Bengaluru ITAT: Salary Is Taxable Only When It Becomes Due; Mere Reporting in Form 16 or Form 26AS Does Not Conclusively Establish Taxability

Nilangsu Mitra Vs ITO (ITAT Bangalore)

Bengaluru ITAT: Salary Is Taxable Only When It Becomes Due; Mere Reporting in Form 16 or Form 26AS Does Not Conclusively Establish Taxability

The Bengaluru Bench of the ITAT held that salary is chargeable to tax under section 15 when it becomes due from the employer, irrespective of its actual receipt. Accordingly, where an employee disputes the salary reported by the employer, the decisive question is whether the disputed amount had actually become due under the terms of employment, and not merely whether it was reflected in Form 16, Form 26AS or the employer’s reply under section 133(6).

In the present case, the assessee challenged the addition of ₹2,74,958 as salary income, contending that he had received only ₹50,000 and that the employer had erroneously reported a higher amount despite non-payment of salary. While the Revenue relied upon Form 16, Form 26AS and the employer’s confirmation, the Tribunal observed that non-receipt shown in the bank statement is not by itself decisive, since salary may still be taxable if it has become due. Equally, the employer’s reporting alone does not conclusively establish that the salary had in fact become due to the employee.

Since the determination of taxability depended upon whether the disputed salary had actually become due under the employment agreement, the Tribunal restored the matter to the Assessing Officer with directions to examine the terms of employment, verify the employer’s claim, consider the evidence produced by the assessee, and determine whether the disputed salary had legally become due before bringing it to tax. The appeal was partly allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. This appeal by the assessee, Mr. Nilangsu Mitra, for A.Y. 2020-21, is directed against the order dated 07-01-2026 of the learned CIT(A), whereby the assessee’s appeal against the reassessment order passed by the Income Tax Officer was dismissed.

2. The assessee did not file his return for A.Y. 2020-21 under section 139. His case was flagged on the Insight Portal under “RMS—Non-filing of return— PAN cases”. Pursuant to Insight Instruction No. 71 dated 16-11-2023 and based on risk profiling, proceedings under sections 148/148A were initiated. As Form 26AS and Insight data reflected transactions during F.Y. 2019-20 without a corresponding return, income of Rs. 41,26,547/- was treated as having escaped assessment under section 147. Notice under section 148A(b) dated 09-01-2024 was accordingly issued by email, calling for a reply by 19-01-2024.

3. By reply dated 19-01-2024, the assessee stated that the return could not be filed due to Covid in the family, job loss and job changes, and sought permission to file it. He disputed the Form 26AS entry from Grid Infocom Pvt. Ltd., contending that only Rs. 50,000/- was received against Rs. 3,24,958/-reported, and that income of Rs. 15,46,085/- from Nous Infosystems Pvt. Ltd. was counted twice. He filed Form 16s, bank statements, computation and a housing loan certificate, and requested payment in installments. On reconciliation, the alleged escapement was reduced from Rs. 41,26,547/- to Rs. 25,80,462/-. The Assessing Officer, relying on Form 16 and the company’s reply, rejected the Grid Infocom contention and treated Rs. 2,74,958/- as undisclosed salary income.

4. The assessee had already offered income of Rs. 17,94,240/- in the return filed under section 148, which was accepted. With the addition of Rs. 2,74,958/-, the total income was assessed at Rs. 20,69,198/-.

5. The assessee appealed before the CIT(A). Since the dispute was limited to the addition of Rs. 2,74,958/-, the CIT(A) observed that Form 26AS and the company’s reply showed salary of Rs. 3,24,958/- from Grid Infocom Pvt. Ltd., while the assessee claimed receipt of only Rs. 50,000/-. As the assessee failed to disprove receipt of the balance, the addition was sustained and ground no. 4 was dismissed.

6. Aggrieved by the appellate order, the assessee is before us on the following grounds of appeal:

1.The order passed by the learned Commissioner of Income Tax (Appeals) u/s 250 of the Act, is opposed to law, equity, weight of evidence, natural justice, probabilities, and facts and circumstances of the Appellant’s case.

2. The Appellant denies himself liable to be assessed to a total income of Rs.20,69,198/- as against the returned income of Rs.17,94,240/- under the facts and circumstances of the case. Grounds on legality of the case:

3. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the sanction purportedly granted under section 151 of the Act is unsigned and does not bear any valid signature (physical or digital) of the competent authority, and therefore, bad in law.

4. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the alleged sanction u/s 151 of the Act is based on incorrect facts & provided 6 mechanically without verifying facts as it records the escapement of income of Rs.41,26,547, where in fact the order under section 148A(d) of the Act itself passed for an escapement of income at ₹25,80,462/-.

5. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the notice issued u/s 148 of the Act is bad in law as the mandatory conditions to issue the same are not fulfilled on the facts and circumstance of the case.

6.  The learned Commissioner of Income Tax (Appeals) failed to appreciate that the notice issued u/s 143(2) rws 147 of the Act dated 05/06/2024 is mechanical & bad in law as it mentions the escapement of income of Rs.41,26,547/- where in fact the order u/s 148A(d) of the Act itself passed for an escapement of income of Rs.25,80,462/- on the facts of the case.

7. The learned assessing officer erred in law and on facts in issuing a notice under Section 143(2) of the Act, which is not in the prescribed format as mandated under the Act and the Rules framed thereunder. Grounds on the merits of the matter:

8. The Learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in treating a sum of Rs. 2,74,958/- as salary income of the appellant without appreciating that the said amount was neither received by the appellant not accrued to the appellant.

9. The learned authorities below failed to apply the principle of real income, as the appellant has neither received nor derived any benefit from the alleged salary amount of Rs.2,74,958/- on the facts and circumstance of the case.

10. The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.2,74,958/- based solely on Form 26AS, Form 16 and the employer’s reply under section 133(6) of the Act without appreciating that such documents merely reflect reporting by the employer and do not constitute conclusive evidence of actual receipt of income by the appellant.

11. The authorities below failed to appreciate that the email communication from the HR Head of the company clearly shows a purported salary payable of Rs.2,64,601, where in fact the employer reported an amount of Rs.3,24,958 which clearly shows the inconsistency in their reports, & therefore, they are not reliable the on the facts of the case.

12. The Learned authorities below erred in concluding that the appellant received salary of Rs.3,24,000 without conducting proper enquiry or verification, including failure to verify the bank account of the employer to establish whether the alleged salary payments were actually made to the appellant.

13. The Learned authorities below failed to appreciate that the reporting of salary in the TDS return, in the absence of actual payment and without deduction of tax at source, clearly establishes that such reporting is erroneous and does not represent any real or genuine transaction and the said incorrect reporting appears to have been made to cause unwarranted prejudice to the appellant particularly when employee left the company for non-payment of salary.

14. Without prejudice, the learned Commissioner of Income Tax (Appeals) erred in sustaining the addition without properly confronting the appellant with discrepancies between the employer’s reply and the documentary evidence produced by the appellant, thereby violating principles of natural justice on the facts of the case.

15. Without prejudice, the order of Commissioner of Income Tax (Appeals) is in violation of principle of natural justice as it was passed without providing the appellant an opportunity of hearing via video conference, on the facts and circumstance of the case.

16. The learned Commissioner of Income Tax (Appeals) is not justified in law in confirming the charging of interest under section 234A, 234B and 234C of the Act in respect of assessment made under section 147 rws 144B of the Act on the facts and circumstances of the case.

17. The learned Commissioner of Income Tax (Appeals) is not justified in law in confirming the charging the interest under section 234A, 234B and 234C of the Act and further the calculation of interest under section 234A, 234B and 234C of the Act is not in accordance with law since the rate, method of calculation, quantum is not discernible from the order of assessment on the facts and circumstance of the case.

7. The only issue pressed before us is whether the assessee received Rs. 2,74,958/- as salary from Grid Infocom Pvt. Ltd. and whether that amount is taxable in his hands. The assessee therefore confined his submissions to grounds 8 to 12.

8. The learned authorised representative filed the offer letter, the assessee’s HDFC Bank statement and judicial precedents to contend that, as the disputed amount was not received, it could not be taxed in the assessee’s hands. He also relied on the decisions placed in the paper book.

9. The learned Departmental Representative submitted that the Assessing Officer taxed the amount only after making enquiry from the employer, and therefore the orders of the lower authorities call for no interference. He relied particularly on paragraph 5.5 of the learned CIT(A)’s order.

10. We have considered the rival submissions and perused the orders of the lower authorities. The only surviving issue is whether Rs. 2,74,958/- is taxable as salary in the assessee’s hands on the basis of the Assessing Officer’s enquiry under section 133(6) of the Act. All other technical grounds are dismissed as not pressed.

11. The assessee’s case is that Grid Infocom Pvt. Ltd. wrongly reported salary of Rs. 3,24,958/-, whereas he received only Rs. 50,000/- by bank transfer and no part of the balance Rs. 2,74,958/- was paid. He also submitted that no tax was deducted, the company’s reply was incorrect, and he left the company due to non-payment of salary. He relied on his bank statement and sought verification of the alleged payment from the employer.

12. The Assessing Officer, however, recorded as follows:

“On perusal of the reply of the party and Form 16, it is clear that M/s Grid Infocom Pvt. Ltd. paid salary of Rs. 3,24,958/- to the assessee. Considering the assessee’s reply vis-à-vis the company’s reply, the assessee’s contention is not acceptable. Thus, salary of Rs. 2,74,958/-(Rs. 3,24,958/- minus Rs. 50,000/-) remained undisclosed.”

13. The question is whether the disputed salary is taxable in the assessee’s hands. Under section 15 of the Income Tax Act, salary due from an employer or former employer is taxable under the head “Salaries”, whether paid or not. The decisive issue, therefore, is not actual receipt but whether the salary had become due. In that view, the assessee’s bank statement showing non-receipt is not conclusive, and the offer letter also does not resolve the issue, as it only indicates the annual salary agreed to be paid. What requires determination is whether the amount reflected in Form 26AS had in fact become due to the assessee. If it had become due, it is chargeable to tax under section 15. This issue must be examined with reference to the employment agreement and other supporting evidence. In the present case, the employer, through Form 16 and its reply under section 133(6), states that the salary was due, while the assessee disputes the amount and says that only Rs. 50,000/- was received. Since both versions require verification, the matter is restored to the file of the Assessing Officer to determine the salary, if any, due to the assessee. The Assessing Officer shall give the assessee adequate opportunity to produce evidence and shall also make necessary enquiries from the employer before deciding the issue afresh in accordance with law. Accordingly, the grounds relating to the taxability of the disputed salary are allowed for statistical purposes.

14. In the result, the assessee’s appeal is partly allowed for statistical purposes.

Order pronounced in the open court on 20^thJuly, 2026.