ITAT Allows Full ₹10.15 Lakh Leave Encashment Exemption: ₹25 Lakh CBDT Limit Held Applicable

Pankaj Bhupatrai Joshi Vs ITO (ITAT Ahmedabad)

ITAT Allows Full ₹10.15 Lakh Leave Encashment Exemption: ₹25 Lakh CBDT Limit Held Applicable

The Ahmedabad ITAT allowed full exemption of ₹10.15 lakh received towards leave encashment by a retired State Bank of India employee and held that the enhanced exemption limit of ₹25 lakh notified by CBDT applies while granting relief under Section 10(10AA)(ii).

The assessee had retired during FY 2019-20 and claimed exemption of ₹10,15,928 towards leave encashment. However, CPC while processing return under Section 143(1) restricted the exemption to ₹3 lakh on the ground that the assessee was not a Central or State Government employee. The CIT(A) also confirmed the adjustment.

Before the Tribunal, reliance was placed on CBDT Notification No. 31/2023 dated 24.05.2023 enhancing the exemption limit to ₹25 lakh and stating that no person would be adversely affected by giving retrospective effect to the notification. The Tribunal followed earlier Jaipur Bench and Ahmedabad Bench decisions including Govind Chhatwani and Goverdhan D. Bhambhani and observed that once the exemption limit stands revised to ₹25 lakh, eligible retiring employees are entitled to benefit of the enhanced limit.

Accordingly, the ITAT held that restricting exemption to ₹3 lakh was unsustainable and directed grant of full exemption claimed by the assessee under Section 10(10AA).

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The appeal filed by the assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi on 21.03.2023 for A.Y. 2020-21.

2. The grounds of appeal raised by the assessee are as under:

“1. Under the facts and circumstances specifically in view of CBDT Notification in S.O. 2276(E) Notification No. 31/2023/F. No. 200/3/2023-ITA-I dated 24.05.2023 with RESTROSPECTIVE EFFECT. The restriction of leave encashment amount received at the time of retirement Rs. 1015928/- to Rs. 300000/- U/Sec. 10(10AA)(ii) of Act is not justified.

2. Any other matter with prior permission of the chair.”

3. The brief facts of the case are that the assesse, Pankaj Bhupatrai Joshi is an individual. The assessee has filed his original return of income on 01.10.2020 declaring total income of Rs. 15,48,940/- by claiming Leave Encashment of Rs. 10,15,928/- as exempt u/s. 10(10AA). The Assessing Officer has passed intimation order under Section 143(1) on 19.10.2021 determining total income at Rs. 22,64,870/- by restricting the exemption of Leave Encashment to Rs. 3,00,000/-.

4. Being aggrieved by the assessment order the assessee filed appeal before CIT(A). The CIT(A) dismissed the appeal of the assessee.

5. There is a delay of 975 days in filing the present appeal before the Tribunal for which the assessee has filed condonation of delay along with Affidavit. The reasons stated by the assessee appears to be genuine, hence, the delay is condoned.

6. The Ld. AR submitted that the assessee retired from the services of M/s. State Bank of India in F.Y. 2019-20 and received Rs. 10,15,928/- as Leave Encashment and claimed benefit under Section 10(10AA) of the Act. The Assessing Officer as well as CIT(A) claims that since the assessee is not a Central Government or State Government employee the said section will not be applicable in toto but restricted to the amount up till Rs. 3,00,000/-only. The Ld. AR relied upon the CBDT Notification dated 24.05.2023 wherein it is categorically mentioned that the amount of Rs. 25,00,000/- has the limit in relation to employees who retired on superannuation or otherwise is applicable. The Ld. AR further relied that this CBDT Circular is categorically mentioned that if the retrospective effect of this Notification given it will not affect any other persons adversely.

7. The Ld. DR relied upon the assessment order and the order passed by the CIT(A).

8. Heard both the parties and perused all the relevant materials available on record. Though the assessee is not a Central Government or State Government employee the CBDT Circular has whereas the leave encashment or the amount received as per leave salary after retirement or superannuation has to be looked into in the case of CBDT as well. The issue raised by the assessee in the present appeal stands covered by the order of the Tribunal in the case of Goverdhan D Bhambhani Vs. ITO for AY 2020-21 dated 28.07.2025. For the sake of ready reference, the operative portion of said order is reproduced as under:

3. The CBDT’s Notification dated 24.05.2023 (No. 31/2023/F.No. 200/3/2023-ITA-1) (copy enclosed Page no. 1) clearly states that

“S.O. 2276(E).-In exercise of the powers conferred by sub-clause (ii) of clause (1044) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government, having regard to the maximum amount receivable by its employees as cash equivalent of leave salary in respect of the period of earned leave at their credit at the time of their retirement, whether superannuation or otherwise, hereby specifies the amount of Rs. 25,00,000 (twenty-five lakhs rupees only) as the limit in relation to employees mentioned in that sub-clause who retire, whether on superannuation or otherwise.

2. This notification shall be deemed to have come into force with effect from the 1st day of April, 2023.

[Notification No. 31/2023/F. No. 200/3/2023-ITA-I]
SOURABH JAIN, Under Secy.

Explanatory Memorandum: It is hereby certified that no person is being adversely affected by giving retrospective effect to this notification.”

4. Thus in view of such notification section 10(10AA) sub section (i) & (ii) both are at par & since it is clear that as per explanatory memorandum that no person is being adversely affected by giving retrospective effect to this notification.

Thus sec 10(10AA) (i) & (ii) both are at par (with RETROSPECTIVE effect & even the private employee on retirement are entitled for such higher limit of Rs. 25,00,000/-or actual amount received whichever is less; to claim u/sec 10 (10AA) of Act.

It is requested to kindly consider & grant relief. Under similar circumstances number of decisions already granted by Jaipur Bench; details as below:-

(1) Govind Chatwani, Appeal No. ITA No. 385/JP/2023 dated 31.10.2023 copy as enclosed (Page 2108)

(2) Devendra kumar Gupta M.A. No. 49/JP/2023 dated 18.02.2025 copy as enclosed.”

6. Ld. Sr. D.R. appearing for the Revenue supported the order passed by the lower authorities and requested to confirm the disallowance.

7. We have given our thoughtful consideration and perused the materials available on record. This issue of deduction u/s. 10(10AA)(ii) is no more res-integra based on the decisions passed by Co-ordinate Bench of this Tribunal in the case of Govind Chhatwani Vs. CIT(Appeals) in ITA No. 385/JP/2023 dated 31-10-2023 wherein it is held as follows:

“7. We have heard the rival contentions and perused the material placed on record. The bench noted that the apple of discord in this case that the assessee has received a sum of Rs. 17,68,479/- as leave encashment which was claimed in the return of income filed as exempt u/s 10(10AA) of the Act. The CPC and ld. CIT(A) contended that in the light of this specific notification being not issued the leave encashment allowable up to Rs. 3,00,000/-only whereas we note from the submission of the assessee that the assessee has relied upon the notification No. 31/2023/F.No. 200/3/2023-ITA-1 dated 24th May, 2023 and submitted that the revised limit of Rs. 25,00,000/- increased on account of leave salary is applicable and to be considered in the light of fact that government has issued this notification belatedly. The assessee has already claimed the leave salary as exemption the benefit should be given to the assessee. The similar issue has been decided by the bench in the case of Ram Charan Gupta in ITA No. 408/JP/2022 wherein the bench has already held as under:-

“8. We have heard the rival contentions and perused the material placed on record. The bench noted that the assessee relying the decision of Hon’ble Delhi High Court has issued a notice to the Union of India in the case of Kamal Kumar Kalia & Ors. Vs. Union of India & Ors in WP(C) 11846/2019 dated 08.11.2019 wherein the court has given following directions :-

“8. We are however of the, prima facie, view that the grievances of the petitioner with regard to exemption limit under Clause (ii) of Section 10 (10AA) not being raised since 1998, appears to be justified. This is so because over the decades, the pay-scales admissible to government servants, and even employees of the Public Sector Undertaking and Nationalised Banks and all others have been upwardly revised, keeping in view, the financial growth in the country as well as on account of rising inflation. The last drawn salaries have increased manifold since time and notification issued under Clause (ii) of Section 10(10AA) was lastly issued, as taken note of hereinabove, on 31.05.2002. We therefore, issue notice to the respondents limited to this aspect.

9. Issue notice, learned counsel for the respondents accepts notice. Respondents should file counter affidavits be filed within six weeks. Rejoinder thereto, if any, be filed before the next date.

” 8.1 Recently the Central Board of Direct Taxes Suomotu revised the limit for deduction u/s 10(10AA) of the Act and the revised limit now stood at Rs. 25,00,000 as specified vide notification no. 31/2023 issued by the ministry of finance. Since the leave encashment amount as claimed by the assessee is amount to Rs. 6,97,100/- which is below the revised limit of leave encashment exempt prescribed by the Board, the assessee is eligible to claim of deduction of said Rs. 6,97,100/-. Based on these observations the ld. AO is directed to allow the claim of the assessee u/s. 10(10AA) of the act within the revised limit as prescribed. In terms of these observations the appeal of the assessee is allowed.”

On being consistent to the said finding, we held that the assessee is entitled to get the deduction as claimed in the return of income u/s 10(10AA) of the Act as the limit has been increased from 3 lac to 25 lacs.

8. Further this decision is followed in the case of Devendra Kumar Gupta Vs. CIT(Appeals) in M.A. No. 49/JP/2023 dated 18-02-2025. Thus respectfully following the above decisions, the restricting the deduction u/s. 10(10AA) of Rs. 4,65,404/- made by the lower authorities are not sustainable in law. Therefore the same is liable to be deleted.

9. In the absence of any change in factual matrix and legal proposition brought to our notice, the appeal of the assessee is hereby allowed.

10. In the result, the appeal of the assessee is allowed.

This Order pronounced in Open Court on 15/05/2026