ITAT Mumbai Quashes Ex Parte Revision Order in JSW One Platforms Limited Case — ESOP Expenditure Classification Left Open for Fresh Adjudication

Background and Overview

The Mumbai Bench of the Income Tax Appellate Tribunal recently ruled in JSW One Platforms Limited Vs PCIT (ITAT Mumbai), [ITA No. 5732/Mum/2026], concerning Assessment Year 2022-23, that a revision order passed ex parte under Section 263 of the Income Tax Act, 1961 deserved to be set aside on account of the assessee not having received a meaningful opportunity to present its case. The order was pronounced on 31 August 2026.

The core controversy revolved around whether expenditure incurred on Employee Stock Options (ESOPs) should be treated as revenue expenditure — and thereby deductible — or as capital expenditure that ought to have been disallowed while computing the assessee's taxable income. The Tribunal declined to adjudicate this substantive question on merits, choosing instead to restore the matter before the Principal Commissioner of Income Tax (PCIT) for a fresh hearing.

The Return Filing and Original Assessment

JSW One Platforms Limited, a resident corporate entity, filed its return of income for AY 2022-23 on 5 November 2022, declaring nil income after claiming a loss of ₹39,51,41,650. The return was subsequently picked up for scrutiny proceedings.

Following the scrutiny process, the Assessing Officer (AO) completed the assessment under Section 143(3) read with Section 144B of the Income Tax Act, 1961 vide order dated 27 March 2024, accepting the income as returned by the assessee without making any additions or disallowances.

At this stage, no specific enquiry appears to have been made by the AO into the nature — capital or revenue — of the ESOP-related expenditure claimed by the assessee.

PCIT Invokes Revisionary Jurisdiction Under Section 263

After the assessment was finalised, the PCIT called for the assessment records and examined them in exercise of his revisionary powers. Upon review, he formed a prima facie opinion that the assessment order was erroneous and prejudicial to the interests of the Revenue within the meaning of Section 263 of the Income Tax Act, 1961.

The PCIT's specific concern was that the assessee had claimed ESOP-related expenditure as a deduction. In his view, such expenditure was capital in nature and should not have been allowed while computing taxable income. The AO's failure to disallow this expenditure had, according to the PCIT, resulted in underassessment — rendering the order both erroneous and prejudicial to Revenue's interests.

On the basis of this preliminary view, the PCIT issued a show-cause notice asking the assessee to explain why the assessment order should not be revised under Section 263.

Proceedings Concluded Ex Parte

The assessee neither replied to the show-cause notice nor appeared before the PCIT during the revisionary proceedings. Consequently, the PCIT proceeded to conclude the proceedings ex parte.

In his order dated 28 March 2026, the PCIT — relying on certain judicial precedents — expressed the view that ESOP expenditure was not revenue in nature and should not have been allowed as a deduction. He also noted that the AO had not applied his mind to this issue at all during the original scrutiny assessment. Accordingly, the PCIT set aside the assessment order on this specific issue and directed the AO to: