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Revision of orders prejudicial to revenue - Section 263 - Income Tax - Ready Reckoner - Income TaxExtract Revision of orders prejudicial to revenue - Section 263 The 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 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, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. However, he has to pass an order only after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as deems necessary. Besides the Principal Commissioner/Commissioner, the Chief Principal Commissioner/Chief Commissioner have also been vested with power of revision U/s 263 [Amended by FA, 2021] However, the Principal Commissioner or Commissioner can revise the order passed by the Assessing Officer only if he considers that the order passed is prejudicial to the interests of the revenue. Explanation 1: - For the removal of doubts, it is declared that the Principal Commissioner or commissioner have also been vested with power of revision u/s 263 ,- An order passed the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall include- an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A ; an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer or the Transfer Pricing Officer, as the case may be, conferred on, or assigned to, him under the orders or directions issued by the Board or by the PCCIT/CCIT/PDGIT/DGIT/PCIT/CIT authorised by the Board in this behalf under section 120; an order under section 92CA by the Transfer Pricing Officer [Amendment made by the FA, 2022] Explanation 2: - For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, - the order is passed without making inquiries or verification which should have been made; the order is passed allowing any relief without inquiring into the claim; the order has not been made in accordance with any order, direction or instruction issued by the Board u/s 119 ; or the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. Time limit for passing revision order u/s 263 : The order under this section shall not be made after the expiry of two years from the end of the financial year in which order sought to be revised was passed. However, an order under this section may be passed at any time to give effect to the finding or direction contained in an order of the High Court or Supreme Court. No time limit in the following cases: An order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. When will the order of AO be deemed to be erroneous insofar as it is prejudicial to the interest of revenue - The interpretation of expression erroneous in so far as it is prejudicial to the interest of the revenue has been contentious issue . Explanation - In order to provide clarity on the issue a new Explanation has been inserted to clarity an order passed by the Assessing Officer shall be deemed to erroneous in so far it is prejudicial to the interest of the revenue, If in the opinion of principal commissioner or commissioner: The order is passed without making inquiries or verification which should have been made: The order is passed allowing any relief without enquiring in to the claim ; The order has not been made in accordance with any order ,direction or instruction issued by the board under section 119,or The order has not been passed in accordance with any decision prejudicial to the assessee, rendered by the High Court or Supreme Court in the case of assessee or any other person. Note 1: Intimation or deemed intimation under section 143(1) is not an order and therefore cannot be revised under section 263 . Note 2: CIT can invoke section 263 if he proves that the order of Assessing Officer is erroneous on the basis of: A Supreme Court Judgment. A retrospective amendment in law. Evidence in his possession that the assessee has understated the income. Evidence in his possession that the assessee has claimed excessive loss, deductions and relief. Mistake apparent from record. Section 263 cannot be invoked if the CIT is merely of the opinion that a particular deduction should not have been allowed to the assessee. As in section 147 , in section 263 also revision is not possible on account of change in personal opinion. Note 3:- An order can be said to be prejudicial to the revenue if Income has been under assessed Losses have been over assessed Income has been assessed at lower rate Excessive loss, deduction, allowances and reliefs have been allowed to the assessee. Note 4:- If the Assessing Officer has completed the assessment without initiating penalty proceedings, then the order of Assessing Officer cannot be said to be erroneous. The CIT cannot set aside the order of assessment of Assessing Officer and direct him to initiate penalty proceedings. For the applicability of section 263 , there are two requisites namely- Order must be erroneous and Order must be prejudicial to the revenue .
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