Section 263 Cannot Be Invoked Due to Pending SLP Against Jurisdictional HC Ruling: ITAT

ASK Wealth Advisors Private Limited Vs PCIT (ITAT Mumbai)

Mumbai ITAT: Section 263 Cannot Be Invoked Merely Because SLP Against Jurisdictional Precedent Is Pending Before Supreme Court

The Mumbai ITAT quashed the revisionary order passed under section 263, holding that the mere pendency of an SLP before the Supreme Court against the Karnataka High Court’s decision in Biocon Ltd. does not render the assessment order erroneous and prejudicial to the interests of the Revenue. The Assessing Officer had specifically examined the assessee’s claim for deduction of ₹101.77 crore towards ESOP/ESAR expenditure, called for detailed explanations under section 142(1), considered the judicial precedents, including Biocon Ltd., and consciously allowed the claim.

The Tribunal observed that admission of an SLP does not dilute the binding or persuasive value of an existing judgment unless its operation is stayed or it is reversed by the Supreme Court. Since the Assessing Officer had conducted due enquiry and adopted a legally plausible view, the PCIT could not invoke section 263 merely because he preferred a different view or because the issue was pending before the Supreme Court. Such an exercise amounted to an impermissible change of opinion.

Relying on the Bombay High Court’s decision in Gabriel India Ltd. and the Mumbai ITAT’s ruling in AZB and Partners, the Tribunal held that revision under section 263 is not permissible where the Assessing Officer has made proper enquiries and taken a possible view. Accordingly, the order passed under section 263 was quashed and the original assessment was restored.

Cases Discussed

• AZB and Partners vs. PCIT (ITAT Mumbai), ITA No. 4105/Mum/2025, order dated 19.09.2025
• DCIT vs Avendus Capital P. Ltd. (ITAT Mumbai), ITA No. 6128/Mum/2025
• HDFC Bank Ltd vs DCIT-2(3) (ITAT Mumbai), ITA No. 1828/Mum/2025
• CIT Vs. Biocon Ltd. (SC), [131 taxmann.com 188 (SC)]
• CIT vs Biocon Ltd. (Karnataka HC), (2021) 430 ITR 151 (Karnataka)
• HDFC Bank Ltd. vs DCIT (ITAT Mumbai), (2015) 61 taxmann.com 361 (Mumbai-Trib.)
• PVR Ltd v. Commissioner of Income Tax (Delhi HC), ITA 564/2012
• M/s Kotak Mahindra Bank v. ACIT-2(3)(2) (ITAT Mumbai), ITA No. 698/Mum/2016
• DCIT 2(3)(2) v. M/s Kotak Mahindra Bank v. ACIT-2(3)(2) (ITAT Mumbai), ITA No. 698/Mum/2016
• M/s. India Infoline Limited (ITAT Mumbai), ITA Nos. 2490 and 2620/Mum/2013
• M/s. People Interactive India Private Limited (ITAT Mumbai), ITA Nos. 6990 and 6986/Mum/2013
• ACIT, Circle-7(2)(2), Mumbai v. M/s Network 18 Media & Investment (ITAT Mumbai), I.T.A. No.7501/Mum/2018
• Biocon Limited (ITAT Special Bench), 25 ITR 602
• Gabriel India Ltd. (Bombay HC), (1993) 203 ITR 108 (BOM)

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The instant appeal of the assessee filed against the order of the Ld. Principal Commissioner of Income Tax, Mumbai-6 [for brevity “Ld. PCIT], order passed under Section 263 of the Act (for brevity ‘the Act’), date of order 03.02.2026 for Assessment Year 2022-23. The impugned order emanated from the order of the Assessment Unit Income Tax Department (for brevity ‘Ld. AO’) order passed under section 143(3) r.w.s. 144B of the Act, date of order 28.03.2024.

2. The brief facts of the case are that the assessee has filed the return u/sec. 139(1) by declaring return income nil. The return was selected for scrutiny. Finally, the Ld. AO has passed the assessment order by considering with addition nil. The Ld. AO had adopted the return income in the impugned assessment order. The Ld. PCIT by invoking provision 263 observed that the assessee had claimed expenses amount to Rs.1,01,77,23,473/- pertains to discount on issue of shares under employee stock option plan/employees stock appreciation rights scheme to employee (ESOP/ESAR). The Ld. PCIT observed that though in A.Y. 2017-18, the Ld. Commissioner of Income Tax (Appeal) had allowed the expenses related to ESOP/ESAR but due to the monetary limitation, the revenue had not able to file the appeal u/sec. 260A. The Ld. PCIT further, noted that though the order of the Hon’ble Karnataka High Court in the case of CIT vs Biocon Ltd. reported in (2021) 430 ITR 151(Karnataka) had allowed the claim of deduction of expenses of ESOP/ESAR but the revenue had filed the SLP before the Hon’ble Supreme Court and which was duly admitted and pending before the Hon’ble Apex Court. So, relying on the above mentioned observations, the Ld. PCIT considered the impugned assessment order as erroneous and prejudicial to the interest of the revenue. The notice was issued by invoking provision of section 263 & the assessee had complied the notices issued u/s 263 of the Act. Finally, the Ld. PCIT held the assessment order to be erroneous and prejudicial to the interest of the revenue and set aside the impugned assessment order for further verification. Being aggrieved the assessee has preferred the present appeal before us.

3. The Ld. AR argued and filed a paper book comprising pages 1 to 389 which has been placed on record. The Ld. AR contended that during the assessment proceeding, the Ld. AO had issued show cause notice dated 17.03.2024 and called for the details for claim of deduction being discount on issue of share under ESOP/ESAR in original assessment proceeding. In reply the assessee submitted the letter dated 20.03.2024 and giving complete details and justification for allowability of deduction being discount on issue of share under ESOP/ESAR. The relevant reply of the assessee is duly annexed at APB page 13 to 38.

4. The Ld. AR further contended that in relation to deduction amount to Rs.1,01,77,23,473/- related to the discount on issue of share under ESOP/ESAR is duly adjudicated and allowed by the Ld. Commissioner of Income Tax (Appeals), NFAC in assessee’s own case for A.Y. 2017-18. The Ld. CIT(A) after considering the complete facts, details submission on the aforesaid issue has allowed the appeal by holding that the discount on issue of ESOP/ESAR is allowable as deduction in computing the income under head, profit and gains of business profession. The assessee further respectfully relied on the order of Hon’ble Karnataka High Court in the case of Biocon Ltd. (supra). The assessee submitted the details related to the judicial implications for the allowability of deduction under ESOP/ESAR. The relevant submission filed in assessment proceeding is reproduced as below:

“Further, as per the generally accepted accounting principles as applicable in earlier years, the Assessee was not required to provide for discount in the books of account since the Exercise Price of ESOP/ESAR was more than or equal to the FMV on the date of grant of ESOP/ESAR, and consequently, no deduction for discount was claimed over the vesting period, as per terms of ESOP/ESAR Scheme.

The discount granted to employees aggregating to Rs.101,77,23,473/- is claimed as deduction in the Computation of Income and return of Income filed for the captioned year as per the settled law of Bangalore Special Bench of ITAT in case of Biocon Limited (25 ITR 602) in favour of the Assessee which decision has subsequently been confirmed by the Karnataka High Court in case of Commissioner of Income Tax v. Biocon Ltd (430 ITR 151) wherein Departmental appeal is dismissed.

For your ready reference, we submit hereto as Exhibit-12 and Exhibit-13 the copy of judgment of ITAT Special Bench in the case of Biocon Limited (supra) and subsequent decision of Karnataka High Court affirming the view of the ITAT Special Bench.

There apart, the Assessee relies on plethora of authorities which have held that Discount on ESOP to employees is a deductible expenditure u/s.37(1) of the Act, few of which are stated hereunder jurisdictional Mumbai Bench of ITAT or jurisdictional Bombay High Court

• • Hon’ble Mumbai Tribunal in the case of ACIT, Circle-7(2)(2), Mumbai v. M/s Network 18 Media & Investment (I.T.A. No.7501/Mum/2018);
  • Hon’ble Mumbai Tribunal in the case of DCIT 2(3)(2) v. M/s Kotak Mahindra Bank v. ACIT-2(3)(2) (ITA No. 698/Mum/2016)
  • Recently, the Delhi High Court in the case of PVR Ltd v. Commissioner of Income Tax (ITA 564/2012) allowed assessee appeal by holding that difference between the offer price of ESOP and market price of the share is allowable as revenue expenditure under Section 37(1) of the Act.
  • Hon’ble Mumbai Tribunal in the case of M/s. People Interactive India Private Limited (ITA Nos. 6990 and 6986/Mum/2013);
  • M/s. India Infoline Limited (ITA Nos. 2490 and 2620/Mum/2013);
  • M/s Kotak Mahindra Bank v. DCIT-2(3)(2) (ITA No. 698/Mum/2016).

5. The Ld. AR contended that related to deduction towards ESOP expenses u/sec. 37(1) is no more res integra. The following orders of the Coordinate Bench of ITAT Mumbai has duly considered the issue in favor of the assessee.

6. The Ld. AR further contended that the issue had been thoroughly examined during the assessment proceedings and that the Ld. AO, after conducting due enquiry, consciously chose not to make any addition. It was submitted that the Ld. AO had issued notices under section 142(1) of the Act, called for the requisite details, examined the assessee’s explanation, and adjudicated the issue in favour of the assessee by following the decisions of the Coordinate Bench of the ITAT, Mumbai, as well as the Hon’ble Karnataka High Court. The Ld. AR further submitted that the Ld. CIT(A), in the assessee’s own case for A.Y. 2017-18, had also decided the issue in favour of the assessee. Accordingly, the Ld. AO had rightly treated the impugned expenditure as an allowable deduction. The Ld. AR argued that once the issue had already been examined and verified during the assessment proceedings, the Ld. PCIT could not invoke the revisionary jurisdiction under section 263 of the Act merely to direct a fresh examination of the same issue, as such an exercise would amount to nothing but a change of opinion. In support of this contention, the Ld. AR placed reliance on the decision of the Coordinate Bench of the ITAT, Mumbai, ‘A’ Bench in the case of AZB and Partners vs. PCIT, ITA No. 4105/Mum/2025, order dated 19.09.2025. The relevant observations contained in paragraph 14 of the said order are reproduced below:

“14. We have heard the rival submissions and perused the material available on record. The primary issue relates to the non-verification of foreign remittances amounting to Rs.4,05,69,846/- on which TDS was allegedly not deducted by the assessee. On perusal of the record, we find that during the assessment proceedings, in compliance with the notice issued under section 142(1), the assessee had furnished complete details of the foreign remittances, along with the reasons for non-deduction of TDS and the acknowledgement numbers of Form 15CA filed under Rule 37BB. The Ld. AO, after considering the said submissions, which are duly noted in the assessment order, accepted the assessee’s explanation. Thus, the core question that arises is whether this constitutes a case of “no enquiry” or merely an “inadequate enquiry.” We find that the assessee had made full compliance, and the Ld. AO, upon due consideration and application of mind, accepted the explanation as proper. The impugned issue is specifically noted in the assessment order itself, reflecting that the Ld. AO had consciously applied his mind. In this regard, we draw support from the judgment of the Hon’ble Delhi High Court in Sunbeam Auto Ltd. (supra) as well as the decision of the Co-ordinate Bench of ITAT, Amritsar, in Poonam Marwah (supra). The law is well-settled that where an AO has made due enquiry and taken a view, the same cannot be held to be erroneous merely because the Ld. PCIT holds a different opinion.

The question next arises whether the Ld. PCIT, by invoking Explanation 2(a) to section 263, was justified in revising the assessment order and treating it as “erroneous and prejudicial to the interests of the revenue.” On facts, we find that the Ld. AO had indeed examined the issue by raising queries under section 142(1) and considering the replies filed by the assessee. Hence, it is not a case of “no enquiry.” The ITAT, Mumbai Bench, in Narayan TatuRane (supra) has categorically held that the power under section 263 cannot be exercised for a mere change of opinion. The decisions relied upon by the Ld. DR of the Hon’ble Gujarat High Court and Hon’ble Himachal Pradesh High Court are factually distinguishable, as in those cases no verification had been carried out by the AO, unlike the present case.

We also place reliance on the binding judgment of the Hon’ble jurisdictional High Court in Gabriel India Ltd. (supra), which clearly lays down that once necessary queries are raised and replies are furnished, the assessment order cannot be revised under section 263 merely because the PCIT holds a different view.

In view of the above discussion, we hold that the invocation of section 263 in the present case, without pointing out any specific lacuna in the assessment order, is unjustified. The impugned revisional order is therefore quashed.

Accordingly, the appeal filed by the assessee is allowed.”

7. The Ld. DR, on the other hand, contended that although the Ld. AO had examined the issue during the assessment proceedings and did not make any addition, the legal controversy has not attained finality, as the judgment of the Hon’ble Karnataka High Court in Biocon Ltd. (supra) is presently under challenge before the Hon’ble Supreme Court. It was, therefore, submitted that the issue is still sub judice and remains open for adjudication. The Ld. DR argued that, in these circumstances, the Ld. PCIT was justified in invoking the revisionary jurisdiction under section 263 of the Act to safeguard the interests of the revenue. Accordingly, it was contended that the impugned assessment order was both erroneous and prejudicial to the interests of the revenue, warranting revision under section 263 of the Act. The Ld. DR, therefore, supported the order passed by the Ld. PCIT. The Ld. DR also invited our attention to the relevant observations contained in the revisional order passed under section 263 of the Act, which are reproduced below:

“8. The submissions of the assessee have been carefully perused and considered but found to be unacceptable. The assessee company had claimed deduction for discount granted to employees on shares amounting to Rs. 101,77,23,473/- on account of issue of shares of the Holding company to the employees of assessee company. Assessee company has also claimed deduction for payment made by the assessee to holding company M/s ASK Investment Managers Ltd towards ESOP/ESAR granted by Holding company amounting to Rs.20,59,19,000/-. In Assessee’s own case for AY 2017-18, Hon’ble ITAT relying on the decision of Hon’ble Karnatka High Court in the case of Biocon Ltd upheld the decision of CIT(A) deleting addition made by the AO. Decision of the Hon’ble ITAT on the issue of disallowance of deduction claimed towards ESOP expenses was not found to be justifiable by the Revenue, as an SLP has been admitted by the Hon’ble Supreme Court against the decision of the Hon’ble Karnataka High Court in CIT Vs. Biocon Ltd. [131 taxmann.com 188 (SC)] on the same issue. Thus, the matter is subjudice before the Hon’ble Supreme Court of India.

8.1 However, tax effect in assessee’s case for AY 2017-18 was below the monetary limit for filing appeal u/s 260A of the Act as prescribed in the CBDT Circular No.9/2024 dated 17.09.2024 and as the case was not covered under any exception clauses mentioned in the CBDT Circular No.5/2024 dated 15.03.2024, appeal against the order of Hon’ble ITAT was not filed before the High Court. Thus decision of Hon’ble ITAT in assessee’s own case for AY 2017-18 was disputed by the Revenue on merit. As the SLP in case of Biocon Ltd has been admitted and is pending before the Hon’ble Supreme Court of India and the issues are identical, assessee company’s reliance on the decision of Hon’ble Karnatka High Court in the case of Biocon Ltd cannot be accepted.

9. In view of the above, I am of the considered opinion that the assessment order passed by the Assessing Officer under section u/s.143(3) r.w.s.144B of the Act dated 28.03.2024 is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, the said assessment order passed by the Assessing Officer is set aside on the matter of above discussed issue, and the AO is directed to make a detailed enquiry in this matter and reassess the income in accordance with law, after giving an opportunity of being heard to the assessee.”

8. We have heard the rival submissions and carefully considered the material available on record. We find that the sole basis for invoking the revisionary jurisdiction under section 263 of the Act is that the judgment of the Hon’ble Karnataka High Court in Biocon Ltd. (supra), which has been relied upon by the Ld. AO as well as by the Ld. CIT(A) in the assessee’s own case for A.Y. 2017-18, is presently pending consideration before the Hon’ble Supreme Court. However, it is an undisputed fact that during the assessment proceedings, the Ld. AO had specifically examined the assessee’s claim of deduction in respect of ESOP/ESAR expenditure by issuing notices under section 142(1), calling for detailed explanations, and considering the assessee’s replies along with the judicial precedents relied upon. After due application of mind, the Ld. AO accepted the assessee’s claim and completed the assessment without making any disallowance. Thus, this is clearly not a case of lack of enquiry or non-application of mind. It is further evident from the record that the identical issue had already been decided in favour of the assessee in its own case for A.Y. 2017-18 by the Ld. CIT(A), and the legal position as prevailing on the date of passing the assessment order was supported by the judgment of the Hon’ble Karnataka High Court in Biocon Ltd. (supra) as well as various decisions of the Coordinate Benches of the Tribunal. Merely because an SLP against the judgment of the Hon’ble Karnataka High Court has been admitted by the Hon’ble Supreme Court does not render the judgment inoperative or cease its binding persuasive value. Unless the operation of the judgment has been stayed or the judgment has been reversed by the Hon’ble Supreme Court, the legal position prevailing on the date of assessment continues to hold the field. We further find that the Ld. PCIT has not pointed out any specific error in the enquiries conducted by the Ld. AO nor demonstrated that the assessment order suffers from any lack of enquiry. The revisional authority has merely directed the Ld. AO to undertake a fresh examination because the issue is pending before the Hon’ble Supreme Court. Such an approach, in our considered view, amounts to substituting the opinion of the Ld. PCIT for that of the Ld. AO and is nothing but a change of opinion, which is impermissible in exercise of jurisdiction under section 263 of the Act. The issue is squarely covered by the principles laid down by the Hon’ble jurisdictional High Court in Gabriel India Ltd. [(1993) 203 ITR 108 (BOM)] and by the Coordinate Bench of the Tribunal in AZB and Partners (supra) relied upon by the assessee, wherein it has been held that once the Ld. AO has conducted due enquiry and adopted a plausible view, the assessment order cannot be revised merely because the Ld. PCIT holds a different opinion.

In view of the aforesaid facts and the settled legal position, we hold that the conditions prescribed under section 263 of the Act for assuming revisionary jurisdiction are not satisfied in the present case. Accordingly, the impugned order passed by the Ld. PCIT under section 263 of the Act is quashed, and the assessment order passed by the Ld. AO is restored. The grounds raised by the assessee are accordingly allowed.

9. In the result, the appeal of the assessee bearing ITA No.2623/Mum/2026 is allowed.

Order pronounced in the open court on 31th day of July 2026