The Commissioner has issued a notice under section 263 on the strength of a Departmental Valuation Officer's report that reached the Assessing Officer only after my assessment was over. Can he revise on material that was not on the file when the order was passed?
Yes, on these facts. The Supreme Court held that it was open to the Commissioner to take into consideration all the records available at the time of examination by him, and so to consider a valuation report that the Departmental Valuation Cell submitted after the assessment order had been passed. The Court read clause (b) of the Explanation to section 263(1), which declares that 'record' shall include and shall be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Commissioner, and held that the Commissioner may look not only at the record of that proceeding but at the record relating to it. It also held that the narrower reading had never been the settled law, even for orders passed before the 1988 amendment.
Decided by the Supreme Court (Supreme Court of India - G.T. Nanavati and M. Jagannadha Rao JJ; judgment delivered by Nanavati J) on 1997-12-02, reported as [1998] 231 ITR 53 (SC); (1997) 143 CTR 406 (SC); appeal by special leave from the judgment of the High Court of Karnataka dated 6 June 1995 in I.T.R.C. No. 26/93. It bears on section 263, section 263(1), section 377 (Act of 2025) of the Income Tax Act 1961, in Revision & Rectification, Assessment & Scrutiny and How Tax Law Is Read matters.
Every section 263 notice raises the same first question: what is the Commissioner allowed to look at. This is the judgment that answers it, and it answers it widely. The Commissioner is not confined to the papers the Assessing Officer had in front of him; he may examine all records relating to the proceeding that are available when he examines the file, and clause (b) of the Explanation puts that beyond argument for orders passed before 1 June 1988 as well as after, because it says 'shall be deemed always to have included'. That closes off the objection most often taken in a reply to a section 263 notice, that the material is later than the assessment and therefore outside the record. The practical consequence is that a valuation report, an investigation report, or anything else generated by a step taken in the assessment and received after the order, comes in. The judgment is also useful for what it forces the argument to become. Once admissibility is conceded, the assessee's ground has to be that the order is not erroneous, or not prejudicial, or that the Assessing Officer took a view the law permitted - and those are the grounds on which section 263 revisions are actually won. Reading this case early saves a reply built on the wrong point.
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The respondent was a firm. During the previous year relevant to assessment year 1977-78 it had constructed a cinema theatre, and in its return it showed the cost of construction at Rs.20,28,498, being Rs.23,78,242 less Rs.3,49,644 for the electrical portion. On 2 February 1980 the Income-tax Officer wrote to the Departmental Valuation Officer to ascertain and report the correct cost of construction. The Valuation Officer expressed his inability to give his report by 31 March 1980, the date by which the assessment had to be completed. The Income-tax Officer therefore passed the assessment order without waiting for the report, accepting the valuation stated in the return. The Valuation Officer submitted his report on 16 December 1980 and determined the cost of construction at Rs.34,58,600 against the Rs.20,28,498 stated by the assessee. The Commissioner of Income-tax then issued a notice under section 263(1) on the footing that investment not accounted for should have been brought to tax and that the Income-tax Officer's order, not having done so, was erroneous and prejudicial to the interests of the revenue. The assessee answered that the valuation report was not available to the Income-tax Officer when he passed the order, did not form part of the record of the proceeding, and could not found an action under section 263, relying on Ganga Properties v. Income-tax Officer (1979) 118 ITR 447 (Cal). The Commissioner rejected that, holding that 'record' included all records available at the time of examination by him, set aside the assessment and directed a fresh assessment. The Tribunal followed Ganga Properties, allowed the assessee's appeal and set aside the Commissioner's order. On the Revenue's reference the High Court of Karnataka held on 6 June 1995 that although the record contemplated by section 263(1) is not merely the assessment order but comprises all proceedings on which the assessment is based, record which was not available on the date of completion of the assessment would not form part of it, and answered the question in favour of the assessee. The Revenue appealed.
The appeal was allowed, with no order as to costs. In the Court's words: "We, therefore, hold that it was open to the Commissioner to take into consideration all the records available at the time of examination by him and thus to consider the Valuation Report submitted by the Departmental Valuation Cell subsequent to the passing of the assessment order and, so the order passed by him was legal. The High Court was wrong in taking a contrary view. We, therefore, allow this appeal, set aside the judgment and order passed by the High Court and answer the question referred to the High Court in the negative i.e. in favour of the Revenue and against the assessee." The question referred had been whether the Tribunal was right in holding that the word 'record' in section 263(1) means the record as it stood when the Income-tax Officer passed the order rather than as it stands when the Commissioner examines it; answering it in the negative put the law the other way.
The Court set out the legislative history. Section 263(1) originally carried no Explanation. The Taxation Laws (Amendment) Act, 1984 added one, but it went to the meaning of 'order passed by the assessing officer' and was not in point. The Finance Act, 1988 substituted an Explanation with effect from 1 June 1988 whose clause (b) said that 'record' includes all records relating to any proceeding under the Act available at the time of examination by the Commissioner; the Memorandum explaining the Finance Bill, 1988 recorded that the earlier reading was against the legislative intent and defeated the objective, since the purpose is to revise the order on the basis of the record as is available to the Commissioner at the time of examination. Doubt persisted, and the Finance Act, 1989 recast clause (b) to read that 'record' shall include and shall be deemed always to have included those records, the Memorandum explaining the Finance Bill, 1989 saying that the 1988 Explanation had been enacted to state the position as it had always been and that appellate authorities which read it as prospective had gone against the legislative intent. On the authorities, the Court noted that the Calcutta High Court had itself taken the wider view in Commissioner of Income-Tax v. S.M. Oil Extraction Pvt. Ltd. (1991) 190 ITR 404, holding that a valuation proceeding is part of the assessment proceeding and that a report received after completion forms part of the assessment record; that the Allahabad decision relied on had turned on the question being academic; and that the summary dismissal of special leave petitions in a Gujarat wealth-tax matter did not amount to approval of the view below. It therefore could not be said that the narrow meaning was the correct and settled position even before 1 June 1988. On principle, the Court held the revisional power to be of wide amplitude: it lets the Commissioner call for and examine the record, and empowers him to make or cause to be made such enquiry as he deems necessary, so that he may come into possession of new material as a result of the enquiry and would be entitled to take it into account; if material the Income-tax Officer never had can be used after an enquiry, there is no reason why material already on record, though it came after the assessment, cannot be. The Court drew support from its own decisions in Commissioner of Income-Tax, Gujarat-I v. Shri Arbuda Mills Ltd. and South India Steel Rolling Mills v. Commissioner of Income Tax (1997) 9 SCC 728, in each of which the amended Explanation was applied to an order passed before 1 June 1988.
Moreover, in view of the clear words used in clause (b) of the explanation to Section 263(1), it has to be held that while calling for and examining the record of any proceeding under Section 263(1) it is and it was open to the Commissioner not only consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination.
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Handle my notice → Ask a CA on WhatsAppYes, on these facts. The Supreme Court held that it was open to the Commissioner to take into consideration all the records available at the time of examination by him, and so to consider a valuation report that the Departmental Valuation Cell submitted after the assessment order had been passed. The Court read clause (b) of the Explanation to section 263(1), which declares that 'record' shall include and shall be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Commissioner, and held that the Commissioner may look not only at the record of that proceeding but at the record relating to it. It also held that the narrower reading had never been the settled law, even for orders passed before the 1988 amendment. This was decided by the Supreme Court (Supreme Court of India - G.T. Nanavati and M. Jagannadha Rao JJ; judgment delivered by Nanavati J) and bears on section 263, section 263(1), section 377 (Act of 2025) of the Income Tax Act 1961. It is reported as [1998] 231 ITR 53 (SC); (1997) 143 CTR 406 (SC); appeal by special leave from the judgment of the High Court of Karnataka dated 6 June 1995 in I.T.R.C. No. 26/93. Every section 263 notice raises the same first question: what is the Commissioner allowed to look at. This is the judgment that answers it, and it answers it widely. The Commissioner is not confined to the papers the Assessing Officer had in front of him; he may examine all records relating to the proceeding that are available when he examines the file, and clause (b) of the Explanation puts that beyond argument for orders passed before 1 June 1988 as well as after, because it says 'shall be deemed always to have included'. That closes off the objection most often taken in a reply to a section 263 notice, that the material is later than the assessment and therefore outside the record. The practical consequence is that a valuation report, an investigation report, or anything else generated by a step taken in the assessment and received after the order, comes in. The judgment is also useful for what it forces the argument to become. Once admissibility is conceded, the assessee's ground has to be that the order is not erroneous, or not prejudicial, or that the Assessing Officer took a view the law permitted - and those are the grounds on which section 263 revisions are actually won. Reading this case early saves a reply built on the wrong point. If it applies to you, the first step is this: Find out where the material came from before you argue about it. The report in this case was called for by the Assessing Officer himself during the assessment and arrived late only because the Valuation Officer could not report before limitation ran out. Material generated by a step taken in your own assessment proceeding is the hardest to keep out.
The respondent was a firm. During the previous year relevant to assessment year 1977-78 it had constructed a cinema theatre, and in its return it showed the cost of construction at Rs.20,28,498, being Rs.23,78,242 less Rs.3,49,644 for the electrical portion. On 2 February 1980 the Income-tax Officer wrote to the Departmental Valuation Officer to ascertain and report the correct cost of construction. The Valuation Officer expressed his inability to give his report by 31 March 1980, the date by which the assessment had to be completed. The Income-tax Officer therefore passed the assessment order without waiting for the report, accepting the valuation stated in the return. The Valuation Officer submitted his report on 16 December 1980 and determined the cost of construction at Rs.34,58,600 against the Rs.20,28,498 stated by the assessee. The Commissioner of Income-tax then issued a notice under section 263(1) on the footing that investment not accounted for should have been brought to tax and that the Income-tax Officer's order, not having done so, was erroneous and prejudicial to the interests of the revenue. The assessee answered that the valuation report was not available to the Income-tax Officer when he passed the order, did not form part of the record of the proceeding, and could not found an action under section 263, relying on Ganga Properties v. Income-tax Officer (1979) 118 ITR 447 (Cal). The Commissioner rejected that, holding that 'record' included all records available at the time of examination by him, set aside the assessment and directed a fresh assessment. The Tribunal followed Ganga Properties, allowed the assessee's appeal and set aside the Commissioner's order. On the Revenue's reference the High Court of Karnataka held on 6 June 1995 that although the record contemplated by section 263(1) is not merely the assessment order but comprises all proceedings on which the assessment is based, record which was not available on the date of completion of the assessment would not form part of it, and answered the question in favour of the assessee. The Revenue appealed. The matter was decided on 1997-12-02 by the Supreme Court (Supreme Court of India - G.T. Nanavati and M. Jagannadha Rao JJ; judgment delivered by Nanavati J). On those facts the Supreme Court held as follows. The appeal was allowed, with no order as to costs. In the Court's words: "We, therefore, hold that it was open to the Commissioner to take into consideration all the records available at the time of examination by him and thus to consider the Valuation Report submitted by the Departmental Valuation Cell subsequent to the passing of the assessment order and, so the order passed by him was legal. The High Court was wrong in taking a contrary view. We, therefore, allow this appeal, set aside the judgment and order passed by the High Court and answer the question referred to the High Court in the negative i.e. in favour of the Revenue and against the assessee." The question referred had been whether the Tribunal was right in holding that the word 'record' in section 263(1) means the record as it stood when the Income-tax Officer passed the order rather than as it stands when the Commissioner examines it; answering it in the negative put the law the other way.
The Court set out the legislative history. Section 263(1) originally carried no Explanation. The Taxation Laws (Amendment) Act, 1984 added one, but it went to the meaning of 'order passed by the assessing officer' and was not in point. The Finance Act, 1988 substituted an Explanation with effect from 1 June 1988 whose clause (b) said that 'record' includes all records relating to any proceeding under the Act available at the time of examination by the Commissioner; the Memorandum explaining the Finance Bill, 1988 recorded that the earlier reading was against the legislative intent and defeated the objective, since the purpose is to revise the order on the basis of the record as is available to the Commissioner at the time of examination. Doubt persisted, and the Finance Act, 1989 recast clause (b) to read that 'record' shall include and shall be deemed always to have included those records, the Memorandum explaining the Finance Bill, 1989 saying that the 1988 Explanation had been enacted to state the position as it had always been and that appellate authorities which read it as prospective had gone against the legislative intent. On the authorities, the Court noted that the Calcutta High Court had itself taken the wider view in Commissioner of Income-Tax v. S.M. Oil Extraction Pvt. Ltd. (1991) 190 ITR 404, holding that a valuation proceeding is part of the assessment proceeding and that a report received after completion forms part of the assessment record; that the Allahabad decision relied on had turned on the question being academic; and that the summary dismissal of special leave petitions in a Gujarat wealth-tax matter did not amount to approval of the view below. It therefore could not be said that the narrow meaning was the correct and settled position even before 1 June 1988. On principle, the Court held the revisional power to be of wide amplitude: it lets the Commissioner call for and examine the record, and empowers him to make or cause to be made such enquiry as he deems necessary, so that he may come into possession of new material as a result of the enquiry and would be entitled to take it into account; if material the Income-tax Officer never had can be used after an enquiry, there is no reason why material already on record, though it came after the assessment, cannot be. The Court drew support from its own decisions in Commissioner of Income-Tax, Gujarat-I v. Shri Arbuda Mills Ltd. and South India Steel Rolling Mills v. Commissioner of Income Tax (1997) 9 SCC 728, in each of which the amended Explanation was applied to an order passed before 1 June 1988. In the words reproduced by the source cited on this page: "Moreover, in view of the clear words used in clause (b) of the explanation to Section 263(1), it has to be held that while calling for and examining the record of any proceeding under Section 263(1) it is and it was open to the Commissioner not only consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination."
It was decided by the Supreme Court on 1997-12-02 and is reported as [1998] 231 ITR 53 (SC); (1997) 143 CTR 406 (SC); appeal by special leave from the judgment of the High Court of Karnataka dated 6 June 1995 in I.T.R.C. No. 26/93. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 263, section 263(1), section 377 (Act of 2025), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was allowed, with no order as to costs. In the Court's words: "We, therefore, hold that it was open to the Commissioner to take into consideration all the records available at the time of examination by him and thus to consider the Valuation Report submitted by the Departmental Valuation Cell subsequent to the passing of the assessment order and, so the order passed by him was legal. The High Court was wrong in taking a contrary view. We, therefore, allow this appeal, set aside the judgment and order passed by the High Court and answer the question referred to the High Court in the negative i.e. in favour of the Revenue and against the assessee." The question referred had been whether the Tribunal was right in holding that the word 'record' in section 263(1) means the record as it stood when the Income-tax Officer passed the order rather than as it stands when the Commissioner examines it; answering it in the negative put the law the other way. It arises in Revision & Rectification, Assessment & Scrutiny and How Tax Law Is Read matters, on section 263, section 263(1), section 377 (Act of 2025) of the Income Tax Act 1961, and was decided by Supreme Court of India - G.T. Nanavati and M. Jagannadha Rao JJ; judgment delivered by Nanavati J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not fight the section 263 notice on the date the material came into existence alone. That is the argument the Supreme Court rejected, and it rejected it for orders passed before 1 June 1988 as well as after, because clause (b) of the Explanation says 'shall be deemed always to have included'. Shift the fight to whether the order is erroneous. The Commissioner may look at the report; he still has to show that the assessment order is both erroneous and prejudicial to the interests of the revenue, which is Malabar Industrial Co Ltd v Commissioner of Income Tax (2000) 243 ITR 83 (SC), and he cannot get there merely by preferring a different view where the Assessing Officer took a permissible one. Ask for the material and ask to be heard on it. If the Commissioner proposes to use a report the Assessing Officer never had, ask for a copy, ask for the valuer's working, and put your objections on the record before the revisional order is passed. Check what the valuation report can carry even if it is admitted. A departmental valuation is an opinion; whether it can by itself sustain an addition, and whether the books had to be rejected first, are separate questions this judgment does not answer. Where the revision reaches back to an assessment year beginning before 1 April 2026, say so in your reply. The Income-tax Act, 1961 continues to govern those years under section 536(2)(c) of the Income-tax Act, 2025, so the Explanation to section 263(1) is the provision you are arguing about.
Still good law. The decision stands and is the authority on the meaning of 'record' in section 263. High Courts have applied it steadily and from the outset. The Madras High Court in Commissioner of Income-tax v. Seshasayee Paper and Boards Ltd., decided 30 April 1998, took from it that the revisional power is of wide amplitude and that the Commissioner may take into account material coming into existence after the assessment was completed. The Delhi High Court in Income Tax Officer v. D.G. Housing Projects Ltd., ITA 179/2011, decided 1 March 2012, cited it for the proposition that the Commissioner may look at the record as it stands at the time of his own examination and not merely as it stood when the Assessing Officer passed the order. Gujarat, Allahabad and Andhra Pradesh High Courts have used it in wealth-tax revisions under section 25(2) of the Wealth-tax Act, where the Explanation is in the same terms. What it does not do is enlarge the conditions on which a revision may be founded. Malabar Industrial Co Ltd v Commissioner of Income Tax (2000) 243 ITR 83 (SC) requires the order to be both erroneous and prejudicial to the interests of the revenue, and Commissioner of Income Tax (Central), Ludhiana v. Max India Ltd. (2007) 295 ITR 282 (SC) holds that where two views are possible and the Assessing Officer has taken one of them the order is not erroneous merely because the Commissioner prefers the other. Fresh material widens what the Commissioner may look at; it does not by itself make the assessment erroneous. Commissioner of Income Tax, Mumbai v. Amitabh Bachchan (2016) 384 ITR 200 (SC) later confirmed the enquiry limb this judgment relies on, holding that the Commissioner may make or cause to be made such enquiry as he deems necessary and is not confined to the grounds taken in the show-cause notice, provided the assessee has had an opportunity of being heard on what is used against him. The Income-tax Act, 1961 was repealed on 1 April 2026 by section 536(1) of the Income-tax Act, 2025, and section 536(2)(c) continues it for proceedings in respect of any tax year beginning before that date, so this remains the governing law for those years. Revision of orders prejudicial to revenue is now section 377 of the 2025 Act. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This entry is written from the Supreme Court's own text of the judgment, and two things about that text should be said plainly. The official text carries no reporter's headnote or ACT block above the opinion, so there is no editorial condensation on the page to be mistaken for the Court's words; the judgment begins at 'Leave granted'. Against an independent publication of the same judgment, the operative paragraph and the sentence on clause (b) of the Explanation are identical, word for word. The official text does carry several evident slips, and the sentence this page turns on is one of them. It prints 'it is and it was open to the Commissioner not only consider the record of that proceeding', where the sense requires 'not only to consider'. The quotation on this page is reproduced as the Court's text prints it rather than tidied, because a quotation that has been silently corrected is no longer a quotation. Elsewhere the same text prints 'Gaga Properties' for Ganga Properties, 'an order assessment' for an order of assessment, and the S.M. Oil Extraction citation once as '(1991) 190 404' with the reporter's name dropped. None of this touches the reasoning. Now the caution, and it is why this record is marked as a trap. The case is cited by the department, very often, as if it had decided that a Commissioner may revise on any material he happens to have gathered by the time he looks at the file. The facts were narrower. The Assessing Officer had himself written to the Departmental Valuation Officer during the assessment, and made the order without the report only because it could not arrive before limitation expired. The report was the fruit of a step taken in that very proceeding, and the holding is that such a thing is 'the record relating to that proceeding'. The Court did say, in general terms, that a Commissioner holding an enquiry under the section may come into possession of new material and may take it into account, and that passage is the wider one; but the ratio sits on the narrower facts, and an assessee facing a revision built on wholly unconnected material has room to say so. One further limit is worth keeping in view. Admissibility and error are different questions, and winning the first does not decide the second. The judgment decides what the Commissioner may look at and nothing about when an order becomes erroneous; that question belongs to Malabar Industrial and Max India. It does not say what weight a departmental valuation report carries, whether the books must be rejected before a reference to the Valuation Officer, or whether such a report can by itself support an addition. It does not deal with the assessee's right to a copy of, and a hearing on, material the Assessing Officer never had, although Amitabh Bachchan later required the opportunity of being heard. It says nothing about the limitation in section 263(2) or from which order the two years run where fresh material arrives late. And it does not address material that has no connection at all with the assessment proceeding, because on these facts the report was the product of a reference the Assessing Officer himself had made during the assessment. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed, with no order as to costs. In the Court's words: "We, therefore, hold that it was open to the Commissioner to take into consideration all the records available at the time of examination by him and thus to consider the Valuation Report submitted by the Departmental Valuation Cell subsequent to the passing of the assessment order and, so the order passed by him was legal. The High Court was wrong in taking a contrary view. We, therefore, allow this appeal, set aside the judgment and order passed by the High Court and answer the question referred to the High Court in the negative i.e. in favour of the Revenue and against the assessee." The question referred had been whether the Tribunal was right in holding that the word 'record' in section 263(1) means the record as it stood when the Income-tax Officer passed the order rather than as it stands when the Commissioner examines it; answering it in the negative put the law the other way.
TaxSphere, “CIT v Shree Manjunathesware Packing Products”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-shree-manjunathesware-packing-products-record-under-section-263/ (validity last checked 2026-09-23)
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The Commissioner's show cause notice before revising my assessment was defective. Does that knock out his jurisdiction to revise at all?
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