Income Tax 2025

Appearance

C.—Revision by the Principal Commissioner or Commissioner

Revision of orders prejudicial to revenue. ​

377(1) ​

The Competent Authority 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, including—

  • (a) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or
  • (b) an order modifying the order under section 166; or
  • (c) an order cancelling the order under section 166 and directing a fresh order under the said section.

377(2) ​

For the purpose of sub-section (1),—

  • (a) an order passed by the Assessing Officer or the Transfer Pricing Officer, shall include— (i) an order of assessment made on the basis of the directions issued by the Joint Commissioner under section 272; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer or the Transfer Pricing Officer, conferred on, or assigned to, him by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board under section 241; and (iii) an order under section 166;
  • (b) “record” shall include all records relating to any proceeding under this Act available at the time of examination by the Competent Authority;
  • (c) where any order referred to in this section and passed by the Assessing Officer or the Transfer Pricing Officer, had been the subject matter of any appeal filed, the powers of the Competent Authority, shall extend to such matters as had not been decided in such appeal.

377(3) ​

An order passed by the Assessing Officer or the Transfer Pricing Officer, shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Competent Authority, the order—

  • (a) is passed without making inquiries or verification which should have been made;
  • (b) is passed allowing any relief without inquiring into the claim;
  • (c) has not been made in accordance with any order, direction or instruction issued by the Board under section 239; or
  • (d) has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

377(4) ​

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.

377(5) ​

Irrespective of anything contained in sub-section (4), an order in revision under this section may be passed at any time to give effect to a finding or direction contained in the order of the Appellate Tribunal, the High Court, or the Supreme Court.

377(6) ​

In computing the period of limitation under sub-section (4), the following period shall be excluded,––

  • (a) the time taken in giving an opportunity to the assessee to be reheard under section 244(2); and
  • (b) the period commencing on the date on which stay on any proceeding under this section has been granted by an order or injunction of any court and ending on the date on which certified copy of the order or injunction vacating the stay is received by the jurisdictional Principal Commissioner or Commissioner.

377(7) ​

If after the exclusion of the period provided in sub-section (6), the time limit for completion, in that sub-section is less than sixty days, such remaining period shall be extended to sixty days and such period of limitation shall be deemed to have been extended accordingly.

377(8) ​

In this section,––

  • (a) “Competent Authority” means the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; and
  • (b) “Transfer Pricing Officer” shall have the same meaning as in section 166(18).
Explanation

Section Summary: ​

Section 377 of the Income Tax Act grants the Competent Authority (Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner) the power to revise orders passed by the Assessing Officer (AO) or Transfer Pricing Officer (TPO) if they are found to be erroneous and prejudicial to the interests of the revenue. This revision can include modifying, enhancing, or canceling the assessment and directing a fresh assessment. The section ensures that tax authorities can correct mistakes or omissions that may lead to a loss of revenue.

Key Changes: ​

  1. Expanded Scope of Revision: The section now explicitly includes orders passed by the Transfer Pricing Officer (TPO) and those made under Section 166 (transfer pricing adjustments).
  2. Definition of "Record": The term "record" now includes all records available at the time of examination by the Competent Authority, broadening the scope of review.
  3. Time Limit for Revision: A two-year time limit is imposed for initiating revisions, with specific exclusions for delays caused by court stays or rehearing opportunities.
  4. Exclusion of Appealed Matters: The Competent Authority’s revision powers are limited to matters not already decided in an appeal.
  5. Deemed Erroneous Orders: Specific scenarios are outlined where an order is deemed erroneous and prejudicial to revenue, such as lack of inquiry, incorrect relief, or non-compliance with Board directions or court decisions.

Practical Implications: ​

  1. For Taxpayers: Taxpayers must ensure that their assessments are thorough and compliant with tax laws, as any errors or omissions could lead to revisions, potentially resulting in higher tax liabilities.
  2. For Tax Authorities: The section empowers authorities to correct mistakes or oversights in assessments, ensuring that revenue is not lost due to procedural errors.
  3. For Businesses: Businesses involved in transfer pricing must ensure that their documentation and compliance are robust, as TPO orders are now explicitly subject to revision.
  4. Time Sensitivity: Taxpayers should be aware of the two-year limitation period for revisions, but also note that this period can be extended in certain circumstances (e.g., court stays).

Critical Concepts: ​

  1. Competent Authority: Refers to senior tax officials (Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner) authorized to revise orders.
  2. Erroneous and Prejudicial to Revenue: An order is deemed erroneous if it is passed without proper inquiry, allows undue relief, or is not in line with Board directions or court decisions. It is prejudicial to revenue if it results in a loss of tax revenue.
  3. Transfer Pricing Officer (TPO): An officer responsible for ensuring that transactions between related parties are conducted at arm’s length prices.
  4. Limitation Period: The two-year time limit for revisions, excluding periods of court stays or rehearing opportunities.

Compliance Steps: ​

  1. Maintain Comprehensive Records: Ensure all records related to assessments and transfer pricing are complete and readily available for review.
  2. Respond to Notices: If notified by the Competent Authority, provide all necessary documentation and participate in hearings to present your case.
  3. Monitor Time Limits: Be aware of the two-year limitation period for revisions and any exclusions that may apply.
  4. Ensure Compliance with Board Directions: Adhere to any orders, directions, or instructions issued by the Central Board of Direct Taxes (CBDT) under Section 239.

Examples: ​

  1. Scenario 1: An Assessing Officer allows a deduction for a business expense without verifying the supporting documents. The Competent Authority reviews the case, deems the order erroneous, and revises it to disallow the deduction, resulting in higher tax liability for the taxpayer.
  2. Scenario 2: A Transfer Pricing Officer approves a transaction between related parties without proper documentation. The Competent Authority revises the order, directing a fresh assessment to ensure compliance with arm’s length pricing rules.
  3. Scenario 3: A taxpayer’s assessment is revised within the two-year limit, but the process is delayed due to a court stay. The limitation period is extended, and the revision is completed after the stay is lifted.

This section ensures that tax authorities can correct errors that may lead to revenue loss while providing safeguards for taxpayers through time limits and procedural fairness.