M/S. JSW INFRASTRUCTURE LIMITED,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX OFFICER, MUMBAI - 5, MUMBAI

ITA 6051/MUM/2026Status: DisposedITAT Mumbai23 September 2026AY 2020-2122 pages
AI SummaryAllowed

What were the facts?

The assessee, JSW Infrastructure Limited, is in appeal against the revisional order dated 30.03.2026 passed by the Principal Commissioner of Income-tax (PCIT)–5, Mumbai, under section 263 of the Income-tax Act, 1961. The PCIT had set aside the assessment order dated 27.09.2023, passed under section 143(3) read with section 144B, on multiple grounds. These included the allowability of ESOP expenditure of ₹7,27,74,000, the applicability of section 2(22)(e) to a loan of ₹494 crore from JSW Techno Projects Management Limited (JTPML), the allowability of interest on this loan, and the adjustment of a disallowance under section 14A for computing book profit under section 115JB. The assessee challenged the PCIT's assumption of revisionary jurisdiction and its conclusions on these issues.

What did the Tribunal hold?

The Tribunal allowed the assessee's appeal, quashing the revisionary order. Regarding the ESOP expenditure, the Tribunal noted that it is recognized as an employee-benefit expense as per Ind AS 102 and is allowable under section 37(1), citing precedents like Biocon Ltd. The Tribunal held that the PCIT erred in disallowing it. On the loan from JTPML, the Tribunal found that the conditions for attracting section 2(22)(e) were not met, thus the loan could not be treated as deemed dividend. Consequently, the consequential disallowance of interest paid on the loan was also found unsustainable. The Tribunal also held that the PCIT's direction to add ₹4,53,38,476 for section 115JB computation was based on a factually incorrect premise that a disallowance under section 14A had been made in the assessment order, and this issue was introduced without a show-cause notice, violating principles of natural justice. The Tribunal emphasized that for section 263 jurisdiction to be valid, the assessment order must be both erroneous and prejudicial to the revenue, conditions not met in this case. The Tribunal restored the original assessment order.

What were the issues?

The Tribunal had to decide the following questions: 1. Whether the PCIT erred in initiating proceedings under section 263 and revising the assessment order, which was passed after adequate enquiries and due application of mind by the Assessing Officer (AO). 2. Whether the PCIT erred in directing the disallowance of staff-welfare expenditure of ₹7,27,74,000 incurred on account of ESOP under section 37(1). 3. Whether the PCIT erred in directing an addition of ₹494 crore as deemed dividend under section 2(22)(e) on account of the loan from JTPML. 4. Whether the PCIT erred in directing the disallowance of interest expenditure paid at 7% on the loan from JTPML. 5. Whether the PCIT erred in directing the addition of ₹4,53,38,476 to book profit under section 115JB, purportedly disallowed under section 14A, when no such disallowance was made in the assessment order and the issue was not raised in the show-cause notice. Assessee's contentions: - The PCIT erred in initiating proceedings under section 263 without properly considering facts and circumstances, and without the assessment order being erroneous and prejudicial to the revenue. - ESOP expenditure is an allowable employee compensation cost, supported by Ind AS 102 and decisions in Biocon Ltd. v. DCIT, CIT v. Biocon Ltd., PVR Ltd. v. CIT, and CIT v. Shriram City Union Finance Ltd. - The loan from JTPML does not attract section 2(22)(e) as statutory conditions are not met. - The disallowance of interest is consequential to the unsustainable deemed dividend addition. - The addition for section 115JB computation is based on a factual error and was introduced without a show-cause notice. Revenue's contentions: - The PCIT's order is supported by the facts and law. (Implicit in the CIT DR's presence and participation, though specific arguments are not detailed for each issue in the provided text, except for the fair acceptance of a factual position regarding section 14A). - The PCIT correctly identified the assessment order as erroneous and prejudicial to the revenue.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 144B,Section 37(1),Section 2(22)(e),Section 14A,Section 115JB,Section 142(1),Section 143(2),Section 10(34)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘F’ BENCH

For Appellant: Shri Rakesh Joshi
For Respondent: Shri Nishant Samaiya
Hearing: 02/09/2026Pronounced: 23/09/2026

PER AMIT SHUKLA (J.M):

The aforesaid appeal has been preferred by the assessee against the revisional order dated 30.03.2026 passed by the learned Principal Commissioner of Income-tax–5, Mumbai, under section 263 of the Income-tax Act, 1961 (“the Act”), whereby the assessment order dated 27.09.2023 passed under section 143(3)

2 JSW Infrastructure Limited read with section 144B of the Act has been set aside on the issues relating to allowability of expenditure of ₹7,27,74,000 incurred in relation to Employee Stock Option Plan (“ESOP”); applicability of section 2(22)(e) to a loan of ₹494 crore received from JSW Techno Projects Management Limited; allowability of interest paid

The order continues below.

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