Bengaluru ITAT Rules: Salary Becomes Taxable Only When It Falls Due — Form 16 and Form 26AS Are Not Conclusive Proof
Overview of the Decision
The Bengaluru Bench of the Income Tax Appellate Tribunal, in the case of Nilangsu Mitra Vs ITO (ITAT Bangalore), has delivered a significant ruling clarifying the foundational principle governing taxation of salary income. The Tribunal unequivocally held that salary is chargeable to tax only when it becomes due from the employer — not merely because it has been reported in Form 16, Form 26AS, or confirmed through an employer's response to a notice under Section 133(6) of the Income Tax Act, 1961.
This ruling carries important implications for assessees who may find themselves in a situation where their employer has reported a higher salary figure in TDS records than what was actually received or became legally payable. The case serves as a strong reminder that documentary reporting by an employer — while relevant — does not automatically settle the question of taxability.
Background and Factual Matrix
Non-Filing and Initiation of Reassessment Proceedings
The assessee, Mr. Nilangsu Mitra, did not file his return of income for Assessment Year 2020-21 under Section 139 of the Income Tax Act, 1961. His case was subsequently flagged on the Insight Portal under the "RMS — Non-filing of return — PAN cases" category.
Acting on Insight Instruction No. 71 dated 16-11-2023 and based on risk profiling, proceedings were initiated against the assessee under Sections 148/148A. Since Form 26AS and Insight data reflected transactions during F.Y. 2019-20 without any corresponding return, an income of Rs. 41,26,547/- was treated as having escaped assessment under Section 147. A notice under Section 148A(b) dated 09-01-2024 was issued via email, directing the assessee to respond by 19-01-2024.
Assessee's Response and Partial Reconciliation
In his reply dated 19-01-2024, the assessee offered several explanations for the non-filing, including illness in the family due to Covid, job loss, and frequent job changes. He simultaneously sought permission to file the return and also disputed specific income entries reflected in Form 26AS.
Specifically, the assessee raised two key objections:
- He contended that against the reported salary of Rs. 3,24,958/- from Grid Infocom Pvt. Ltd., he had actually received only Rs. 50,000/- by way of bank transfer.
- He further argued that income of Rs. 15,46,085/- from Nous Infosystems Pvt. Ltd. had been counted twice in the Insight data.
To support his claims, the assessee submitted Form 16s, bank statements, income computation, and a housing loan certificate. He also requested permission to pay taxes in installments. Following reconciliation based on the assessee's submissions, the alleged escaped income was reduced from Rs. 41,26,547/- to Rs. 25,80,462/-.
Assessment and Addition Made
The Assessing Officer, relying on Form 16 and the confirmation provided by Grid Infocom Pvt. Ltd. in response to a notice under Section 133(6), rejected the assessee's contention regarding Grid Infocom. Accordingly, the difference amount of Rs. 2,74,958/- (i.e., Rs. 3,24,958/- reported minus Rs. 50,000/- acknowledged as received) was treated as undisclosed salary income.
The assessee had already offered income of Rs. 17,94,240/- in the return filed under Section 148, which was duly accepted. With the addition of Rs. 2,74,958/-, the total assessed income stood at **Rs. 20,69,198/-.