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

ITA 6118/MUM/2026Status: DisposedITAT Mumbai23 September 2026AY 2020-2114 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s. JSW Jaigarh Port Limited, filed its return for Assessment Year 2020-21, declaring a loss. The assessment was completed under section 143(3) read with section 144B of the Income Tax Act, 1961, resulting in a reduced loss. The assessee had recognized an expenditure of ₹4,83,26,000 related to Employee Stock Option Plans (ESOPs) in its audited financial statements, treating it as staff-welfare expenditure. The Principal Commissioner of Income-tax (PCIT) initiated revision proceedings under section 263, proposing to disallow this ESOP expenditure. The PCIT believed the expenditure was notional, arising from shares issued at a discount, and that the Assessing Officer (AO) had not made adequate inquiries. The PCIT's order dated 30.03.2026 is under challenge.

What did the Tribunal hold?

The Tribunal held that the learned PCIT erred in invoking revisionary jurisdiction under section 263. The Tribunal found that the ESOP expenditure, representing the discount on issue of options, is an employee-remuneration expenditure allowable under section 37(1) of the Act. This position is well-settled by the Special Bench decision in Biocon Ltd. v. DCIT, affirmed by the Karnataka High Court in CIT v. Biocon Ltd., and further reiterated by the Delhi High Court in PVR Ltd. v. CIT and the Madras High Court in CIT v. Shriram City Union Finance Ltd. The Tribunal noted that the AO's acceptance of the ESOP expenditure was based on this prevailing judicial position and thus constituted a legally plausible view. The PCIT's reliance on section 17(2)(vi) was misplaced, as it pertains to the employee's taxation and not the employer's deductibility. The Tribunal also found that the invocation of Explanation 2 to section 263 was not justified, as the PCIT failed to demonstrate that the assessment order was erroneous and prejudicial to the Revenue, or that the AO's enquiry was completely absent. The PCIT's view that a more elaborate enquiry was needed did not, by itself, confer jurisdiction for revision. Consequently, the impugned order of the PCIT was quashed, and the assessment order was restored. The grounds raised by the assessee were allowed.

What were the issues?

1. Whether the learned PCIT erred in initiating proceedings under section 263 of the Income-tax Act, 1961, and passing the impugned order without properly considering the facts and circumstances of the case? (Mixed law and fact, turns on Section 263) 2. Whether the learned PCIT erred in revising the assessment order passed under section 143(3) read with section 144B of the Act, even though the said assessment had been completed by the AO after making adequate enquiries and due application of mind? (Mixed law and fact, turns on Section 263) 3. Whether the learned PCIT erred in holding that the assessment order was erroneous and prejudicial to the interests of the Revenue, without appreciating the facts and circumstances of the case? (Mixed law and fact, turns on Section 263) 4. Whether the learned PCIT erred in directing the AO to modify the assessment by disallowing staff-welfare expenditure of ₹4,83,26,000 incurred on account of ESOP under section 37(1) of the Act? (Mixed law and fact, turns on Section 37(1) and Section 263) Assessee's contentions: The ESOP expenditure represents employee-compensation cost incurred wholly and exclusively for business purposes, recognized as per Ind AS 102. The deductibility is supported by the Special Bench decision in Biocon Ltd. v. DCIT, affirmed by the Karnataka High Court, and other High Court decisions. The AO accepted a claim supported by prevailing judicial position, which cannot be deemed erroneous simply due to the PCIT's different opinion or belief that further inquiry was needed. Revenue's contentions: The expenditure was recognized based on the vesting period, while the employee's right and taxability arose upon exercise. If share value declined, the employee might not incur tax liability, but the assessee would have already recognized the expenditure. The AO failed to make adequate inquiries.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144B,Section 263,Section 37(1),Section 17(2)(vi)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘F’ BENCH

For Appellant: Shri Rakesh Joshi (Virtual appearance)
For Respondent: Shri Nishant Samaiya
Hearing: 03/09/2026Pronounced: 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 28.09.2023 passed

2 JSW Jaigarh Port Limited under section 143(3) read with section 144B of the Act has been set aside on the issue of allowability of expenditure of ₹4,83,26,000 incurred in relation to the Employee Stock Option Plan (“ESOP”). The assessee has challenged the assumption of revisionary juri iction as well as the conclusion of the learned PCIT that the assessment

The order continues below.

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