Revisional Jurisdiction under Section 263 Cannot Be Invoked Against Section 143(1) Intimation Without Adjustments; ESOP Repurchase Compensation Tax Treatment Requires Scrutiny Proceedings
In a significant decision impacting income tax proceedings, the Karnataka High Court, presided over by Justice S. Sunil Dutt Yadav, has held that an intimation issued under Section 143(1) of the Income Tax Act, 1961 (IT Act) without any adjustments does not constitute an "order" and hence cannot be subject to revision under Section 263 of the IT Act. The judgment came in the case of Shri Mukesh Bansal vs. Principal Commissioner of Income Tax, Bengaluru-2, decided on 18th September 2026.
The petitioner, Shri Mukesh Bansal, challenged the validity of revision proceedings initiated by the Income Tax Department through a notice dated 13th January 2026 under Section 263. The Revenue sought to revise the intimation dated 12th February 2025 issued under Section 143(1) which processed the petitioner’s revised return for the Assessment Year 2019-20 and granted a refund exceeding Rs. 27 crore.
The crux of the dispute was the tax treatment of compensation received by the petitioner on repurchase of unexercised Employee Stock Options (ESOPs). The petitioner had treated the compensation as capital gains, whereas the Revenue contended it should be treated as salary income. The Revenue alleged that the intimation under Section 143(1) was erroneous and prejudicial to its interests, justifying revision under Section 263.
However, the Court observed that Section 143(1) intimation, when devoid of adjustments, is a largely automated communication that does not involve any adjudicatory process or application of mind by the Assessing Officer and therefore cannot be considered an "order." The Court relied on the Supreme Court’s precedent in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2008), which held that an intimation under Section 143(1)(a) is not an assessment order.
Further, the Court distinguished the limited scope of Section 143(1) processing—allowing only narrow and mechanical corrections—from the more substantive scrutiny under Section 143(2), which involves detailed examination and leads to an assessment order. The Court emphasized that any change in the head of income, such as reclassifying ESOP repurchase compensation from salary to capital gains or vice versa, requires adjudicatory scrutiny permissible only under Section 143(2).
The petitioner had obtained condonation of delay under Section 119(2)(b) to file a revised return reflecting the capital gains treatment, which was processed under Section 143(1), resulting in a refund and interest. The Revenue’s attempt to revisit the tax treatment via Section 263 revision proceedings against the intimation was held to be without jurisdiction.
Rejecting the Revenue’s contention that the intimation should be treated as an order due to its effect as a notice of demand, the Court clarified that the legal fiction deeming intimation as a notice of demand under Section 156 does not imply the existence of an assessment order. The Court also noted that the Revenue had other remedies, such as scrutiny assessment under Section 143(2) or rectification under Section 154, to address any errors.
The Court concluded that the notice for revision under Section 263 was invalid and set it aside, thereby protecting the petitioner’s position. It also observed that the availability of alternative remedies does not bar writ jurisdiction when the issue is purely one of jurisdiction and law.
This ruling reinforces the distinction between an intimation and an assessment order under the Income Tax Act, curtailing the scope of revisional proceedings against automated intimation without adjustments. It provides clarity on the procedural safeguards for taxpayers, especially concerning the tax treatment of complex receipts like ESOP repurchase compensation.
Bottom Line:
Income Tax - Revision under Section 263 of Income Tax Act, 1961 - Intimation under Section 143(1) without any adjustment is not an "order" and therefore cannot be revised under Section 263 - Revenue cannot invoke revisional jurisdiction to examine change of head of income from salary to capital gains in respect of ESOP repurchase compensation, such enquiry being outside scope of Section 143(1) and falling within scrutiny under Section 143(2).
Statutory provision(s): Income Tax Act, 1961 Sections 119(2)(b), 143(1), 143(2), 154, 156, 192, 244A, 246, 246A, 263;
