Section 264 of the Income Tax Act, 1961: Telangana High Court Holds Revisional Jurisdiction Extends to Double Taxation Relief Even Without Revised Return

Background and Context

The Telangana High Court at Hyderabad, constituted by Justice P. Sam Koshy and Justice Narsing Rao Nandikonda, delivered a significant ruling in Writ Petition No.21429 of 2026 by order dated 20.07.2026. The Court allowed the writ petition filed by Premier Solar Power Tech Private Limited, set aside the order dated 27.03.2026 passed by the Principal Commissioner of Income Tax under Section 264 of the Income Tax Act, 1961, and restored the assessee's application dated 03.04.2024 to the revisional authority for fresh consideration on merits and in accordance with law.

Crucially, the Court did not itself grant the claimed deduction; the matter was remanded for reconsideration. The substantive question before the Court was whether the revisional power under Section 264 of the Income Tax Act, 1961 could be invoked to remedy double taxation of the same income across two different assessment years, and whether the absence of a revised return within the time prescribed under Section 139(5) could be a valid basis for declining such relief.

Factual Matrix

Nature of the Assessee's Business and the Underlying Contract

Premier Solar Power Tech Private Limited was engaged in Engineering, Procurement and Construction of solar power projects. The company had received a Letter of Award dated 09.02.2018 from M/s. NLC India Limited for setting up a 100 MW (AC) Grid Interactive Solar PV Power Project. The project was contractually required to be completed by 23.04.2019, but actual completion occurred only on 09.09.2019. The contract contained a provision for levy of liquidated damages at 2% of the contract price per month, or part thereof, for delay in execution.

Accounting Treatment and Original Deduction Claim

During financial year 2019-20, the assessee charged Rs.16,04,12,000/- towards liquidated damages in its Statement of Profit & Loss in conformity with Accounting Standard 7 and Accounting Standard 29 and claimed the said amount as a deduction in its Return of Income for assessment year 2020-21, filed on 06.11.2020.

Subsequent Reversal and Offering to Tax

Upon final settlement with NLC India Limited in financial year 2020-21, the assessee reversed liquidated damages to the extent of Rs.9,79,12,000/- by crediting the same to its Statement of Profit & Loss and included the full reversed amount in taxable income for assessment year 2021-22. This amount of Rs.9,79,12,000/- included within it the specific sum of Rs.6,85,02,377/-. The assessee filed its original Return of Income for assessment year 2021-22 on 14.03.2022, followed by a revised Return on 15.03.2022, declaring total income of Rs.1,91,27,266/- which incorporated the credit of Rs.9,79,12,000/-.

The Assessment for AY 2020-21 and the Disallowance

The assessment for assessment year 2020-21 was taken up for scrutiny under CASS and concluded by an order dated 25.09.2022 passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961. The Faceless Assessing Officer restricted the liquidated damages claim to Rs.9,19,09,623/- and disallowed the balance of Rs.6,85,02,377/- under Section 28 of the Act.

Two critical timing aspects are noteworthy:

The disallowance order dated 25.09.2022 came after the assessee had already offered the identical amount to tax in assessment year 2021-22 through its return filed on 15.03.2022.
The deadline to file a revised return for assessment year 2020-21, being 31.05.2021, had long since passed by the time the disallowance order was made, leaving the assessee with no mechanism to correct the position for that year.

The assessee accepted the disallowance and paid the full tax demanded, with the practical consequence that Rs.6,85,02,377/- was subjected to tax twice in its hands — once as income in assessment year 2021-22 and again through disallowance in assessment year 2020-21.

Procedural History Before the Principal Commissioner

First Section 264 Application and Its Rejection

The assessee filed a petition under Section 264 of the Income Tax Act, 1961 on 28.10.2022 before the Principal Commissioner of Income Tax for assessment year 2021-22, seeking reduction of the income offered for that year by Rs.6,85,02,377/-. By order dated 25.03.2024, the Principal Commissioner rejected this application on the threshold ground that, as on the date of filing of the application, no order existed for assessment year 2021-22 which was amenable to revision under Section 264.

Processing of the Revised Return Under Section 143(1)

In the interim, the revised Return of Income for assessment year 2021-22 was processed by way of an Intimation dated 02.11.2022 under Section 143(1) of the Income Tax Act, 1961, with an addition of Rs.24,20,004/-, resulting in computed total income of Rs.2,15,47,270/- against the returned income of Rs.1,91,27,266/-, and a demand of Rs.7,54,410/-. The assessee filed a rectification application on 30.11.2022 under Section 154, pursuant to which the Intimation was rectified by order dated 24.01.2023, restoring total income to Rs.1,91,27,266/- and reducing the demand to nil. Both the Section 143(1) Intimation and the Section 154 rectification order continued to include the credit of Rs.9,79,12,000/- and, consequently, the embedded amount of Rs.6,85,02,377/-.

Second Section 264 Application and Its Rejection

Following rejection of the first application, the assessee filed a fresh application under Section 264 on 03.04.2024 before the Principal Commissioner for assessment year 2021-22, seeking modification of the Intimation dated 02.11.2022 by reducing the income under the head 'Profits and Gains from Business or Profession' by Rs.6,85,02,377/-. The assessee supported the application with detailed written submissions dated 12.01.2026 and additional written submissions dated 25.02.2026, furnishing complete reconciliations of the NLC project turnover with Form 26AS and the books of account, along with a full reconciliation of the liquidated damages of Rs.16,04,12,000/- charged in financial year 2019-20 and subsequently reversed.

Notwithstanding these submissions, the Principal Commissioner, by impugned order dated 27.03.2026, again declined to interfere with the Intimation dated 02.11.2022 and rejected the Section 264 application. This order was the subject matter of the writ petition.

Arguments Before the Telangana High Court

Assessee's Contentions

The assessee advanced the following principal arguments before the Court:

Absence of "error apparent" requirement in Section 264: Section 264 of the Income Tax Act, 1961 does not expressly require an "error apparent on record" as a precondition to the exercise of revisional jurisdiction. A summary rejection of the application was therefore not sustainable under the provision.

Section 264 Revisional Power as a Shield Against Double Taxation: Telangana High Court Restores Application for Fresh Consideration