Form 16 delay led to ITR non-filing and ₹3.74 lakh penalty: How a salaried employee won his case

A job switch and delay in receiving Form 16 resulted in a salaried employee not filing his income tax return by the due date, leading to a ₹3.74 lakh penalty. However, the ITAT Delhi later deleted the penalty, holding that there was no under-reporting of income where the income declared was accepted and was already reflected in Form 26AS.

The case relates to Pravesh Aggarwal, a resident of Indirapuram, Ghaziabad, who changed jobs during FY 2018-19. During the year, he earned salary income of ₹30.22 lakh. However, due to the transition between employers, he could not obtain the relevant Form 16 documents before the due date for filing his ITR, the Economic Times reported.

Aggarwal’s Form 26AS correctly reflected the tax deducted at source (TDS) by his employers. He was under a bona fide belief that since TDS had already been deducted and the details were appearing in Form 26AS, his tax obligations had been fulfilled.

The Income Tax Department subsequently reopened his assessment under Section 147 after passing an order under Section 148A(d) on April 19, 2023. In response to the notice, Aggarwal filed his ITR on May 8, 2023, declaring total income of ₹30.22 lakh.

The Assessing Officer thereafter initiated penalty proceedings under Section 270A for under-reporting of income because no original ITR had been filed by the due date. The AO levied a penalty of ₹3.74 lakh, equivalent to 50% of the tax on the alleged under-reported income. The Commissioner of Income Tax (Appeals) upheld the penalty.

Before ITAT Delhi, Aggarwal contended that he was under a bona fide belief that the tax payable on his salary income had already been deducted at source by his employers and was reflected in Form 26AS.

The Income Tax Department argued that had the notice under Section 148 not been issued, the income would have escaped taxation and Aggarwal would not have filed his ITR.

However, ITAT Delhi, comprising Judicial Member Anubhav Sharma and Accountant Member Manish Agarwal, deleted the penalty.

The tribunal noted that under Section 270A(2), “under-reporting of income” occurs when a person discloses a smaller amount than his actual income. In Aggarwal’s case, whatever income he had reported was accepted by the department. Therefore, it was not a case of reporting a smaller amount than the actual income.

The tribunal further observed that Aggarwal was under a bona fide belief that due taxes on his salary income had already been deducted at source and were appearing in Form 26AS. Since the income was duly reflected in Form 26AS and was within the knowledge of the department, there was no misrepresentation or suppression of facts.

ITAT Delhi also held that under Section 270A(2), under-reporting can arise only when the income reassessed is higher than the income determined or assessed earlier. In this case, the assessed income under Section 148 was not greater than the income declared.

Accordingly, the tribunal held that there was no question of under-reporting or misrepresentation and ordered deletion of the ₹3.74 lakh penalty.