Allahabad High Court Stays Income Tax Revision, Cites No Definite Error In Reassessment Order

The Allahabad High Court has recently stayed proceedings pursuant to a show cause notice dated January 16, 2026 issued under Section 263 of the Income Tax Act, 1961 against an individual taxpayer, observing that the tax authority had not formed a definite opinion that the reassessment order was erroneous and prejudicial to the interest of the revenue.

The order was passed by a bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla.

The taxpayers's return had first been examined in a scrutiny assessment under Section 143(3) of the Act, which provides for a detailed examination of the return after calling for explanations and documents. Subsequently, the case was reopened under Sections 147 and 148, which permit reassessment where income is believed to have escaped assessment.

During the reassessment proceedings, the issue of purchases made by the assessee was examined against specific queries raised by the assessing authority. The explanation furnished was accepted and no addition was made on that count.

Thereafter, proceedings were drawn under Section 263 by the Principal Commissioner of Income Tax Central, Lucknow on the same issues that had been examined during the reassessment proceedings.

Counsel for the revenue raised a preliminary objection that the assessee had an alternative remedy and could file objections before the commissioner in response to the show cause notice.

After hearing the parties and perusing the record, the Court observed that prima facie the matter required consideration. It noted that although the issue may have been raised during the course of reassessment proceedings, no definite opinion had been formed by the Principal Commissioner of Income Tax Central, Lucknow that the reassessment order was erroneous and prejudicial to the interest of the revenue.

The Court recorded that the order only stated that the reassessment order “may be” erroneous and prejudicial to the interest of the revenue.

Emphasising the scope of the revisional power, the Bench observed, “It being well settled law, revision may not arise by way of review but only where it appears to the Commissioner Income Tax that such order is erroneous and is also prejudicial to the interest of the revenue, that jurisdiction may be exercised.”

The Court also noted that this would amount to a third scrutiny on the same facts and held that the matter required consideration. It granted four weeks' time to the revenue to file a counteraffidavit and two weeks thereafter to the assessee to file a rejoinder.

Till the next date of listing, the Court directed that proceedings pursuant to the impugned show cause notice for the assessment year 2019-20 shall remain stayed