Revision & Rectification

Revision & Rectification — the law in short

Every authority in this library on revision & rectification, with what each one decided.

• CIT v Paville Projects Pvt Ltd Supreme CourtHelps departmentValidity unconfirmed
  The Assessing Officer allowed a deduction. Does the fact that a view was taken protect the assessment from section 263?
  Only if the view taken is one of two views genuinely open on the law. Where the Supreme Court is satisfied the assessment is both erroneous and prejudicial, the Commissioner's revision stands and the Tribunal and High Court orders setting it aside go.
• Godrej Sara Lee Ltd v Excise and Taxation Officer Supreme CourtHelps taxpayer
  The High Court dismissed my writ saying an appeal was available. Was it entitled to do that without looking at the point?
  It depends, and the Supreme Court drew the distinction that matters. Maintainability goes to the root — it decides whether the court can receive the case at all. Entertainability is discretion. The mere availability of an appeal or revision that the petitioner has not pursued does not oust the High Court's jurisdiction or make the writ petition 'not maintainable', and where the challenge is to the very jurisdiction of the authority, or is a pure question of law, the petition deserves consideration on merits.
• CIT v Amitabh Bachchan Supreme CourtHelps departmentValidity unconfirmed
  Can the Commissioner revise on a ground that was not in the show cause notice?
  Yes. Section 263 requires an opportunity of hearing, not a formal show cause notice, and the Commissioner is not confined to the issues listed in any notice. What he must give you is a full chance to answer before he finalises.
• CIT v Greenworld Corporation Supreme CourtCuts both waysValidity unconfirmed
  The Assessing Officer passed the assessment after being told what to do by the Commissioner. What happens to that assessment, and to a later section 263 order on it?
  An assessment passed on the dictates of a higher authority is without jurisdiction and a nullity. And a Commissioner exercising section 263 cannot use that order to direct reopening of other assessment years; his revisional jurisdiction is confined to the year before him.
• CIT v Max India Ltd Supreme CourtHelps taxpayer
  What if the law itself was unsettled when the officer decided?
  Reported as following the two-views principle — where the provision was capable of more than one interpretation and the officer adopted one of them, revision under s.263 does not lie.
• CIT v Alagendran Finance Ltd Supreme CourtHelps taxpayer
  A reassessment was done in between. Does the two-year clock for s.263 restart from it?
  Not for an item the reassessment never touched. For that item, limitation runs from the ORIGINAL assessment order, because the doctrine of merger does not apply where the subject matter is different.
• Sakthi Trading Co v CIT Supreme CourtHelps taxpayer
  Our firm dissolved when a partner died, but the remaining partners carried on the same business. Must the closing stock on the date of dissolution be revalued at market price?
  No. The Supreme Court held that where a firm is dissolved but the business is not discontinued, there is no warrant for revaluing the closing stock at market rate. The ordinary rule, cost or market price whichever is lower, continues to apply. Valuing stock at a market value higher than cost would tax notional profits the assessee has never realised. A.L.A. Firm and G.R. Ramachari, which required market valuation, were cases where the business itself came to an end. The Commissioner's order under section 263 was wrong and the question was answered for the assessee.
• Malabar Industrial Co Ltd v CIT Supreme CourtHelps department
  The Commissioner wants to revise my assessment. What does he actually have to establish?
  Both things, not one. The order must be erroneous AND prejudicial to the revenue. If the officer took one of two possible views, that is not an error.
• Tara Devi Aggarwal v CIT Supreme CourtHelps department
  Can an assessment be revised where the officer taxed income that was never yours?
  Yes. An assessment made merely because the assessee wanted the amount taxed in her hands, to help someone else escape a larger assessment, can be erroneous and prejudicial to the revenue — and may be cancelled in revision.
• CIT v Electro House Supreme CourtHelps department
  The Commissioner's show cause notice before revising my assessment was defective. Does that knock out his jurisdiction to revise at all?
  No. The Supreme Court held that the revision section, unlike the reassessment section, prescribes no notice at all. It requires only that the Commissioner give the assessee an opportunity of being heard before he reaches his decision, not before he begins the enquiry. That requirement belongs to natural justice, not to jurisdiction. A breach of it may make the resulting order illegal, but it does not take away the Commissioner's power to proceed. Since no notice was a condition precedent, the question what the notice should have contained did not arise. The Calcutta High Court's contrary view was set aside.
• T. S. Balaram, ITO v Volkart Brothers Supreme CourtHelps taxpayer
  What actually counts as a 'mistake apparent from the record' under s.154?
  An obvious and patent mistake. Not one that must be established by a long drawn process of reasoning on points where two opinions are conceivable. A decision on a debatable point of law cannot be rectified.
• Rampyari Devi Saraogi v CIT Supreme CourtHelps department
  The Commissioner set aside my assessments in revision relying on enquiries he never showed me. Is his order bad for want of a fair opportunity?
  No, on these facts. The Supreme Court dismissed the appeal. The Commissioner had used material from his own enquiries which was never put to the assessee, but the Court held that this was supporting material and not the basic ground of the order. On the face of the record the assessments were prejudicial to the revenue: a new assessee had filed nine years' voluntary returns at once, her own declaration about initial capital, marriage ornaments and gifts should have put any officer on his guard, no books or bank account existed, and short stereotyped orders followed within days without any enquiry.
• Dwarka Nath v Income-Tax Officer Supreme CourtHelps taxpayer
  The Commissioner dismissed my revision and the officer will not issue a demand notice so I cannot appeal. Is the revisional order beyond the reach of a writ because it is administrative?
  No. The Supreme Court held that the revisional jurisdiction is prima facie judicial: the order brought before the Commissioner affects the assessee's rights, it is implicit in a revisional power that the parties be heard, and the nature of the jurisdiction carries with it a duty to act judicially. Certiorari therefore lies. And even if the revisional order were administrative, that would not help the Revenue, because the officer's failure to issue the statutory demand notice would still be a failure of a statutory duty, correctable by mandamus. The Court quashed the revisional order and directed the officer to pass an order and issue notice according to law.
• Mirum Digital Pvt Ltd v PCIT High CourtHelps taxpayerValidity unconfirmed
  The assessee did not appear before the Commissioner in the revision proceedings. Does that alone justify the revision order?
  No. Non-appearance before the Commissioner does not convert an assessment made after specific queries and full replies into an order passed without enquiry. The Commissioner still has to make his own enquiry and satisfy both conditions, and prejudice to the revenue must actually exist.
• CIT v Eastman Exports Global Clothing Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  The Commissioner has issued a s.263 notice saying the transferor companies had not been in business for three years, so the losses we took over cannot be carried forward. Our arrangement was a demerger, not an amalgamation. Does the three-year condition apply?
  No. The three-year condition is in s.72A(2), which governs amalgamation. A demerger is governed by s.72A(4), which contains no such condition. The Madras High Court held that a revision order built on the wrong sub-section, and which merely remitted the matter to the assessing officer for enquiry, did not satisfy the requirement that the order sought to be revised be erroneous.
• PCIT v Sangeeta Jain High CourtCuts both waysValidity unconfirmed
  The Commissioner says my assessment was made without any inquiry. Is that by itself enough to revise it under s.263?
  It depends on which side of the line the file falls. The Delhi High Court restored a revision because the officer had accepted the claim that the land sold was agricultural without verifying it at all. The twin conditions still have to be met, but a complete absence of inquiry satisfies the first of them; an inquiry the Commissioner merely thinks was too thin does not.
• Bahar Infocons P Ltd v PCIT High CourtHelps taxpayer
  I over-reported income by mistake and the time to file a revised return has gone. Can it be fixed?
  The Commissioner cannot reject a revision application under s.264 solely because a revised return was not filed within the s.139(5) time. The power exists to relieve against over-assessment and reaches a mistake the assessee detects after the assessment is complete. Here provisions for bonus written back had been taxed twice across assessment years 2019-20 to 2021-22, and the revision applications were sent back to the Principal Commissioner to decide the adjustment on merits - the Court did not itself order relief.
• Gopal Vazirani v Principal Commissioner of Income Tax High CourtHelps taxpayerUnder appeal
  The Commissioner says the proviso to section 240 shows that returned income is sacrosanct, so he cannot give my client a refund below what he himself returned. Is that right?
  No. The proviso to section 240 bites only in the two situations it describes — an assessment set aside or cancelled with a fresh assessment directed, and an assessment annulled — and says nothing about a case where neither has happened. There is no provision in the Act denying a refund of excess tax where the income ultimately assessable is less than the returned income; an assessee can be asked to pay only such tax as is legally due and nothing more.
• PCIT v Mohak Real Estate Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  How much work must the Commissioner do before he can hold an assessment erroneous and prejudicial?
  At least a minimal enquiry, and he must record the reasons for his conclusion. A revision order that does not engage with the reply to the show cause notice and does not record why the assessment is erroneous is not sustainable in law.
• Pramod R Agrawal v PCIT High CourtHelps taxpayer
  I left a legitimate deduction out of my return and the assessment is over. Can the Commissioner allow it under s.264?
  Yes. The Bombay High Court held that s.264 confers wide jurisdiction, that it is not confined to correcting the errors of subordinate authorities, and that it covers a claim the assessee failed to make in the return and discovered only later. The rejection was quashed and the Commissioner was directed to decide the application afresh, by a reasoned order, after a hearing.
• Aafreen Fatima Fazal Abbas Sayed v ACIT High CourtHelps taxpayer
  I let the 30 days to appeal my 143(1) intimation lapse. Can I still go to the PCIT under s.264?
  Yes. Section 264(4) bars revision only in the situations it lists, essentially where an appeal is pending or has been decided; letting the appeal period run out without filing is not one of them. The revision application had to be decided on merits, and no formal waiver of the right of appeal could be demanded, because a right not exercised does not need to be waived.
• PCIT v Shreeji Prints Pvt Ltd High CourtHelps taxpayer
  The Commissioner did not mention Explanation 2 in the show cause notice but relied on it in the revision order. Does that matter?
  Yes. The Tribunal held, and the High Court and Supreme Court left undisturbed, that invoking Explanation 2 in the order without having put it to the assessee in the show cause notice is not appropriate or sustainable in law. On the merits, the Assessing Officer had made full inquiries into the loans and taken a plausible view, so there was nothing to revise.
• M/s. Indira Industries v Principal Commissioner of Income Tax High CourtHelps taxpayer
  The Commissioner has issued a section 263 notice raising issues the reassessment never touched. Does the two-year limit run from the reassessment order or from the original assessment, and can I challenge the notice itself?
  From the original assessment, and yes. The Madras High Court held that where a section 263 notice raises issues that were not the subject matter of the reassessment, the two years in section 263(2) run from the end of the financial year in which the original assessment was passed, not the reassessment. Here scrutiny assessment was made on 25 February 2015, so time ran from 31 March 2015, and the notice of 16 August 2017 was out of time. Being barred by law, the notice suffered from lack of jurisdiction, and the settled principles allow a show cause notice to be assailed on that ground. The writ appeal was allowed and the notice quashed.
• Utanka Roy v Director of Income Tax High CourtHelps taxpayerValidity unconfirmed
  I am a non-resident. I worked on a foreign employer's ship outside India for most of the year and was paid by that foreign company. The department says the salary is taxable in India. Where does salary accrue?
  Where the services are rendered. The Calcutta High Court held that for a non-resident, whose total income is governed by s.5(2), the place of accrual has to be found, and for that purpose the place where the services were rendered is what matters; the source of the income is not relevant. A marine engineer who had rendered services outside India for 286 days and had received his remuneration from a foreign company had received income outside India, and both the s.143(1) intimation and the s.264 order were set aside.
• Rajmandir Estates P Ltd v PCIT High CourtHelps departmentValidity unconfirmed
  Can the officer look past my subscriber at where the subscriber's own subscribers got their money?
  It depends on what the file shows. This is the decision the department relies on for going up the chain. Upholding a revision under s.263, the Calcutta High Court quoted the Special Bench in Sophia Finance for the width of the words 'any sum found credited in the books' and held that the officer is not precluded from enquiring into the true nature and source of a credit even where it is entered as share application money; it recorded that the submission that the source of the source is irrelevant did not appear to be correct. What it decides is that the enquiry could be directed on this file, not that the credits were bogus.
• Vijay Gupta v CIT High CourtHelps taxpayer
  I made a mistake in my own return and paid tax I did not owe. The time to revise has gone. Can the Commissioner give me relief under section 264?
  Yes. The Delhi High Court held that the revisional power under section 264 is very wide and is not confined to correcting the officer's errors - it extends to errors made by the assessee, including a legitimate claim never made in the return and raised for the first time in the revision application. An intimation under section 143(1) is an "order" for section 264. Paying the Rs.500 fee late is a curable irregularity, not a bar. The Commissioner's rejection was set aside and the revision restored for fresh consideration on merits.
• CIT v Fr. Mullers Charitable Institutions High CourtHelps taxpayer
  One deposit of ours breaks the s.11(5) modes. Will the department tax the trust's entire income?
  No. Only the income from the investment or deposit made in violation of s.11(5) is taxed; a breach of s.13(1)(d) does not take the trust's total income out of s.11. On that footing the s.263 revision was held unsustainable.
• DIT v Jyoti Foundation High CourtHelps taxpayerValidity unconfirmed
  The Commissioner says the Assessing Officer's inquiry was not deep enough. Can he set the assessment aside and tell the officer to inquire further?
  No. Where inquiry was made but the Commissioner thinks it insufficient, the Commissioner must conduct the inquiry himself and record a finding that the order is erroneous. He cannot remit the question of whether the order is erroneous to the Assessing Officer.
• CIT v D.G. Housing Projects Ltd High CourtHelps taxpayerValidity unconfirmed
  The Commissioner has set aside my assessment under section 263 saying the Assessing Officer did not examine an issue properly — can he do that without deciding the issue himself?
  No. The Delhi High Court held that a finding that the assessment order is erroneous is a jurisdictional precondition for section 263. Where the Assessing Officer has made an enquiry but the Commissioner thinks it inadequate, the Commissioner must himself examine or verify the matter and record a clear finding, supported by reasons, that the order is erroneous and unsustainable in law. He cannot remit the matter for the Assessing Officer to find out whether the order was erroneous. The revision order here, which said only that the point had not been properly examined, was rightly cancelled and the Revenue's appeal was dismissed.
• Lachman Dass Bhatia Hingwala (P) Ltd v ACIT High CourtCuts both ways
  The Tribunal has recalled its whole order on a rectification application. Does section 254(2) give it that power, or can it only amend the order?
  It has the power, in the right circumstances. A Full Bench of the Delhi High Court held that under section 254(2) the Tribunal can recall its order in its entirety where it is satisfied that prejudice has resulted to a party attributable to the Tribunal's own mistake, error or omission, and where that error is manifest. That has nothing to do with any inherent power of review. The Court held that its own earlier decisions in K.L. Bhatia, Deeksha Suri, Karan and Co, J.N. Sahni and Baljeet Jolly, which had laid down that the Tribunal can never recall an order in entirety, do not state the law correctly after the Supreme Court's decision in Honda Siel Power Products.
• Commissioner of Income-Tax v Shambhu Investment Pvt Ltd High CourtHelps department
  I let furnished table space with security, electricity, water and common amenities for a single monthly charge. Is that business income or income from house property?
  Income from house property, on these facts. The Calcutta High Court held that the mere attachment of income to immovable property is not by itself decisive; what must be seen is the assessee's primary object in exploiting the property. If the main intention is to let the property or a portion of it, the receipt is rental income; if it is to exploit the property by way of complex commercial activities, it is business income. Here there was no separate charge or agreement for furniture, fixtures or services, the monthly rent was comprehensive, and interest-free security advances of Rs 4,25,000 had already recovered the whole cost of the let portion. Applying the Sultan Brothers tests, the letting was inseparable and the object was letting.
• CIT v Sophia Finance Ltd High CourtHelps department
  My company received share application money. Can the Assessing Officer use section 68 on it at all, or is share capital simply a capital receipt he cannot touch?
  He can. The Delhi High Court, sitting as a Full Bench, held that section 68 is widely worded - it covers any sum found credited in the books, whatever colour the assessee gives it - so the officer has jurisdiction, and indeed a duty, to enquire whether the alleged shareholders actually exist. If they are identified and shown to have invested, the money is a capital receipt and nothing more happens. If they do not exist, there is no valid issue of share capital, because shares cannot be issued to non-existent persons, and the credit may be charged as the company's income.
• CIT v Gabriel India Ltd High CourtHelps taxpayer
  The Commissioner has issued a section 263 notice saying my assessment order does not discuss a deduction the officer allowed. Is a brief order by itself erroneous?
  No. The Bombay High Court held that an order is erroneous only if it is not in accordance with law, or was passed without any enquiry in undue haste. Where the officer raised a query, got a written explanation and allowed the claim on it, his order cannot be branded erroneous merely because he did not discuss the matter elaborately or because the Commissioner would have decided differently. And the Commissioner must himself reach a finding that the order is erroneous and prejudicial before he sets it aside; he cannot simply remit the point for the officer to look at again.
• CIT v Union Tyres High CourtCuts both ways
  If the CIT(A) spots an untaxed source of income, what is the correct route to bring it to tax?
  The Delhi High Court held that the first appellate authority cannot use the enhancement power to reach a source of income the Assessing Officer never considered. Where such a source surfaces, the statutory route is reassessment under s.147/148 or revision under s.263, not enhancement in the pending appeal.
• Pankil Garg v PCIT ITATHelps taxpayer
  I received money from my HUF. Is it taxable because an HUF is not my 'relative'?
  No. A sum received by a member from his HUF, even out of its capital or estate, is a capital receipt in his hands and not income, and s.10(2) was also available. The s.263 revision built on the contrary view was set aside.
• Torrent Pharmaceuticals Ltd v DCIT ITATHelps taxpayer
  After Explanation 2 to s.263, can the Commissioner revise simply by saying the enquiry was not thorough enough?
  No. Explanation 2 is clarificatory and does not dilute the basic requirements of s.263(1). Revision needs a gross inadequacy of enquiry, or an enquiry the record demanded and which was simply not made.
• Brahma Center Development P Ltd v PCIT ITATHelps taxpayerValidity unconfirmed
  The Commissioner has revised my assessment saying no inquiry was made, but the officer did ask about the very item. Is that revision good?
  No, on this Tribunal's view. The Delhi Bench set the revision aside because the Assessing Officer had put a specific question on the interest adjusted against project expenditure, the company had explained it and the officer had accepted the explanation - so there was an inquiry, and the Principal Commissioner was not justified in invoking s.263. The TaxGuru note of the order also records a prospectivity point on Explanation 2, but it records it as the observation of a Mumbai Bench that the order noticed, not as this Bench's own holding.
• EPCOS Electronic Components SA v UOI High CourtHelps taxpayerOverruled
  My return was accepted as filed and no demand was raised. Is a s.264 revision still open to me?
  Yes. An intimation under s.143(1) that simply accepts the return is still an order capable of revision, and 'prejudicial to the interest of the assessee' does not mean 'raised a demand'. The prejudice was that the assessee had paid more than the applicable treaty provisions required, even though the tax computed in the intimation was unchanged.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.