Karnataka HC Sets Aside Notice Seeking Revision Of ₹27.13 Crore Tax Refund To Myntra Co-Founder Mukesh Bansal

The Karnataka High Court has set aside income tax revision proceedings initiated against entrepreneur and Myntra and Cult. fit co-founder Mukesh Bansal in connection with a refund of over ₹27.13 crore for AY 2019-20.

Justice S. Sunil Dutt Yadav held that an intimation issued under Section 143(1) of the Income Tax Act, without any adjustment, could not be treated as an order for exercising revisionary powers under Section 263.

Bansal had originally declared a total income of ₹231.73 crore and tax liability of ₹82.55 crore for AY 2019-20, while claiming a refund of around ₹6.07 lakh. In January 2024, he sought condonation of delay and subsequently filed a revised return.

In the revised return, the repurchase of Employee Stock Options (ESOPs) was claimed under the head “Salary” instead of “Capital Gains”, resulting in a refund of over ₹27.13 crore. The revised return was processed, and the refund was granted.

The Revenue thereafter initiated revision proceedings in relation to the refund. Bansal challenged the proceedings, contending that the power under Section 263 could be exercised only against an “order” passed under the Act and that a Section 143(1) intimation was not such an order.

The High Court noted that the adjustments permissible while processing a return under Section 143(1) are narrow and limited. On the other hand, Section 143(2) provides for scrutiny of the return, which can culminate in an assessment order after examination of the issues involved.

The Court observed that examining whether the repurchase of ESOPs should be taxed as “Salary” rather than “Capital Gains” would require an inquiry beyond the limited scope of Section 143(1). Such an examination, the Court said, would fall within scrutiny proceedings.

The bench further held that the Revenue could not use Section 263 to undertake such an inquiry by treating a Section 143(1) intimation as an assessment order, particularly after the period for initiating scrutiny proceedings under Section 143(2) had elapsed.

"...The corollary would be that, only an intimation under Section 143(1) after adjustment would be treated to be an order under Section 246 and 246A of the I.T. Act. The right of an Assessee is preserved, where adjustment is made under Section 143(1) permitting him to challenge the intimation by resorting to a grievance mechanism of appeal under Section 246 and 246A of the I.T. Act.", the Court said.

It also clarified that merely because a Section 143(1) intimation can operate as a notice of demand by a statutory fiction, that fiction cannot be extended to treat the intimation itself as an assessment order for the purposes of Section 263.

"..where the intimation under Section 143(1) does not amount to an order, the question of resorting to Section 263 in the present factual matrix does not arise..", the Court said.

Holding that the revision notice was without jurisdiction, the Court set aside the proceedings.

For Appellant: Advocates Prashant S Shivadass, Gayathri GS, Prahalad Sriram and Siddhant Kishanpuria 

For Respondent: Additional Solicitor General Aravind Kamath and Advocate EI Sanmathi