Section 263 Revision by CIT — When the Commissioner Reopens Your Assessment
Section 263 empowers the Commissioner of Income Tax (CIT) to revise an assessment order that is "erroneous and prejudicial to the interests of revenue." This can reopen a completed, favorable assessment.
What Does This Notice Mean?
The CIT has examined your assessment order and believes it is both erroneous (legally or factually wrong) and prejudicial to revenue (resulting in less tax than should have been levied). Both conditions must be satisfied for 263 to apply.
Common Triggers
- AO accepted claims without proper inquiry during scrutiny
- Assessment order passed without examining material issues
- Internal audit flagged the assessment as inadequate
- CIT review found the AO did not apply correct legal provisions
- Merger doctrine does not apply (issue not considered by appellate authority)
How to Respond
- 1Respond to the show cause notice with detailed written submissions
- 2Argue that the AO took a possible view — two views possible means no revision
- 3Show that the AO did make inquiries (cite the assessment records, questions asked)
- 4Invoke the "merger doctrine" if the issue was covered in appeal
- 5Challenge if only one condition is met (erroneous but not prejudicial, or vice versa)
- 6Cite Malabar Industrial Co. Ltd v. CIT (2000, SC) — both conditions must coexist
Consequences of Non-Compliance
Frequently Asked Questions
What is the difference between Section 263 and Section 264?
263 is used by the CIT to revise orders prejudicial to revenue (i.e., against the taxpayer). 264 is used by the taxpayer to seek revision of orders in their favor. Both are exercised by the CIT.
Related Sections
Detailed Guides
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