Income Tax Questions Answers Series Part VI Sections 154 264 & 263 of the Income Tax Act 1961 [FCS Deepak P. Singh]

Dear Friends,

Today we are going to consider problem  based on provisions of Sections Sections,154,264 & 263  of the Income Tax Act, 1961.

PROBLEM :-  Assessment of X Ltd., is completed under Section 143(3) with an addition of Rs. 15.00 Lakhs to the returned income. The assesses-company goes in an appeal before CIT( Appeals). Which is pending

In this backdrop, your advice is required on below mentioned points;

  1. Based on the fresh information that there is escarpment of income for the same assessment year, the AO wants to initiate reassessment proceedings ,when an appeal is pending before CIT(Appeals). Can he do so?

  2. Can the AO pass an order under Section 154 fr rectification of mistake in respect of issue not being subject matter of the appeal?

  3. Can the assesses-company seek revision under Section 264 in respect of matters other than those preferred in the appeal?

  4. Can the Commissioner make a revision under Section 263 both in respect of matters covered in the appeal and other matters?.



Section 154 of  The Income- Tax Act, 1995  basically deals with the correction of any error that may or may not have occurred in the income tax records of an individual. It also deals with the rectification of errors in the orders of the Assessing Officer.

The main points of interest in Section 154 are:

i) The tax authority can send an order under Section 154 either of their own volition or based on an incongruity noticed by the Income Tax Department. This could be an order requesting additional details, a mistake in gender, tax credit mismatch, refund mismatch or advance tax discrepancy, among others.

ii) The taxpayer has to be notified before taking any action under this section, especially if the action results in “enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee or the deductor”. This means that if any amendment under Section 154 would result in higher taxes on the assessee, or increase the income or lower the tax exemptions, then the I-T Department is liable to send a written notice and allow the taxpayers to explain themselves, before taking an action. This notice will either come to the taxpayer by post or via email.

iii) If an action under Section 154 could result in a reduction in taxes or an increase in exemptions, then the I-T Department is liable to provide refunds to the assessee.

iv) If a refund has already been made by the department, but the amount of refund is reduced after the reassessment, then the department will demand from the taxpayer payment of the excess refund.

v) A notice under Section 154 can be issued only up to 4 years after the end of a particular financial year in which a rectification order was passed.

vi) If the taxpayer raises an amendment request, the department is bound to respond within 6 months of receipt of such a request.

Section 264 of  The Income- Tax Act, 1995 : deals with Revision of other orders

1. In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the Commissioner may, either of his own motion or on an application by the assessee for revision, call for the record of any proceeding under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit.

2. The Commissioner shall not of his own motion revise any order under this section if the order has been made more than one year previously.

3. In the case of an application for revision under this section by the assessee, the application must be made within one year from the date on which the order in question was communicated to him or the date on which he otherwise came to know of it, whichever is earlier: Provided that the Commissioner may, if he is satisfied that the assessee was prevented by sufficient cause from making the application within that period, admit an application made after the expiry of that period.

4. The Commissioner shall not revise any order under this section in the following cases-

(a)where an appeal against the order lies to the 3 Deputy Commissioner (Appeals)] 4or to the Commissioner (Appeals)] or to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired or, in the case of an appeal 1 to the Commissioner (Appeals) or] to the Appellate Tribunal, the assessee has not waived his right of appeal; or

(b)where the order is pending on an appeal before the 2 Deputy Commissioner (Appeals)]; or

(c)where the order has been made the subject of an appeal 3 4 to the Commissioner (Appeals) or] to the Appellate Tribunal.

5. Every application by an assessee for revision under this section shall be accompanied by a fee of twenty- five rupees.

Explanation 1-An order by the Commissioner declining to interfere shall, for the purposes of this section, be deemed not to be an order prejudicial to the assessee.

Explanation 2.- For the purposes of this section, the  Deputy Commissioner (Appeals) shall be deemed to be an authority subordinate to the Commissioner.

Section 263 of the Income Tax Act, 1961 provides that:  Revision of orders prejudicial to revenue;

1. The 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.  

2. No order shall be made under sub- section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.

3. Notwithstanding anything contained in sub- section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.

Explanation.- In computing the period of limitation for the purposes of sub- section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.


  1. REASSESSMENT: The Assessing Officer may assess or reassess such income ( other than the income involving matters which are subject matter of any appeal), which is chargeable to tax and has escaped assessment.
  1. RECTIFICATION: Even if an appeal has been preferred agains an order , a mistake in that part of the order which was not subject matter of appeal and which was left untouched by the appellate authority , can be rectified under Section 154(1) as given above.
  1. REVISION BY COMMISSIONER UNDER SECTION 264: Where the order has been made the subject of an appeal to the CIT( Appeals) or the Tribunal ( whether appeal to the tribunal is by the assessed or the department) , the revision power of the Commissioner under Section 264 comes to an end. In other words ,it cannot be exercise at all during the pendency, or even after disposal of the appeal by the CIT(Appeal) or the Tribunal.
  1. REVISION BY COMMISSIONER UNDER SECTION 263; The Commissioner cannot make revision under Section 263 in respect of matters covered in an appeal before CIT(Appeals). However ,Commissioner has jurisdiction and power to initiate proceedings under Section 263 in respect of issue not covered by CIT( Appeals) .

DISCLAIMER; above write up is an attempt to share information and knowledge with our readers. The view expressed here are the personal views of the author and same should not be considered as a professional advice. It is advisable to consult with your tax consultant before acting on any part of this article.

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