Growth CircleOrient Crafts v. CIT: Revision of an assessment that followed a CBDT circular
The Supreme Court left in place a High Court ruling that the Commissioner rightly revised an assessment which the officer had completed by following a CBDT office memorandum.
Case details
| Court | Supreme Court of India, civil appellate jurisdiction |
|---|---|
| Case | Orient Crafts Limited v. Commissioner of Income Tax, New Delhi |
| Case numbers | Civil Appeal Nos. 143-144 of 2013, heard with 137-138, 139-140 and 141-142 of 2013 |
| Citation | 2026 INSC 1018 (marked non-reportable) |
| Date of judgment | 18 September 2026 |
| Bench | S.V.N. Bhatti and N.V. Anjaria, JJ. |
| Law | Income Tax Act, 1961: section 263; section 80HHC; section 28(iiia) to (iiic) |
| Assessment years | 2000-01 and 2001-02 |
| Result | Assessee's appeals dismissed |
| Official judgment | Supreme Court of India: judgments by case number. Select case type Civil Appeal, then number 143, year 2013. |
The issue
A garment manufacturer and exporter claimed a deduction under section 80HHC. It treated the premium it earned from selling export quota in line with a CBDT office memorandum. The Assessing Officer accepted the claim in an assessment under section 143(3).
The Commissioner later issued a notice under section 263. His view was that the premium should be treated as an "other receipt" and 90% of it excluded from business profits. He set the assessment aside and ordered a fresh one.
The Tribunal sided with the assessee. The High Court, on the Revenue's appeal, reversed that. The question in the Supreme Court was whether the Commissioner's use of section 263 was justified, and whether the High Court had wrongly overturned the Tribunal.
What the court held
- The Court dismissed the appeals. It did not send the matter back.
- It restated the settled test for section 263, drawing on earlier decisions: the order must be both erroneous and prejudicial to the Revenue. If two views are possible and the officer took one of them, the order is generally not erroneous, unless the view taken is unsustainable in law. The assessee must also be given a fair hearing.
- On the facts, the Court found that the High Court had considered the Tribunal's view and recorded its own finding that the Commissioner rightly used section 263.
- The Court also noted that the High Court's reading of the circular and the statute was a tenable view, and that the circular's way of equating the quota premium with certain other items was not accepted.
Why it matters to a business owner
- An assessment order under section 143(3) is not always the end of the matter. If the position you took was accepted because of a circular, and a court later reads the statute differently, the Commissioner may still be able to revise the order.
- Comfort from a circular has limits. Circulars bind tax officers, but the courts decide what the statute means.
Practical takeaway
- Where a claim rests on a circular, also record the statutory basis for it in your working file.
- Check whether the circular has been tested in court, and keep track of later judgments on the same point.
- If a notice under section 263 arrives, reply on facts and law in full. Do not assume the earlier acceptance by the Assessing Officer settles it.
Limits of this summary
- The judgment is marked non-reportable.
- It concerns older assessment years under the 1961 Act and a deduction scheme for those years.
- The Court largely left the High Court's findings undisturbed instead of laying down a new test, so treat it as confirming existing principles.
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