Section 377 — Revision of orders prejudicial to revenue. Successor to s.263 of the 1961 Act.
Section 377 is in Chapter XVIII — Appeals Revisions and Alternate Dispute Resolutions, which runs from section 356 to section 389.
Sub-section (1) gives the Competent Authority power to call for and examine the record of any proceeding under the Act, and, if he considers that an order passed in it by the Assessing Officer or the Transfer Pricing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, to pass such order as the circumstances justify — after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary. The orders he may pass include an order enhancing or modifying the assessment or cancelling it and directing a fresh assessment under clause (a), an order modifying the order under section 166 under clause (b), and an order cancelling the section 166 order and directing a fresh one under clause (c).
Sub-section (2) extends the reach of the power. Clause (a) brings within "an order passed by the Assessing Officer or the Transfer Pricing Officer" an assessment made on the directions of the Joint Commissioner under section 272, an order made by the Joint Commissioner exercising the powers or performing the functions of an Assessing Officer or Transfer Pricing Officer under an authorisation traced to section 241, and an order under section 166. Clause (b) defines "record" to include all records relating to any proceeding under the Act available at the time of examination by the Competent Authority. Clause (c) provides that where the order has been the subject matter of an appeal, the Competent Authority's powers extend to such matters as had not been considered and decided in that appeal.
Sub-section (3) deems an order to be erroneous in so far as it is prejudicial to the interests of the revenue if, in the opinion of the Competent Authority, it was passed without making inquiries or verification which should have been made; or allowing any relief without inquiring into the claim; or not in accordance with any order, direction or instruction issued by the Board under section 239; or not in accordance with any decision prejudicial to the assessee rendered by the jurisdictional High Court or the Supreme Court in the case of the assessee or any other person.
Sub-section (4) bars an order under sub-section (1) after two years from the end of the financial year in which the order sought to be revised was passed. Sub-section (5) lifts that bar entirely — a revision order may be passed at any time — for an order passed in consequence of, or to give effect to, a finding or direction in an order of the Appellate Tribunal, the High Court or the Supreme Court. Sub-section (6) excludes from the limitation the time taken in giving the assessee an opportunity to be reheard under section 244(2) and the period of a court stay on any proceeding under this section, running to the date the certified copy of the order or injunction vacating the stay is received by the jurisdictional Principal Commissioner or Commissioner. Sub-section (7) extends to sixty days a remaining period of less than sixty days after those exclusions. Sub-section (8) defines "Competent Authority" as the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner, and takes "Transfer Pricing Officer" from section 166(17).
An assessment that lets revenue go is not appealable by the Department in the ordinary way, so the Act provides a supervisory route: a senior officer may reopen an order of the Assessing Officer or Transfer Pricing Officer that is both erroneous and prejudicial to the revenue. Sub-section (3) is what makes the power workable — it converts four recurring situations, chiefly the absence of inquiry, into deemed error, so the Competent Authority need not demonstrate a substantive mistake in the conclusion. The two-year limit, the hearing requirement and the confinement in clause (2)(c) to matters not decided in appeal are the limits on that power.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Limitation for passing a revision order | Two years from the end of the financial year in which the order sought to be revised was passed | Subject to the exclusions in sub-section (6) and the exception in sub-section (5) | Sub-section (4) |
| Cases with no limitation | At any time | Where the order sought to be revised was passed in consequence of, or to give effect to, a finding or direction in an order of the Appellate Tribunal, the High Court or the Supreme Court | Sub-section (5) |
| Minimum period remaining after an exclusion | Sixty days | Where, after excluding the periods in sub-section (6), the time left under sub-section (4) is less than sixty days | Sub-section (7) |
Both limbs must be satisfied — the order must be erroneous and, in so far as it is erroneous, prejudicial to the interests of the revenue — but sub-section (3) supplies four routes to the first limb that turn on process rather than outcome, of which the absence of inquiry or verification that should have been made is the widest. An order already carried in appeal is not immune: clause (2)(c) leaves the Competent Authority free to act on matters that were not considered and decided in that appeal. The hearing is a statutory condition of the power in sub-section (1), not a courtesy. Limitation runs from the end of the financial year in which the order under revision was passed, not from when it came to the Competent Authority's notice, and it disappears altogether under sub-section (5) for an order giving effect to a Tribunal, High Court or Supreme Court finding or direction. Clause (3)(d) is one-directional: it is a decision prejudicial to the assessee that the order must have followed, so failing to apply a decision favourable to the assessee does not make an order erroneous under that clause.
An assessment order for a tax year is passed on 20 August 2027 allowing a deduction of Rs 3 crore with no inquiry into the claim on record. The Competent Authority may revise it up to 31 March 2030 — two years from the end of the financial year 2027-28 — after giving the assessee an opportunity of being heard, and the order is deemed erroneous and prejudicial to the revenue under sub-section (3)(b) because relief was allowed without inquiring into the claim. If the assessee had appealed against a different addition in the same assessment and that deduction was never considered or decided in the appeal, clause (2)(c) leaves it open to revision.
As a notice from a Principal Commissioner or Commissioner proposing to revise an assessment or a section 166 order, followed by a hearing and a revision order that may enhance or modify the assessment or send it back for a fresh one. It is distinct from a reassessment notice: it comes from a supervisory authority examining the record, not from the Assessing Officer.
is erroneous in so far as it is prejudicial to the interests of the revenue
is passed without making inquiries or verification which should have been made
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.
the powers of the Competent Authority, shall extend to such matters as had not been considered and decided in such appeal
| 1961 provision | What changed in the move |
|---|---|
| s.263 | 1. A sixty-day floor is added. S.377(7) provides that if, after the excluded periods are taken out, less than sixty days remain, the period is extended to sixty days. Section 263 had no such provision - its Explanation excluded time but left the balance as it fell. This is a real extension of the revenue's window in stayed cases. 2. The four officers who may revise are compressed into the defined term 'Competent Authority' in s.377(8)(a), covering the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner and Commissioner - the same set. 3. The retrospective validating words go: 'record' no longer 'shall include and shall be deemed always to have included', and the appeal-doctrine-of-merger rule no longer 'shall be deemed always to have extended'; the substantive content of both is kept. 4. The dated qualifications in Explanation 1 ('on or before or after the 1st day of June, 1988', and the same phrase for appeals) are dropped as spent. 5. The definition of 'Transfer Pricing Officer', which s.263 took from the Explanation to s.92CA, is now given directly in s.377(8)(b) by reference to s.166(17). 6. The two-year limitation, its measurement from the end of the financial year of the order under revision, and the open-ended exception for orders giving effect to Tribunal, High Court or Supreme Court findings are unchanged. |
How we established this. Read s.377 of the 2025 Act against s.263 of the 1961 Act. Both sit under a Part headed 'Revision by the ... Commissioner' and both carry the marginal heading 'Revision of orders prejudicial to revenue'. The operative sentence is the same sentence: 1961 - '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'; s.377(1) reproduces it word for word, with 'Competent Authority' in place of the list of officers. The three lettered outcomes - enhancing, modifying or cancelling the assessment and directing a fresh assessment, modifying the s.92CA order, cancelling the s.92CA order and directing a fresh one - become s.377(1)(a), (b) and (c) with s.166 substituted for s.92CA. Explanation 1 becomes s.377(2), keeping the same three-limb description of an includible order (an assessment on the Joint Commissioner's directions, now under s.272 instead of s.144A; an order of the Joint Commissioner exercising an Assessing Officer's powers under s.241 instead of s.120; and an order under s.166 instead of s.92CA), the same definition of 'record', and the same rule that where the order was the subject matter of an appeal the power extends to matters not considered and decided in that appeal. Explanation 2 - the four deeming clauses inserted with effect from 1 June 2015 - becomes s.377(3) verbatim, with s.239 substituted for s.119. S.263(2) becomes s.377(4) in the same words; s.263(3) becomes s.377(5); the Explanation on exclusion of time becomes s.377(6). This confirms the mapping s.263 to s.377, with Explanation 2 to s.377(3), that earlier work in this pass had provisionally recorded.
See every circular and notification on this section, or the circulars index.
See every circular and notification on this section, or the notifications index.
