In a significant taxpayer-relief case, the Income Tax Department has reduced a demand of ₹1,42,910 to just ₹671 after a salaried individual mistakenly reported income using the previous financial year’s Form 16.

The error occurred while the taxpayer was filing his income tax return for Assessment Year 2021–22. Instead of entering the salary and tax particulars appearing in the Form 16 for Financial Year 2020–21, he inadvertently used the Form 16 issued for Financial Year 2019–20.

This mistake resulted in the taxpayer declaring a substantially higher total income and claiming tax deducted at source that did not correspond with the relevant assessment year. The mismatch led to the return being processed with a sizeable tax demand.

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Return Filed With Wrong Form 16

According to the rectification order dated July 31, 2026, the taxpayer filed his return for Assessment Year 2021–22 on December 13, 2021.

The return declared a total income of ₹21,97,520 and claimed TDS of ₹4,90,626. It was subsequently processed under Section 143(1) of the Income Tax Act on January 11, 2022, resulting in a demand of ₹1,42,910.

The taxpayer later discovered that the income reported in the return had been taken from the Form 16 relating to Financial Year 2019–20 instead of the Form 16 applicable to Financial Year 2020–21.

Consequently, both the income and TDS figures entered in the return were inconsistent with the information available for Assessment Year 2021–22.

With the passage of time and the accumulation of interest, the outstanding liability reportedly increased to nearly ₹2.5 lakh. The taxpayer was initially advised that no corrective action was possible because the four-year limitation prescribed under Section 154(7) had expired and that he would have to pay the demand.

Representation Filed Before Assessing Officer

Instead of paying a tax demand arising from an apparent reporting mistake, a detailed representation was submitted before the jurisdictional Income Tax Officer.

The taxpayer explained that the incorrect figures were not the result of undisclosed income or an attempt to claim an inadmissible tax benefit. The discrepancy had arisen solely because the Form 16 of the immediately preceding year had mistakenly been used while preparing the return.

Copies of the Form 16 certificates for both assessment years were placed before the officer. The taxpayer also relied on the tax credit information appearing in Form 26AS to establish the correct amount of salary income and TDS for the relevant year.

The representation reportedly invoked CBDT Circular No. 4/2012 dated June 20, 2012, while seeking correction of the demand despite the limitation-related objection raised under Section 154(7).

ITO Verifies Form 16 and Form 26AS

After examining the documents, the Income Tax Officer recorded that the taxpayer had submitted the Form 16 certificates for Assessment Years 2020–21 and 2021–22.

The officer also verified Form 26AS and found the tax credit particulars to be in order.

On the basis of this verification, the officer accepted that the income for Assessment Year 2021–22 had been wrongly reported using the Form 16 for Financial Year 2019–20. The intimation issued under Section 143(1) was accordingly modified through an order passed under Section 154 of the Income Tax Act.

Correct Income Determined at ₹18.01 Lakh

Following rectification, the taxpayer’s income for Assessment Year 2021–22 was determined at ₹18,01,527, as reflected in the correct Form 16.

The revised tax computation recorded in the order was:

• Income as per the applicable Form 16: ₹18,01,527
• Income tax: ₹3,52,958
• Surcharge and education cess: ₹14,118
• Total tax liability: ₹3,67,076
• TDS credit: ₹3,66,405
• Balance tax payable: ₹671

The original demand of ₹1,42,910 was thus effectively reduced to ₹671. The rectification also prevented the taxpayer from having to discharge the much larger outstanding amount that had reportedly reached nearly ₹2.5 lakh after interest.

Clerical Error Cannot Create Artificial Tax Liability

The case demonstrates how the accidental use of an incorrect Form 16 can lead to the reporting of higher income, denial or mismatch of TDS credit and the creation of a substantial automated demand under Section 143(1).

It also highlights the importance of examining the factual basis of a tax demand before making payment merely because the portal reflects an outstanding liability.

The taxpayer’s actual income, the applicable Form 16 and the corresponding TDS were capable of being independently verified from official records, including Form 26AS. Once those documents were examined, the demand was found to have arisen from an evident reporting error rather than any real unpaid tax liability.

Although the matter faced a limitation-related objection under Section 154(7), the detailed representation and supporting evidence ultimately resulted in substantive relief. The rectification order brought the tax liability in line with the taxpayer’s correct income and available TDS, leaving only ₹671 payable.

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