If you are stuck in such a situation, here is what to do.

Mr. Alok Sharma was diligently preparing his income tax return for the relevant assessment year when he encountered a perplexing issue. He had received a Form 16A from his crypto exchange, “CryptoVerse India,” a company operated by Zenith Innovations Pvt. Ltd. The form indicated that CryptoVerse India had paid him approximately ₹25,000 on a date in the previous financial year for a Virtual Digital Asset (VDA) transaction. As per the regulations under Section 194S of the Income Tax Act, the exchange had deducted ₹250 as Tax Deducted at Source (TDS) and deposited it with the government.

The problem was that this income of ₹25,000 was now reflected in Mr. Sharma’s Form 26AS and Annual Information Statement (AIS), creating a tax liability for him. However, he had never actually received this amount. A thorough check of all his bank accounts and his crypto wallet on the platform showed no record of this credit.

Mr. Sharma found himself in a difficult position where income was officially reported against his PAN, TDS was paid to the government on his behalf, but the underlying funds had vanished into thin air, never reaching him. This is a growing concern for many individuals transacting on digital asset platforms.

Advice in such cases

• Formal Communication: Immediately send a formal written communication, preferably via email, to the grievance redressal officer or customer support of the crypto exchange. Clearly state the issue, providing details like the transaction ID from Form 16A, and attach evidence that you did not receive the funds.
• Document Everything: Keep a meticulous record of all your communications with the exchange, including dates, times, and the content of the conversation. Take screenshots of your platform wallet and transaction history.
• Verify Bank Records: Obtain a certified statement from your bank for the period in question to definitively prove that the amount was not credited to your account.
• File ITR Carefully: While filing your Income Tax Return, you must reconcile the information. You should not declare income that you have not received. In the ITR form, there are options to report income as per your records, which may differ from what is shown in Form 26AS/AIS. You must be prepared to explain this mismatch if your case is selected for scrutiny.
• Use the AIS Feedback Utility: The Income Tax Department provides a utility where you can provide feedback on the transactions listed in your Annual Information Statement (AIS). You can mark the transaction as incorrect and state that the income was not received by you.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

Applicable Sections of Law

This situation primarily involves provisions of the Income Tax Act, 1961.

• Section 194S of the Income Tax Act, 1961: This section mandates that any person responsible for paying any sum to a resident for the transfer of a Virtual Digital Asset (VDA) must deduct tax at a rate of 1% of such sum. The deduction of TDS creates a strong presumption that the payment was made. Your goal is to rebut this presumption with concrete evidence.
• Principles of Income Recognition: Income is taxed based on two main principles: the accrual basis or the receipt basis. In your case, you can strongly argue that the income has neither “accrued” to you (as the transaction may be faulty or incomplete) nor has it been “received” by you. The mere reflection in Form 26AS does not automatically make it your taxable income if you can prove non-receipt.
• Section 292B of the Income Tax Act, 1961: While this section generally prevents notices or returns from being invalidated due to mistakes, you can use the underlying principle to argue that a mistake in the TDS statement filed by the deductor should not unjustly create a tax liability for you.

If you are the complainant

As the complainant against the crypto exchange for their error or negligence, your course of action is proactive.

• Send a Legal Notice: Your lawyer can draft and send a stern legal notice to the crypto exchange’s registered office. The notice should detail the discrepancy, the evidence you possess, and demand immediate rectification and an updated TDS certificate (if applicable). It should also claim compensation for the mental agony and potential financial loss caused.
• File a Consumer Complaint: If the exchange fails to resolve the issue, you can file a complaint before the appropriate Consumer Disputes Redressal Commission for “deficiency in service.” You are a consumer of their platform’s services, and their incorrect reporting has caused you financial and mental hardship.
• Approach the Income Tax Department: Write a letter to your jurisdictional Assessing Officer, explaining the entire situation with all supporting documents. This creates a record and can be helpful if your case is picked up for scrutiny later.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

If you are the victim

Being a victim of such a systemic error can be stressful. It’s important to act methodically and not out of panic.

• Stay Calm and Organized: Do not ignore the discrepancy. Create a separate file and organize all documents, emails, and screenshots chronologically. This will be your evidence file.
• Do Not Pay Tax on Unreceived Income: You are not legally obligated to pay tax on income you have not received. Ensure your ITR is filed correctly, reflecting your actual income, and be prepared to defend your position.
• Follow Up Persistently: Do not let the matter rest after sending one email. Follow up with the crypto exchange regularly until you receive a formal, written resolution.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

How the police behave in such cases

In a situation like this, the police are not the primary authority to approach. This is fundamentally a tax and civil dispute, not a criminal one, unless there is clear evidence of a large-scale, deliberate fraud or cheating by the company. If you were to approach the police, they would likely direct you to resolve the matter through civil remedies (courts, consumer forums) or with the Income Tax Department. Police intervention would only be considered if a complaint under the Bharatiya Nyaya Sanhita (BNS) for offences like cheating or criminal breach of trust is filed with substantial evidence of malicious intent from the company, which is often difficult to prove in cases of transactional errors.

FAQs people normally have

What evidence is required?

To successfully dispute the claim, you need a strong evidence trail. The most crucial documents are:

• Your bank account statements for the relevant period, ideally certified by the bank, showing no credit entry for the amount in question.
• The Form 16A issued by the crypto exchange.
• Your Form 26AS and Annual Information Statement (AIS) downloaded from the income tax portal.
• Screenshots of your transaction history from the crypto exchange platform, which should ideally show the transaction as failed, reversed, or non-existent.
• Copies of all email and written correspondence between you and the crypto exchange regarding this issue.
• A copy of the legal notice sent to the company, if any.

How long will the investigation take?

The timeline for resolution can vary significantly:

• Direct Resolution with Exchange: If the exchange is cooperative and it’s a simple clerical error, it could be resolved within a few weeks.
• Through Income Tax Scrutiny: If the Income Tax Department issues a notice regarding the mismatch, the process of submitting your evidence and getting a favourable order from the Assessing Officer can take several months to over a year.
• Through Consumer Forum/Court: If you pursue legal action, the timeline can be much longer, often stretching from one to several years depending on the complexity and the court’s workload.

Advocate Sudhir Rao, Supreme Court of India