Monday, March 18, 2024

A Guide for Taxpayers on Sections 263 and 264 of the Income Tax Act

In the realm of tax law, understanding the powers of revision that the Income Tax Act, 1961 grants to tax authorities is crucial for every taxpayer. Specifically, Sections 263 and 264 of the Act provide the Principal Commissioner or Commissioner (PC/C) with significant authority to review and revise orders passed by the Assessing Officer (AO). This guide aims to demystify these sections, highlighting what taxpayers need to know about their rights and the processes involved.

Section 263: Revision of Orders Prejudicial to Revenue

Purpose and Scope: Section 263 is a tool for tax authorities to ensure that no revenue is lost due to erroneous orders passed by the AO. If an order is considered "erroneous" because it's prejudicial to the interests of the revenue, the PC/C has the power to intervene, potentially leading to an enhanced assessment or a directive for a fresh assessment.

How it Works:

  1. Examination: The PC/C can examine any proceedings under the Act if they believe an order passed might be prejudicial to revenue.
  2. Prejudicial Error Identification: The focus here is on spotting mistakes harmful to the tax collection efforts.
  3. Opportunity for Hearing: Before any revision, the taxpayer is given a chance to be heard, ensuring fairness in the process.
  4. Final Decision: Depending on the findings, the PC/C might modify the assessment or call for a new one.

Time Frame: Revisions under Section 263 must be initiated within two years from the end of the financial year in which the order sought to be revised was passed, with specific exclusions for calculating this period.

Section 264: Revision of Orders in Favor of Assessee

Objective: This section serves as a counterbalance to Section 263, providing a mechanism for taxpayers to seek a revision of orders that they believe are unjust. It allows for the revision of orders to the benefit of the assessee, either on the motion of the PC/C or upon an application by the taxpayer.


  • Application: Taxpayers can apply for a revision, accompanied by a fee of Rs. 500.
  • Revision Conditions: The PC/C cannot revise orders beyond certain time limits and scenarios, such as pending appeals, ensuring that the process is used judiciously.
  • Decision Making: The PC/C may order a fresh assessment or modify the existing one, ensuring that the revision does not prejudice the taxpayer.

Time Limits: Applications for revision must be made within a year from the end of the financial year in which the order was passed or the taxpayer became aware of it, with provisions for extension in exceptional circumstances.

At a Glance: Understanding Your Rights and the Process

FeatureSection 263: For Revenue's BenefitSection 264: For Taxpayer's Benefit
InitiationCan be initiated by PC/CBy PC/C or on taxpayer's application
PurposeTo correct orders prejudicial to revenueTo correct orders not in taxpayer's favor
Time Limit2 years from the financial year end of the order1 year from the financial year end of the application
Taxpayer's InvolvementGiven a chance for hearing before revisionApplication required with a fee of Rs. 500
OutcomeMay lead to enhanced/modification of assessmentRevision in taxpayer's favor; no prejudice

Conclusion: Empowering Taxpayers Through Knowledge

Understanding Sections 263 and 264 of the Income Tax Act, 1961, arms taxpayers with the knowledge to navigate the revision process confidently. Whether it's challenging an assessment believed to be unjust or being aware of the tax authorities' powers to revise orders, being informed is the first step towards safeguarding one's interests. This guide underscores the balance struck by the legislation in protecting both the revenue's and the taxpayer's interests, highlighting the procedural safeguards and rights available to taxpayers in the realm of tax revisions.