Full Leave Encashment Exemption Allowed as Claim Was Below Revised ₹25 Lakh Limit

Mangla Ram Nimbark Vs ITO (ITAT Jaipur)

Summary: The appeal before the Income Tax Appellate Tribunal (ITAT), Jaipur, concerned the assessee’s claim for exemption of leave encashment amounting to ₹6,87,030 under Section 10(10AA)(i) of the Income Tax Act for Assessment Year 2018-19. The assessee challenged the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), which had upheld the disallowance of ₹3,87,030 from the claimed exemption.

The assessee contended that he was originally an employee of the Department of Telecommunications (DOT), a Central Government organization, and was subsequently absorbed into Bharat Sanchar Nigam Limited (BSNL) with effect from 1 October 2000 pursuant to a Government notification. Upon retirement from BSNL on attaining superannuation, the assessee received leave encashment of ₹6,87,030, comprising ₹4,25,959 relating to service rendered with DOT and ₹2,61,071 relating to service rendered with BSNL. The entire amount was claimed as exempt under Section 10(10AA)(i) in the return of income. An application under Section 154 was filed before the Assessing Officer after the claim was not accepted while processing the return, but the claim was rejected.

The assessee thereafter appealed before the CIT(A). The CIT(A) upheld the action of the Assessing Officer and confirmed the addition of ₹3,87,040 made through the order passed under Section 154, holding that there was no merit in the appeal. Consequently, the exemption claim to that extent remained disallowed.

While considering the appeal, the Tribunal referred to its earlier decision in a similar matter involving leave encashment exemption under Section 10(10AA). In that case, the Tribunal had noted observations of the Delhi High Court regarding the long-standing exemption limit under Section 10(10AA)(ii) and had also taken note of the subsequent revision of the exemption limit by the Central Board of Direct Taxes through Notification No. 31/2023 issued by the Ministry of Finance. The revised exemption limit was increased to ₹25 lakh.

Applying the same reasoning to the present case, the Tribunal observed that the assessee’s leave encashment claim of ₹6,87,030 was below the revised exemption limit of ₹25 lakh prescribed under Notification No. 31/2023. Accordingly, the Tribunal held that the assessee was eligible to claim deduction of the entire amount of ₹6,87,030 under Section 10(10AA)(i). The Assessing Officer was directed to allow the claim within the revised limit prescribed in the notification. Based on these findings, the appeal of the assessee was allowed.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

This appeal is filed by assessee against the order of ld. CIT(A) dated 07-08-2023 National Faceless Appeal Centre, Delhi [here in after (NFAC)/CIT(A)] for assessment year 2018-19 raising therein following grounds of appeal.

‘’1. That natural justice avoided.

2. That it is case of employ8ees of DOT who have been w.e.f.01-10-20222 absorbed in BSNL and thus is a Government employees and is entitled for full exemption u/s 10(10AA)(i) at Rs.6,87,030/-.

3. That the ld. CIT(A) has wrongly disallowed Rs.3,87,030/- for exemption u/s10(10AA)(i) not considering the facts.

2.1 At the time of hearing of the appeal, it is noted that none appeared on behalf of the assessee, however, an adjournment application dated 30-09­2022 was sent by the assessee himself praying therein that his CA is out of India to represent case on 03-10-2023 and shall return only on 20-10-2022 for which the case of the assessee be adjourned in next date.

2.2 On the other hand, the ld. DR objected to the adjournment application (supra) and also relied upon the order of the ld. CIT(A).

2.3 After hearing the ld.DR, the Bench decided to dispose off the appeal of the assessee on merit based on the materials available on record.

2.4 Brief facts of the case are that the assessee was originally employee of DOT (Department of Telecom) which is a central govt. organization and the assessee served in the department till 01-10-2000. Subsequently, by Govt, Notification Order No. 27-1(Raj)/Ajmer/798/2002-2002 da3ted 30-01­2022, the employees of DOT were absorbed in Bharat Sanchar Nigam Ltd. (for short ‘’BSNL”) w.e.f. 01-10-2000. Finally, the assessee retired from BSNL services on superannuation for which the assessee was paid leave encashment u/s 10(10AA)(i) amounting to Rs.6,87,030/-(Rs.4,25,959/- for the period of service rendered with DOT and Rs.2,61,071/- for the period service rendered with BSNL ) for which the assessee claimed Rs.6,87,030/- in return filed for the year under consideration as exempt income u/s of the Act. It is also noted that an application u/s 154 of the Act was filed by the assessee before the AO who rejected the claim of the assessee 10(10AA)(i) at the time of processing the return.

2.5 Against the rejection of the claim by the AO u/s 154 of the Act, the assessee carried the matter before the ld. CIT(A) who confirmed the action of the AO by observing as under:-

‘’5.4 After duly considering the grounds of appeal, the details mentioned in the letter darted 17-09-2022to the CIT(Appeal), Income Tax Department and the details mentioned in the order u/s 254 dated 02-02-2022 of the ADIT, CPC, Bangalore, it is hereby held that there is no merit in the appeal filed by the appellant and addition made of Rs.3,87,040/- in the order u/s 154 dated 02-02-2022 by the AO, CPC, Bangalore, is hereby confirmed.

5.5 In the result, the appeal is dismissed.”

It is noteworthy to mention that the Bench while hearing the appeal of the assessee drew a reference on the issue in question that similar issue was decided by this Bench in the case of Shri Ram Charan Gupta vs ITO (ITA No. 408/JPR/2022 dated 27-06-2023 wherein the Bench allowed the appeal of the assessee by observing 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.

In the result, appeal of the assessee is allowed. ‘’

In this case also, since the leave encashment as claimed by the assessee is amounting to Rs.6,87,030/- u/s 10(10AA)(i) of the Act which is below the limit of Rs.25.00 lacs as specified vide Notification No. 31/2023 issued by the CBDT, Ministry of Finance, New Delhi, therefore, the assessee is eligible to claim deduction of said amount of Rs.6,87,030/- and thus the AO is directed to allow the claim of the assessee u/s 10(10AA)(i) of the Act within the revised limit as prescribed in the notification . Hence, in terms of these observations, the appeal of the assessee is allowed.

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

Order pronounced in the open court on 04/10/2023.