Section 263 Cannot Override Section 153A for Unabated Years Without Incriminating Material: Bombay High Court Reaffirms Abhisar Buildwell Principle
PCIT v. Surendra L. Hiranandani (Bombay High Court, 2026) – A Landmark Decision on Section 263, Section 153A & Search Assessments
Search and seizure assessments under Section 153A of the Income-tax Act have always been one of the most litigated areas of tax law. A recurring question has been whether the Principal Commissioner of Income Tax (PCIT) can invoke Section 263 to revise an assessment completed under Section 153A for a completed (unabated) assessment year when the Assessing Officer has restricted additions only to incriminating material found during the search.
The Bombay High Court has now provided a clear and authoritative answer in PCIT-1 v. Surendra L. Hiranandani (Income Tax Appeal Nos. 2793 & 2788 of 2018, decided on 16 July 2026). The Court has categorically held that where the Assessing Officer has faithfully followed the law laid down by the Supreme Court in PCIT v. Abhisar Buildwell (P.) Ltd., the assessment order cannot be branded as “erroneous and prejudicial to the interests of the Revenue” merely because the Principal Commissioner holds a different opinion.
This judgment significantly strengthens taxpayer protection in search assessments and reiterates the limited scope of revision under Section 263.
Background of the Case
A search operation was conducted against the assessee. Pursuant to the search, assessments were completed under Section 153A for several assessment years, including completed (unabated) assessment years.
During the assessment proceedings, the Assessing Officer (AO) made additions only on the basis of incriminating material discovered during the search.
Subsequently, the Principal Commissioner of Income Tax (PCIT) invoked Section 263, holding that the assessment orders were erroneous and prejudicial to the interests of the Revenue.
The assessee challenged the revision before the Income Tax Appellate Tribunal (ITAT), which quashed the revisional orders. The Revenue thereafter approached the Bombay High Court.
The Core Legal Issue
The principal question before the Court was:
Can the Principal Commissioner exercise revisional jurisdiction under Section 263 to revise a Section 153A assessment relating to an unabated assessment year when the Assessing Officer has made additions only on the basis of incriminating material found during the search?
Revenue’s Contention
The Revenue argued that:
• Section 263 empowers the Principal Commissioner to revise any assessment order that is erroneous and prejudicial to the interests of the Revenue.
• Merely because the assessment was framed under Section 153A does not take away the revisional powers.
• Therefore, the legality of the assessment remained open to examination under Section 263.
Assessee’s Stand
The assessee relied upon the landmark judgment of the Supreme Court in PCIT v. Abhisar Buildwell (P.) Ltd. (2023).
The Supreme Court had categorically held that:
• For completed or unabated assessment years, additions under Section 153A can be made only if incriminating material relating to that assessment year is found during the search.
• In the absence of such incriminating material, the completed assessment cannot be disturbed.
Since the Assessing Officer had followed this binding Supreme Court judgment, the assessment order could neither be erroneous nor prejudicial to the interests of the Revenue.
Bombay High Court’s Decision
The Bombay High Court dismissed the Revenue’s appeals.
The Court held that the controversy stood fully covered by the Supreme Court decision in Abhisar Buildwell.
The Court observed that:
• Section 153A provides for abatement only of pending assessments.
• Completed or unabated assessments cannot be reopened unless incriminating material pertaining to the relevant assessment year is discovered during the search.
• The objective of Section 153A is to assess undisclosed income detected during search, not to provide a fresh opportunity to review completed assessments without any incriminating evidence.
Why Section 263 Could Not Be Invoked
One of the most important observations of the Court was that the Assessing Officer had adopted the only legally permissible course available under the law.
Once the Supreme Court has declared the law, every Assessing Officer is duty-bound to follow it.
An assessment order passed in accordance with binding judicial precedent cannot be regarded as erroneous merely because the Principal Commissioner believes another approach should have been adopted.
The Court therefore held that Section 263 cannot be used to override binding Supreme Court decisions.
Important Principle Emerging from the Judgment
The judgment reinforces an extremely significant legal principle:
An assessment order which faithfully follows the law laid down by the Supreme Court cannot be revised under Section 263 merely because the Revenue disagrees with the legal consequence of that law.
This principle is likely to have wide application beyond search assessments.
Impact on Search Assessments
The judgment provides considerable certainty for taxpayers facing search assessments.
For completed (unabated) assessment years:
• No addition can be made without incriminating material.
• Assessing Officers cannot travel beyond search evidence.
• Principal Commissioners cannot invoke Section 263 merely because they feel more additions should have been made.
• Revisionary powers cannot be exercised contrary to binding Supreme Court precedent.
Practical Implications for Taxpayers
The decision is likely to reduce unnecessary litigation in search assessments.
Taxpayers can now confidently rely upon the following principles:
• Completed assessments enjoy finality unless incriminating material is found.
• Section 153A is not a mechanism for conducting fresh scrutiny of completed years.
• Section 263 cannot be invoked to compel Assessing Officers to disregard binding Supreme Court law.
• Revisional jurisdiction is not available where the Assessing Officer has adopted the only legally sustainable view.
Conclusion
The Bombay High Court’s decision in PCIT v. Surendra L. Hiranandani is another important milestone in the jurisprudence relating to search assessments under Section 153A and revision under Section 263.
By reaffirming the Supreme Court’s ruling in Abhisar Buildwell, the Court has ensured that completed assessments are not reopened without incriminating material and that revisional powers are exercised within their legitimate boundaries.
The judgment serves as a reminder that Section 263 is intended to correct genuine legal errors-not to unsettle assessments that correctly apply binding judicial precedents.
For taxpayers as well as tax professionals, this ruling provides much-needed certainty regarding the interplay between Section 153A, Section 263, unabated assessments, and the concept of incriminating material.
The copy of the order is as under:
