On 18 September, the Karnataka High Court set aside revision proceedings initiated against taxpayer Mukesh Bansal after his revised income tax return for the assessment year 2019-20 resulted in a refund of Rs. 27.13 crore.

Justice S. Sunil Dutt Yadav held that an intimation issued under Section 143(1) of the Income Tax Act, without any adjustment, cannot be treated as an “order” for exercising revisionary powers under Section 263 of the Act. The Bench observed:

“...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.”

Bansal had originally filed his return for AY 2019-20, declaring total income of Rs. 231.73 crore and claiming a refund of Rs. 6,07,570. He later approached the Central Board of Direct Taxes seeking condonation of delay and permission to file a revised return.

After his application was considered, he filed a revised return treating the amount received from his former employer on repurchase of unexercised Employee Stock Options (ESOPs) as “Capital Gains” instead of “Salary”.

The revised return was processed under Section 143(1), resulting in a refund of Rs. 27.13 crore along with interest. The Principal Commissioner of Income Tax, Bengaluru-2, thereafter initiated revision proceedings under Section 263. The Revenue questioned the treatment of the ESOP-related receipt as capital gains and also objected to the interest granted on the refund.

Bansal challenged the revision proceedings before the High Court, contending that Section 263 could not be invoked against an intimation issued under Section 143(1), particularly where no adjustment had been made.

The Court noted that Section 143(1) provides for a limited and largely automated process involving only specified adjustments, whereas Section 143(2) provides for scrutiny of the return and permits a wider inquiry culminating in an assessment order.

Relying on the Supreme Court's ruling in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Limited, the Bench observed that an intimation under Section 143(1) cannot ordinarily be treated as an assessment order. It also noted that the intimation in Bansal's case was issued without any adjustment. Therefore, it could not be treated as an “order” for the purpose of Section 263.

Further, the Court held that determining whether the ESOP compensation should be taxed under the head “Salary” instead of “Capital Gains” would require an inquiry beyond the limited scope of Section 143(1). Such an exercise could be undertaken through scrutiny proceedings under Section 143(2).

It said that if the Revenue believed that the treatment of the ESOP compensation was incorrect, it could have subjected the revised return to scrutiny under Section 143(2). It could not, after the relevant period, resort to Section 263 by treating the Section 143(1) intimation as an assessment order.

Clarifying the scope of its decision, the Court said it was not examining the substantive question of whether the ESOP compensation was taxable as salary or capital gains. The issue before it was whether the Section 143(1) intimation could be subjected to revision under Section 263. The Bench said:

“The Assessing Officer under Section 143(1) may be of the view that such treatment by the Assessee of 'Repurchase of ESOPs' cannot be treated as income from 'Capital Gains', but must be treated as 'Salary'. However, such inquiry would immediately take the proceedings outside the purview of Section 143(1)”

It further added that “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”

Accordingly, the High Court concluded that the impugned notice was issued without jurisdiction, set it aside and allowed Bansal's writ petition.

For the Petitioner: Prashanth S. Shivadass, Gayathri G.S., Prahalad Sriram and Siddhant Kishanpuria, Advocates.

For the Revenue: Arvind Kamath, Additional Solicitor General, assisted by E.I. Sanm

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Case Title :  Shri Mukesh Bansal v. Principal Commissioner of Income Tax, BengaluruCase Number :  WRIT PETITION NO. 5330 OF 2026 (T-IT)CITATION :  2026 LLBiz HC(KAR) 167
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