Karnataka HC Sends Flipkart Employee’s Five-Year ESOP Return Pleas Back, Saying Delay Must Be Assessed on Hardship, Not Tax Merits

The petitioner, an employee of Flipkart India Private Limited (FIPL), sought condonation of delay under Section 119(2)(b) of the Income Tax Act, 1961, to file revised returns for assessment years 2019–20 to 2023–24.

He sought to report amounts received on repurchase of employee stock options as capital gains rather than salary, and asserted that the revised returns would result in refunds.

The Principal Commissioner rejected all five applications on 27 February 2026, relying on the Assessing Officer’s view that the amounts were taxable as salary and that the petitioner had not established genuine hardship.

The petitioner challenged those rejection orders by writ petition.

Section 119(2)(b) of the Income Tax Act empowers the competent authority to condone delay where the statutory requirements, including genuine hardship, are established.

The court relied on the Division Bench judgment dated 10 February 2020 in W.A. No. 6752/2017, which underscored that the power to condone delay cannot be used to adjudicate disputed or contentious claims.

Accordingly, the condonation decision must address the relevant statutory considerations and the applicant’s explanation for delay, rather than determine the substantive merits of the underlying tax claim.

The Principal Commissioner’s orders adopted the Assessing Officer’s conclusion that the ESOP receipts were properly taxed as salary because the options had not been converted into shares and independently sold.

The High Court found that this addressed the merits of the proposed revised returns, not whether the delay should be condoned or whether the petitioner had demonstrated genuine hardship.

Because the Division Bench precedent precluded using the condonation jurisdiction to decide disputed claims, the rejection orders could not stand; the applications required reconsideration on the proper Section 119(2)(b) parameters.

The five rejection orders were quashed, and the corresponding applications were restored for reconsideration.

The petitioner was permitted to submit further justification, with a certified copy of the order, by 6 November 2026.

The Principal Commissioner was directed to consider the applications expeditiously and solely by reference to the applicable Section 119(2)(b) parameters; the Court expressed no view on the merits of the proposed revised returns.