Section 377 · Appeals
Section 377 of the Income-tax Act, 2025 — Revision of Orders Prejudicial to Revenue (Successor to Section 263)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XVIII
📜 What the law says — Section 377, Income-tax Act 2025
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 erro-
neous 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;
(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.
(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 Com-
missioner 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 considered and decided in such appeal.
(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
In plain language
What Section 377 actually does
Section 377 of the Income-tax Act, 2025 gives senior income-tax authorities the power to re-examine and revise an assessment order that is both wrong (erroneous) and harmful to the tax department (prejudicial to the interests of the revenue). It is the direct successor to the well-known Section 263 of the old Income-tax Act, 1961, and it carries forward the same core principle almost unchanged. Section 377 applies to tax years from 1 April 2026 onwards, while Section 263 continues to govern orders relating to earlier years under the saving/transitional rules.
The idea is simple: if an Assessing Officer (AO) passes an order that lets a taxpayer off too lightly because of a legal mistake or a failure to investigate, a higher officer can step in, cancel or modify that order, and direct a fresh, correct assessment — protecting government revenue.
Who can use this power
- Competent authorities: the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner of Income-tax.
- Whose orders can be revised: orders passed by the Assessing Officer and by the Transfer Pricing Officer (TPO), including orders made under directions of a Joint Commissioner.
- Who it affects: any taxpayer — individual, HUF, firm, LLP or company — whose completed assessment is picked up for revision.
The twin conditions — both must be satisfied
This is the heart of Section 377. The revising authority cannot act unless both tests are met at the same time:
- Erroneous — the order has a genuine legal or factual error.
- Prejudicial to the interests of the revenue — that error has caused, or risks causing, a loss of legitimate tax.
A mere difference of opinion is not enough. If the AO actually made an inquiry and took one legally permissible view, the Commissioner cannot revise the order simply because he would have taken a different view.
When an order is treated as "erroneous"
Section 377 spells out situations (via its Explanation) in which an order is deemed erroneous where it is prejudicial to revenue, including where the order:
- is passed without making inquiries or verification that should have been made;
- allows a relief or deduction without inquiring into the claim;
- is passed contrary to a direction or instruction issued by the Board (under Section 239); or
- is passed against a binding decision of the jurisdictional High Court or the Supreme Court on the taxpayer's issue.
Lack of inquiry vs. inadequate inquiry: A total failure to inquire makes an order revisable. But if the AO did inquire — even if you feel the inquiry could have been deeper — that is generally an inadequate inquiry, and revision is not justified.
Time limit and mandatory hearing
- Two-year limit: the revision order must normally be passed within two years from the end of the financial year in which the order sought to be revised was passed.
- Exclusions: time taken for a re-hearing opportunity and any period of a court stay are excluded; if less than 60 days are left after exclusions, the period is extended to 60 days.
- No limit where the revision only gives effect to a finding of the Appellate Tribunal, High Court or Supreme Court.
- Opportunity of being heard: the taxpayer must be given a hearing before any revision order is passed — this is non-negotiable.
Doctrine of merger and appeal issues
Where an issue has already been decided in appeal, the Commissioner cannot revise that issue — but he can still revise matters not considered and decided in the appeal. This is the statutory form of the "doctrine of merger."
Practical implications and remedy
A Section 377 revision typically means your assessment is reopened, often ending in a higher tax demand. The good news: a revision order under Section 377 is appealable directly to the Income Tax Appellate Tribunal (ITAT) under Section 362 of the 2025 Act (successor to Section 253 of the 1961 Act), generally within two months of communication of the order. A strong reply at the notice stage — showing what the AO inquired into and why the view taken was legally sustainable — is often the best defence.
💡 Example
Worked example 1 — deduction allowed without inquiry. Ms. Kapoor, a consultant, claimed a business deduction of ₹8,00,000 in AY 2027-28. The AO passed the assessment on 20 August 2027 accepting the claim without asking for a single supporting document. On review, the Principal Commissioner finds no inquiry was made and the deduction looks partly bogus. Because the order is both erroneous (no inquiry) and prejudicial to revenue (tax lost on ₹8,00,000, roughly ₹2,49,600 at 30% plus cess), he issues a Section 377 notice. The two-year limit runs from 31 March 2028 (end of the FY in which the order was passed), so the revision order must be passed by 31 March 2030.
Worked example 2 — difference of opinion is not enough. XYZ Pvt. Ltd. claimed depreciation of ₹15,00,000. The AO asked for the fixed-asset register, examined it, and allowed the claim. Later a Commissioner feels a lower rate should have applied. Here the AO did inquire and took a legally sustainable view, so this is at most an "inadequate inquiry" and a mere difference of opinion — Section 377 cannot be invoked, and any revision would likely be quashed by the ITAT.
A relatable story. Rakesh, who runs a small trading firm in Jaipur, thought his case was closed after assessment. Eighteen months later he received a Section 377 notice questioning a large cash-purchase deduction the AO had accepted without verification. Panicked, he almost paid up. His CA instead filed a detailed reply attaching the ledgers and bank proofs. Where the paperwork was clean, the Commissioner dropped the point; where it was weak, only that part was set aside for fresh assessment — and Rakesh preserved his right to appeal to the ITAT under Section 362.
| Feature | Section 377 (Act, 2025) | Section 263 (Act, 1961) |
|---|
| Purpose | Revise orders erroneous & prejudicial to revenue | Same |
| Applies to years | From 1 April 2026 | Up to tax year 2025-26 (transitional) |
| Authorities | Pr. CCIT / CCIT / Pr. CIT / CIT | Pr. CIT / CIT |
| Twin test | Erroneous AND prejudicial to revenue | Erroneous AND prejudicial to revenue |
| Orders covered | AO and Transfer Pricing Officer orders | AO (and TPO) orders |
| Time limit | 2 years from end of FY of the order | 2 years from end of FY of the order |
| Hearing to taxpayer | Mandatory before revision | Mandatory before revision |
| Appeal against revision | To ITAT under Section 362 | To ITAT under Section 253(1)(c) |
Related sections
Section 378 — Revision of other orders in favour of the assessee (successor to Section 264) Section 362 — Appeals to the Income Tax Appellate Tribunal Section 239 — Board's power to issue instructions and directions Section 270 — Assessment / reassessment by the Assessing Officer Section 166 — Reference to and order by the Transfer Pricing Officer Section 287 — Rectification of mistakes apparent from the record
Frequently asked questions
What is Section 377 of the Income-tax Act, 2025 in simple words?
It lets a senior tax officer (Principal Commissioner or Commissioner) revise an assessment order that is both legally wrong and results in a loss of tax to the government. It is the new version of the old Section 263.
Can the Commissioner revise an order just because he disagrees with the Assessing Officer?
No. A mere difference of opinion is not enough. If the AO made a genuine inquiry and took a legally permissible view, the order cannot be revised under Section 377.
What is the time limit for passing a Section 377 revision order?
Generally two years from the end of the financial year in which the order being revised was passed, subject to certain exclusions like court stays. There is no limit where the revision merely gives effect to an appellate finding.
Will I get a chance to explain my side before revision?
Yes. The competent authority must give you an opportunity of being heard before passing any revision order under Section 377; this is a mandatory requirement.
Can I appeal against a Section 377 order?
Yes. A revision order under Section 377 can be appealed directly to the Income Tax Appellate Tribunal under Section 362 of the 2025 Act, generally within two months of receiving the order.
How is Section 377 different from Section 378?
Section 377 allows revision of orders that are prejudicial to revenue (against the taxpayer's interest but for correcting under-taxation). Section 378 is the beneficial-revision provision that a taxpayer can invoke for relief, and is the successor to old Section 264.
When is an order treated as erroneous under Section 377?
When it is passed without necessary inquiry or verification, allows a relief without inquiring into the claim, goes against a Board direction under Section 239, or is contrary to a binding High Court or Supreme Court decision.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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