An intimation is not an order: Karnataka HC blocks revision of a Rs 27 crore income tax refund

The Revenue cannot use Section 263 to reopen a refund processed under Section 143(1), the Court holds, because the intimation that allowed it is not an order at all.

The Income Tax Department wanted to revisit a refund of Rs 27,13,38,330. It reached for Section 263 of the Income Tax Act, 1961, which allows the Principal Commissioner to revise an order that is erroneous and prejudicial to the interests of the Revenue. On 18 September 2026, in Shri Mukesh Bansal v. Principal Commissioner of Income Tax, Justice S. Sunil Dutt Yadav of the Karnataka High Court held that the department had nothing to revise. An intimation under Section 143(1) is not an order, and without an order the revisionary power does not arise.

A revised return, and a change of head

The assessee had filed a return for assessment year 2019-2020 declaring total income of Rs 2,31,73,53,807, with a tax liability of Rs 82,55,30,197 and a refund claim of Rs 6,07,570. That return was processed under Section 143(1).

On 9 January 2024 the assessee applied to the Central Board of Direct Taxes under Section 119(2)(b) seeking condonation of delay and permission to file a revised return for the same year. The application was considered on 19 December 2024, and a revised return followed.

The revision turned on a single characterisation. The repurchase of employee stock options by the assessee’s former employer, earlier treated as salary, was now claimed as capital gains. Processing the revised return under Section 143(1) on 12 February 2025, the department determined a refund of Rs 27,13,38,330 with interest.

The Revenue then issued a notice for hearing on 13 January 2026 initiating revision proceedings under Section 263, treating the Section 143(1) processing as an order prejudicial to its interests within the meaning of Explanation 2 to that section.

One question, deliberately narrow

The judgment is careful about its own boundaries. Any finding on the merits of how the repurchase of ESOPs should be treated would bear on a substantive adjudication lying outside the scope of a writ petition. The Court therefore confined itself to a single question: whether an intimation under Section 143(1) can be treated as an order for the purpose of exercising the power of revision under Section 263.

The assessee’s case was that the scope of adjustment permitted under Section 143(1) does not extend to a change in the head under which income is assessed. Section 143(1) allows a defined and limited set of adjustments; deciding that income declared under one head belongs under another is an act of adjudication. That exercise is available to the Assessing Officer only in proceedings under Section 143(2), through scrutiny assessment.

The assessee's supporting arguments went to the character of the process. An automated acknowledgment generated electronically by the Centralised Processing Centre, involving limited adjustments, no application of mind and no adjudication on merits, does not answer to the description of an order. The legislature has itself drawn the line: the Finance Act, 1999 omitted the Explanation to Section 143 which had deemed an intimation to be an order for the purposes of Sections 246 and 264, and the Supreme Court in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Limited has read the distinction accordingly. Errors in an intimation have their own remedies — rectification under Section 154, scrutiny under Section 143(3), and assessment under Sections 144 and 147 — so resort to Section 263 where a substantive remedy exists is impermissible.

The line the Court drew

The judgment supplies a definition worth noting: an “order” refers to the reflection of a conclusion in an adjudicatory process, and a grievance-redressal hierarchy can be built only on something that answers that description, by conscious legislative mandate. Where the scheme of Section 143(1) shows that an intimation issues after a minimal inquiry, often on the records alone, it does not qualify.

The Additional Solicitor General pressed the change worked by the proviso to Section 143(1), inserted by the Finance Act, 2016, which requires that proposed adjustments under clauses (i) to (vi) be intimated to the assessee and that the response be considered. The Court accepted that this enlarged the process, and then drew a distinction that gives the judgment its practical edge. Section 246, which lists appealable orders, treats an intimation under Section 143(1) as an order where the assessee objects to an adjustment. It follows that an intimation without adjustment remains an intimation, while an intimation issued after adjustments under the proviso is an order — appealable by the assessee, and open to revision under Section 263 at the instance of the Revenue where the adjustment made was prejudicial to it, as where a greater adjustment could have been made.

This case fell on the other side of that line. The notice itself disclosed what the Revenue was after: paragraph 5 recorded that the assessee had claimed capital gains of Rs 230,36,53,662 on compensation received from the employer for repurchase of unexercised stock options while tax had been deducted at source under Section 192. The Assessing Officer may take the view that the receipt is salary rather than capital gains — but that inquiry, as the Madhya Pradesh High Court held in Amir Uddin v. Income Tax Officer, immediately takes the proceedings outside Section 143(1), because the permitted adjustments do not extend to changing the head of income.

What follows from the distinction

The Court accepted the distinction and drew the consequence. Where the intimation under Section 143(1) does not amount to an order, the question of resorting to Section 263 does not arise in this factual matrix.

A second argument was left expressly unanswered. The Revenue had suggested that where the time available to take up scrutiny under Section 143(2) has run out, the remedy under Section 263 should still remain open against an intimation. The Court held that it need not answer that question, because it is anterior: unless an intimation under Section 143(1) amounts to an order in the first place, Section 263 cannot be resorted to at all. The reasoning refuses to let a limitation problem convert an intimation into something it is not.

The practical effect is a jurisdictional one rather than a finding on the tax. The department has not been told that the ESOP repurchase is capital gains; it has been told that Section 263 was the wrong door. Whether the characterisation the assessee adopted in the revised return can be examined, and by what route, is a question the judgment leaves where it found it.

Order

The notice dated 13 January 2026 was held to be clearly one without jurisdiction and was set aside. The petition was allowed.