Section 377 of the Income-tax Act, 2025 allows the Competent Authority to revise an order of the Assessing Officer or Transfer Pricing Officer that is erroneous in so far as it is prejudicial to the interests of revenue, after giving the assessee an opportunity of being heard.
What section 377 does
Section 377 is the revenue's revision power — the successor to section 263 of the Income-tax Act, 1961. It allows a completed assessment to be reopened where the order is erroneous in so far as it is prejudicial to the interests of the revenue. Both limbs must be satisfied.
The new drafting expressly extends the power to orders of the Transfer Pricing Officer, alongside the Assessing Officer — putting beyond doubt a question that was litigated under the old Act.
Procedural safeguards are built in: the Competent Authority must give the assessee an opportunity of being heard and make such inquiry as he deems necessary before passing an order.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 263(1) | Revision of an order erroneous and prejudicial to revenue | 377(1) |
| 263(1), Explanation 1(a) | Orders included — Joint Commissioner directions and delegated powers | 377(2)(a) |
| 263(1), Explanation 1(b) | Meaning of record | 377(2)(b) |
| 263(1), Explanation 1(c) | Doctrine of partial merger | 377(2)(c) |
| 263(1), Explanation 2 | Deemed erroneous situations | 377(3) |
| 264 | Revision of other orders | 378 |
| 253(1)(c) | Appeal against a revision order | 362(1)(b)(ii) |
Section 377 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — the power and what orders may be passed
The Competent Authority may call for and examine the record of any proceeding, and if he considers that an order passed by the Assessing Officer or the Transfer Pricing Officer 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 such inquiry as he deems necessary — pass such order as the circumstances justify, including (a) enhancing or modifying the assessment, or cancelling it and directing a fresh assessment; (b) modifying an order under section 166; or (c) cancelling a section 166 order and directing a fresh one.
Sub-section (2)(a) — which orders are covered
An order of the Assessing Officer or Transfer Pricing Officer includes: (i) an assessment made on the basis of directions issued by the Joint Commissioner under section 272; (ii) an order made by the Joint Commissioner exercising the powers or performing the functions of an Assessing Officer or Transfer Pricing Officer as conferred under section 241; and (iii) an order under section 166 — the safe harbour provision.
Sub-section (2)(b) — what 'record' means
Record includes all records relating to any proceeding under the Act available at the time of examination by the Competent Authority. It is not confined to what was before the Assessing Officer when the order was passed — material gathered later can form part of the record.
Sub-section (2)(c) — partial merger
Where the order had been the subject matter of an appeal, the Competent Authority's powers extend to such matters as had not been considered and decided in that appeal. An appeal on one issue therefore does not shield the rest of the order from revision — the same partial-merger principle that section 287(2) applies to rectification.
Sub-section (3) — deemed erroneous orders
An order is 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, it falls within the situations the sub-section sets out — typically where the order was passed without making inquiries or verification that should have been made, or without following a direction or an order of a higher authority. Read the sub-section in full before responding to a notice.
The remedy against a section 377 order
An order under section 377 is appealable directly to the Appellate Tribunal under section 362(1)(b)(ii) — it does not go to the Commissioner (Appeals).
Worked example
An assessment for tax year 2026-27 is completed under section 270 allowing a deduction of ₹90,00,000 without examining the supporting evidence. The assessee had appealed only against a separate disallowance of ₹12,00,000, and that appeal was decided.
| Question | Answer under section 377 |
|---|---|
| Can the ₹90,00,000 deduction be revised despite the appeal? | Yes — sub-section (2)(c): the power extends to matters not considered and decided in the appeal |
| Must the assessee be heard? | Yes — sub-section (1) requires an opportunity of being heard |
| Can material gathered after the assessment be used? | Yes — 'record' under sub-section (2)(b) includes records available at the time of examination |
| What orders can the Competent Authority pass? | Enhance or modify the assessment, or cancel it and direct a fresh assessment — sub-section (1)(a) |
| What is the remedy? | Appeal to the Appellate Tribunal under section 362(1)(b)(ii) |
The critical defence in most section 377 proceedings is that the order was not erroneous — that the Assessing Officer did make inquiries and took a permissible view. Both limbs must be satisfied: an order that is merely prejudicial to revenue, but not erroneous, cannot be revised.
Compliance checklist and due dates
- Respond to the show cause fully; sub-section (1) requires a hearing and the reply shapes the order.
- Test both limbs — the order must be erroneous and prejudicial to the interests of the revenue.
- Produce evidence that inquiries were made, since sub-section (3) deems an order erroneous where verification was not done.
- Check whether the issue was considered and decided in appeal; if so, sub-section (2)(c) puts it outside the power.
- Note that orders of the Transfer Pricing Officer and section 166 safe harbour orders are within the section.
- Appeal a section 377 order to the Appellate Tribunal under section 362, within two months from the end of the month of communication.
Common mistakes
- Assuming an appeal on one issue protects the whole assessment from revision.
- Treating a difference of opinion as an error; a permissible view taken after inquiry is not erroneous.
- Filing an appeal against a section 377 order with the Commissioner (Appeals) instead of the Tribunal.
- Overlooking that 'record' includes material available at the time of examination, not only at assessment.
- Ignoring the deeming provisions in sub-section (3), which are where most revisions are grounded.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.