalp Ltd.	Bombay High Court, 5 August 2022	Explanation 2 prospective
Pradeep Vallabhbhai Chhatrala	Gujarat High Court, 11 September 2026	Clause (c); applicability left open
WSP Consultants India Private Ltd.	ITAT Delhi, 27 March 2024	Explanatory circulars and section 119

Part 2 covers the record, merger and Explanation 1(c), limitation, the notice and the hearing, the form of the order, the fresh assessment and the choice between revision and reassessment, with open questions 5 to 9: Section 263 revision: merger, limitation, notice and the set-aside. Part 3 covers search assessments approved under section 153D, void orders, the Transfer Pricing Officer’s order, the appeal to the Tribunal, the comparison with section 264 and section 377 of the 2025 Act, with open questions 10 to 14: 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.