Home / Business and Economy / Tax Win: Employee Fights IT Dept Over Leave Pay
Tax Win: Employee Fights IT Dept Over Leave Pay
7 Nov
Summary
- Tribunal overturned tax order for not allowing employee a hearing.
- ₹5.02 lakh added to taxable income was disputed by the retiree.
- Due process is crucial before tax authorities modify returns.
The Income Tax Appellate Tribunal (ITAT), Surat Bench, ruled in favor of a retired employee from Bharuch on October 28, 2026. The tribunal set aside a rectification order that had increased the employee's taxable income by ₹5.02 lakh.
This order was issued by the Assistant Director of Income Tax (ADIT) without providing the employee an opportunity to present his case. The ITAT emphasized that any rectification increasing tax liability or reducing a refund must be preceded by a notice and a chance for the taxpayer to be heard, as mandated by Section 154(3) of the Income Tax Act.
The dispute arose from a difference between the leave encashment exemption claimed by the employee in his ITR and the amount his employer stated on his salary certificate. While the employer mentioned ₹3 lakh as exempt, the employee claimed exemption on the full ₹8.02 lakh.
The tribunal's decision affirmed the importance of due process, stating that tax authorities cannot arbitrarily invoke Section 154 without a proper hearing. The ruling clarifies that for non-government employees, the exemption ceiling was ₹3 lakh before April 1, 2023, and increased to ₹25 lakh thereafter.
