What does section 377 change from section 263?

Three things of substance. Sub-section (7) adds a floor of sixty days where less than that remains after a stay or a rehearing is excluded. The two Explanations become sub-sections (2) and (3), without the words "For the removal of doubts" and "it is hereby declared", the "deemed always" wording, and the references to 1 June 1988. And sub-section (2)(c) speaks of "the powers of the Competent Authority", where Explanation 1(c) to section 263 names only the Principal Commissioner or Commissioner. The test, the two-year limit and the revising ranks are unchanged. The four ranks and the Transfer Pricing Officer were already in section 263, from 1 November 2020 and 1 April 2022.

When does section 377 first apply?

To orders for tax years beginning on or after 1 April 2026, so first to tax year 2026-27. Section 536(2)(c) of the Income-tax Act, 2025 continues the 1961 Act for proceedings initiated on or after 1 April 2026, including revision, in respect of any tax year beginning before that date. A revision started in 2028 of an assessment for assessment year 2026-27, the previous year 2025-26, is therefore still under section 263. Section 536(2)(e) continues revisions pending at commencement, and section 536(2)(k) does not revive a period for revision that had already expired. In the firm's view a block assessment made under the 2025 Act after a search initiated on or after 1 April 2026 is also revised under section 377, although its block period reaches earlier tax years; the contrary is arguable.

Who is the Competent Authority under section 377?

Sub-section (8)(a) defines it as the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner. These are the four ranks that section 263(1) of the 1961 Act has named since 1 November 2020, so the definition is a drafting device and not a widening. Its practical effect is in sub-section (2)(c), which gives all four ranks the power over matters not considered and decided in an appeal. Section 378(11)(a) uses the same definition for revision in the assessee's favour.

Where does the appeal against a section 377 order lie?

To the Appellate Tribunal. Section 362(1)(b)(ii) covers an order of a Principal Commissioner or Commissioner under section 377, and section 362(1)(c) an order of a Principal Chief Commissioner or Chief Commissioner. The appeal must be filed within two months from the end of the month in which the order is communicated to the assessee, under section 362(3), and the Tribunal may admit a late appeal for sufficient cause under section 362(5). The corresponding provisions of the 1961 Act are section 253(1)(c), (3) and (5).

How long does the Assessing Officer have to pass the fresh assessment after a section 377 order?

One year from the end of the financial year in which the section 377 order is passed, under Sl. No. 5 of the Table in section 286(1). Where the Transfer Pricing Officer passes an order under section 166 to give effect to the revision, the Assessing Officer has two months from the end of the month in which he receives it to modify the assessment (Sl. No. 11). Section 286(4) extends to sixty days a remaining period shorter than that after the exclusions in section 286(3). Under the 1961 Act the corresponding periods are in section 153(3) and section 153(5A).

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s.377 (2025 Act) — Revision of orders prejudicial to revenue under the Income-tax Act, 2025

The 2025 Act's power to revise an order of the Assessing Officer or the Transfer Pricing Officer prejudicial to the revenue: section 263 re-enacted, with the deeming clauses as operative text and a sixty-day floor.

Currently operative

Section 377 is in force from 1 April 2026 and was not amended by the Finance Act, 2026. By section 536(2)(c) the revision, whenever begun, of an order for a tax year beginning before 1 April 2026 stays under section 263 of the Income-tax Act, 1961, other than, in the firm's view, a block assessment made under the 2025 Act after a search initiated on or after that date. Section 377 first governs orders for tax year 2026-27.

Income-tax Act, 1961

s.377 (2025 Act)

Income-tax Act, 2025

s.377

In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.

In short

Section 377 of the Income-tax Act, 2025 re-enacts the power in section 263 of the Income-tax Act, 1961. Sub-section (1) lets the Competent Authority call for the record of any proceeding under the Act and revise an order of the Assessing Officer or the Transfer Pricing Officer that is "erroneous in so far as it is prejudicial to the interests of the revenue", after hearing the assessee; he may enhance or modify the assessment, cancel it and direct a fresh one, or modify or cancel an order under section 166. Sub-section (2) takes the place of Explanation 1: it brings in an assessment made on a Joint Commissioner's directions under section 272, defines the record, and by clause (c) extends "the powers of the Competent Authority" to matters not considered and decided in an appeal. Sub-section (3) takes the place of Explanation 2 and deems an order erroneous and prejudicial if, in the opinion of the Competent Authority, it falls within any of four clauses, now separated by "or"; the Board's directions are those under section 239. Sub-section (4) keeps the limit of two years from the end of the financial year in which the order sought to be revised was passed, and sub-section (5) lifts it for an order giving effect to a finding or direction of the Appellate Tribunal, the High Court or the Supreme Court, in the firm's view only as to what that order does in consequence of the finding or direction. Sub-section (6) excludes the time taken in a rehearing under section 244(2) and the period of a court's stay; sub-section (7), which section 263 does not have, extends to sixty days a remaining period shorter than that after an exclusion. Sub-section (8) defines the Competent Authority as the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner, and the Transfer Pricing Officer by reference to section 166(17). The appeal lies to the Appellate Tribunal under section 362(1)(b)(ii) or (c), within two months from the end of the month of communication under section 362(3). A fresh assessment must be made within one year from the end of the financial year in which the revision order is passed (section 286(1), Table, Sl. No. 5).

What the provision does

Carries the Revenue's revisional power into the 2025 Act with the same test, the same two-year limit and the same four ranks. It changes three things: the deeming clauses are operative sub-sections and no longer Explanations, the clause on matters outside a decided appeal now covers all four ranks, and a sixty-day floor is added. It does not alter the twin test in sub-section (1), does not shorten or lengthen the two years, and does not reach the revision of an order passed under the 1961 Act for a tax year beginning before 1 April 2026, whenever that revision is begun.

Threshold questions

Whether the order sought to be revised relates to a tax year beginning on or after 1 April 2026, or is a block assessment made under the 2025 Act
Whether the order was passed by the Assessing Officer or the Transfer Pricing Officer in a proceeding under the 2025 Act
Whether the authority revising is one of the four ranks that sub-section (8)(a) defines as the Competent Authority
Whether the order is erroneous and prejudicial under sub-section (1), or is said to be deemed so under a clause of sub-section (3)
Whether the revision order is made within two years from the end of the financial year in which the order revised was passed, after the exclusions in sub-section (6) and the floor in sub-section (7)
Whether the matter was considered and decided in an appeal, which sub-section (2)(c) leaves outside the power

In practice

The recurring disputes.

Whether the decisions on Explanation 2 carry over now that the deeming clauses are operative text

The Revenue's case is that they do not, or not wholly. Under section 263 the deeming sat in an Explanation that opened "it is hereby declared", and the courts treated it as subordinate to the main provision: the Gujarat High Court said in The Principal Commissioner of Income Tax 1 v. Kadamwala Industries Private Limited (4 August 2026, para 7.2) that the twin conditions are "the basis for assuming jurisdiction" and that Explanation 2 "only provides for deeming fiction". Sub-section (3) of section 377 is a substantive provision standing beside sub-section (1), with "or" after each clause, and an order within any clause is by statute erroneous and prejudicial. The assessee's case is that nothing turned on the label. The operative words are the same: the order is deemed erroneous "if, in the opinion of" the authority, it is passed "without making inquiries or verification which should have been made". The limits the courts found lie in those words, in "should have been made" and in the need for an opinion formed on material, and they are re-enacted unchanged. Where Parliament repeats words that have been judicially construed, the construction ordinarily goes with them. The Supreme Court's orders of 17 February 2025 and 4 April 2025, dismissing special leave petitions, drew the line between failure to investigate and wrong conclusion without referring to the Explanation. What does fall away is the argument about retrospective reach, since sub-section (3) has applied from the first day of the Act. In the firm's view the reasoning carries over. The point is open until sub-section (3) is construed.

Which provision revises a block assessment that reaches tax years before 1 April 2026

A search initiated on or after 1 April 2026 leads to an assessment of the block period under the 2025 Act: section 299(2) requires approval of the block order "in respect of search initiated or requisition made on or after the commencement of this Act". By section 301(a) the block period includes "six tax years preceding the tax year in which the search was initiated", so it reaches tax years that began before 1 April 2026. One reading is that section 377 applies. The block order is passed in a "proceeding under this Act", which is what sub-section (1) reaches; section 263 reaches only a proceeding under the 1961 Act, and a block assessment under the 2025 Act is not one. Section 536(2)(v) points the same way: it keeps under the repealed Act the proceedings connected with a search initiated before commencement, and says nothing of the kind for a later search. The other reading is that section 263 applies, at least for the earlier years. Section 536(2)(c) continues the repealed 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", and a block order that assesses undisclosed income of such years is a proceeding in respect of them. On that reading one block order would be revisable under two Acts, with different limitation rules and different appeal provisions. In the firm's view section 377 governs, because the power to revise attaches to the order and to the Act under which it was made, and because clause (c) preserves the repealed Act for proceedings that the repealed Act itself provides for, and such a block assessment is not among them. The contrary is arguable on the words "any tax year beginning before the 1st April, 2026"; the point is open, and an assessee served with a revision notice on such an order should take it at the outset. A search initiated before 1 April 2026 raises no such question: revision is under section 263.

Whether the sixty-day floor can be claimed for a revision under the 1961 Act

The floor in sub-section (7) helps the Revenue: where less than sixty days remain after a stay or a rehearing is excluded, the remaining period becomes sixty days. Section 263 has no such rule. The Revenue's case for importing it into a revision begun on or after 1 April 2026 for an earlier year is that limitation is procedure, that the 2025 Act is in force when the order is made, and that section 536(2)(k) withholds the longer period of the new Act only where the old period "had expired on or before the commencement of this Act", which implies that a period still running may take the benefit. The assessee's case is that section 536(2)(c) is express: proceedings by way of revision in respect of a tax year beginning before 1 April 2026 "shall be carried out as per the procedure specified in the repealed Income-tax Act". Sub-section (7) is also tied by its own words to "the exclusion of the period provided in sub-section (6)" and to the time limit "as provided in sub-section (4)", which are the exclusions and the limit of section 377 and not of section 263. Clause (k) is a saving against revival and confers nothing, and a provision extending time against the assessee is not applied by implication. The first proviso after Explanation 1 to section 153 gives the Assessing Officer such a floor under the 1961 Act, which shows that its absence from section 263 is not a gap for the new Act to fill for old years. The point is open. In the firm's view section 263 has no floor and section 536(2)(c) keeps such a revision under the repealed Act, procedure included, so the floor in section 377(7) is not available to it.

Whose receipt of the vacating order ends the stay exclusion under sub-section (6)(b)

Sub-section (8)(a) defines the Competent Authority as four ranks, and sub-section (2)(c) is drafted accordingly. Yet under sub-section (6)(b) the excluded period of a stay ends when the certified copy of the order vacating it "is received by the jurisdictional Principal Commissioner or Commissioner". One reading is that the phrase is shorthand for the authority conducting the revision: Sl. No. 5 of the Table in section 286(1) speaks of an order under section 377 "passed by" the jurisdictional Principal Commissioner or Commissioner, although a higher rank may pass it. On that reading, where a Principal Chief Commissioner or Chief Commissioner conducts the revision the words refer to him. The other reading is that the wording is deliberate and names the office whose receipt of the vacating order ends the exclusion. The same formula ends the exclusion for a stay on assessment proceedings in section 286(3)(b) and for a stay on a revision under section 378 in section 378(8)(b), and section 363(10)(b) requires the Tribunal to send a copy of its order to the jurisdictional Principal Commissioner or Commissioner. On that reading the excluded period ends on receipt in that office, whoever is revising. The difference matters when the copy reaches one office before the other. On either reading the exclusion ends on a date that only the Department's record shows, and an assessee facing a revision said to be saved by a stay should call for that record. The Explanation below section 263(3) of the 1961 Act has referred to receipt by "the jurisdictional Principal Commissioner or Commissioner" since 1 April 2025, when sub-section (1) of that section already named four ranks. The question is open under both provisions.