Introduction:
Section 251 gives appellate powers to the CIT(A) to review assessments based on appeals filed by taxpayers, section 263 gives revisional powers to the CIT/PCIT to correct orders that are both erroneous and harmful to revenue, while Section 264 gives revisional powers to the CIT/PCIT to correct orders that are detrimental to the assessee.
Nature, conditions, and purpose of these powers vested by each of these sections differ significantly.
2. Comparison of these three sections:
| Aspect | Section 251 (Appellate Powers) | Section 263 (Revisional Powers) | Section 264 (Revisional Powers) |
| Overview of the provisions | An appeal before the CIT(A) can be filed against the orders of the AO and which are specified u/s 246 or 246A of the Income Tax Act.
The procedures for conducting such appeals and the powers vested in the CIT(A) are governed by Sections 250 and 251 of the Act, respectively. The right to appeal is a substantive right. The right to appeal is not inherent but is created by statute. Both factual and legal questions can be re-examined in the appellate process without any artificial limitations. |
The CIT holds the authority to invoke revisionary powers u/s 263 of the Income Tax Act.
This provision empowers the CIT to examine the records of any proceedings if, in his opinion, the order passed by the AO is erroneous and prejudicial to the interests of the revenue. The revisionary power under Section 263 serves as a safeguard to the interest of revenue. |
Under Section 264 of the Income Tax Act, the CIT/PCIT has broad discretionary powers to review and revise the order of the AO either suo moto or upon receiving an application from the assessee.
However, an essential condition of this power is that the action taken by the CIT must not be prejudicial to the interests of the assessee, meaning that the taxpayer’s position cannot be made worse through such a revision. Once the CIT issues an order under this section, the only legal recourse available to the assessee, if they are aggrieved, is to file a writ petition in the High Court. |
| Authority | JCIT(A) / CIT(A) | CIT/PCIT | CIT/PCIT |
| Nature of Powers | Appellate powers.
i.e. JCIT(A)/CIT(A) has the power to hear appeals against the order passed by the AO. JCIT(A)/CIT(A) can review, amend, modify or even overrule the decision of the AO. WEF 1/10/2024 JCIT(A)/CIT(A) has also the power to set aside the assessment order passed by an AO u/s 144 of the IT Act. |
Revisional powers.
(Review of erroneous orders prejudicial to revenue) the CIT has the power to modify or enhance the assessment or cancel the assessment order passed by the AO and issue a direction of a fresh order. This revisionary power is primarily to protect the revenue’s interest |
Revisional powers.
the CIT has the power to modify or enhance the assessment or cancel the assessment order passed by an AO and issue a direction of a fresh order. This revisionary power is to protect the taxpayer’s interest. |
| Who can Initiate? | Taxpayer | CIT/PCIT
(Suo motu or based on information) |
Taxpayer |
| Scope of Powers | Confirm, reduce, enhance, annul.
Power to set aside the asstt. Order (wef 1/10/2024 for certain orders only) |
Revise or set aside erroneous and prejudicial orders. | Revise the order which are detrimental to the taxpayer. |
| Objective | To pass the fair and Just order. | Protection of revenue | Provide relief to aggrieved taxpayers |
| Conditions for Exercise | No specific conditions. | Must be both erroneous and prejudicial to revenue | Can be initiated by taxpayer or CIT/PCIT Suo motu |
| Time limit | Within 30 days from the date of service of the notice of demand. | Within two years from the end of the financial year in which the order sought to be revised was passed. | Application must be made within one year from the date on which the order was communicated to the taxpayer. |
| Whether order is appealable. | Yes.
Taxpayer can file further appeal to ITAT against the order of CIT(A) |
Yes
Appeal can be filed before ITAT against the order u/s 263 passed by CIT/PCIT. Before CIT(A), against the order passed by the AO in consequence to the order u/s 263. |
No
No further appeal against the order u/s 264, except writ petition before the High Court. |
| Burden of Proof | Primarily on the assessee. But in case CIT(A) want to enhance, the burden shifts to revenue. | On revenue | On assessee. |
| Nature of Proceedings | Judicial | Quasi-judicial | Quasi-judicial |
Important Judicial rulings on each of the section:
3 Section 251:
3.1 M. Loganathan 25 Taxmann.com 174 (Mad.): Section 251 grants the Commissioner (Appeals) broad powers in handling appeals against assessments. Not only can the Commissioner confirm, cancel, or grant relief in an assessment, but they also have the authority to enhance the assessment, just like an Assessing Officer. This means they can review all aspects of the assessment, even those unfavorable to the assessee, and remand the case for further inquiries. The only condition is that the assessee must be given a fair opportunity to respond before any enhancement. The explanation to section 251 further expands the Commissioner’s jurisdiction, allowing them to address any issues arising from the proceedings, even if not specifically raised by the assessee. In essence, the Commissioner’s powers are co-terminus with that of the Assessing Officer to enhance the assessment.
3.2 Rai Bahadur Hardutroy Motilal Chamaria 66 ITR 443 (SC) : The CIT(A) has no jurisdiction, to assess a source of income which has not been processed by the ITO and which is not disclosed either in the returns filed by the assessee or in the assessment order, and therefore the CIT(A) cannot travel beyond the subject-matter of the assessment. The power of enhancement is restricted to the subject-matter of assessment or the source of income which have been considered expressly or by clear implication by the AO in his order.
3.3 Popular Automobiles 187 Taxman 86 (Ker): The CIT(A) has the power to enhance an assessment but cannot do so by discovering new sources of income that were neither declared by the assessee in their return nor considered by the AO in the order against which the order has been preferred.
3.4 Goel Die Cast Ltd. 297 ITR 72 (P&H) : Section 251 grants the appellate authority the power to confirm, reduce, enhance, or annul an assessment. The only condition for enhancing income is that the assessee must be given an adequate opportunity to be heard. There is no restriction on sourcing information for enhancement from the Assessing Officer, and sufficient safeguards, in line with principles of natural justice, are provided for exercising these powers.
3.5 Mc Millan & Co. 33 ITR 182 (SC): Even if the Income-tax Officer (ITO) accepts the assessee’s method of accounting, the CIT(A) can re-examine the accounts and has the same powers as the ITO to confirm, reduce, enhance, or annul an assessment.
4 Section 263:
4.1 Shree Manjunathesware Packing Products & Camphor Works 231 ITR 53 (SC): The revisional power u/s 263 is wide enough allowing the authority to examine any record of proceedings under the Act. If the CIT finds an order by the AO to be erroneous and prejudicial to revenue after an inquiry, they he can invoke the the powers u/s 263 vested with him. The CIT may consider new material discovered during the inquiry, as well as any relevant material that became available after the original assessment.
The jurisdiction in view of the provisions of section 263 would not be invoked in all sundry cases. That is to be done in appropriate and fit cases only. If that is not done, the benevolent spirit of circular which has depicted the view of the Board after an elaborate discussion, would be frustrated. That is to be done in cases involving concealment and evasion of tax of huge amount.
4.2 Nazir Singh 119 TAXMAN 651 (MP) : The taxing authority thinking of invoking the powers under the provisions of section 263 should get satisfied about certain points which can be elaborated for the purposes of giving a guiding line :
(i) The order passed by the Assessing Officer is grossly erroneous and at the same time prejudicial to the interest of revenue.
(ii) Both the two things should be in existence together and not isolated and the case should be indicating the concealment or the evasion of payment of tax of huge amount.
(iii) The time-gap between the act of invoking the jurisdiction and passing of the order has to be taken into consideration.
There has to be reasons recorded justifying the exercise of power in view of the provisions of section 263.
4.3 Escorts Ltd. 198 Taxman 324 (Delhi): CIT cannot invoke revisional powers u/s 263 on the fundamental aspects of the transactions in issue on which a view had been taken and not shown as having been challenged. Such an approach of the CIT is against the principle of consistency.
4.4 Smt. Lila Choudhury 289 ITR 226 (Gauhati) : An erroneous order does not mean a wrong order; it does not mean an order with which the Commissioner is unable to agree. An erroneous order would be an order which suffers from a patent lack of jurisdiction. The error must be with reference to jurisdiction.
4.5 Leisure Wear Exports Ltd. 11 taxmann.com 54 (Delhi) : The order passed by the AO cannot be set aside for making roving inquiry without pointing out any error in his order. The Commissioner has to specifically demonstrate that the order of the Assessing Officer is erroneous. The power of revision is not meant to be exercised for the purpose of directing the Assessing Officer to hold another investigation without describing as to how the order of the Assessing Officer is erroneous.
4.6 N.N. Agrawal 189 ITR 769 (Allahabad) : The assessment order made by the AO following the decision of Court cannot be said to be erroneous within the meaning of section 263. Just because an appeal has been filed against the order of the lower appellate authority, the decision of lower courts cannot be ignored.
4.7 Dawjee Dadabhoy & Co. 31 ITR 872 (CAL.) : The words, ‘prejudicial to the interests of the revenue’, have not been defined, but it must mean that the orders or assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realised.
5. Section 264:
5.1 Hindustan Aeronautics Ltd. 243 ITR 808 (SC) : The Commissioner has no power to revise any order under section 264 if the order has been made subject to an appeal to the Tribunal, even if the relief claimed in the revision is different from the relief claimed in the appeal and irrespective of the fact whether the appeal is by the assessee or by the department.
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