Case Law Details
Govardhan Deepchand Bhambhani Vs ITO (ITAT Ahmedabad)
The appeal before the Income Tax Appellate Tribunal (ITAT), Ahmedabad, arose from an order dated 9 December 2023 passed by the Additional Commissioner of Income Tax (Appeals)-9, Delhi, relating to Assessment Year 2020-21. The dispute concerned the assessee’s claim for exemption of leave encashment amounting to ₹7,65,404 under Section 10(10AA)(ii) of the Income Tax Act. The assessee, a retired employee of Punjab National Bank, had filed the return of income declaring total income of ₹5,82,970 and claimed exemption of the entire leave encashment amount received on retirement. However, while processing the return under Section 143(1), the claim was restricted to ₹3,00,000.
The assessee challenged the adjustment before the CIT(A), contending that the exemption limit under Section 10(10AA)(ii) had not been revised since 2002 and that the Central Government had subsequently increased the limit to ₹25 lakh through Notification No. 31/2023 dated 24 May 2023. The assessee argued that the benefit of the revised limit should be available and relied upon the explanatory memorandum accompanying the notification, which stated that no person would be adversely affected by giving retrospective effect to the notification.
The CIT(A) rejected the claim. The appellate authority referred to Notification No. 31/2023, which increased the exemption limit to ₹25 lakh with effect from 1 April 2023, and relied upon a decision of the Patna High Court which observed that although the revision was delayed, the enhanced limit did not benefit persons who had retired before its effective date. On this basis, the CIT(A) held that the assessee, having retired during FY 2019-20, was not entitled to the benefit of the enhanced exemption limit and upheld the restriction of exemption to ₹3 lakh.
Before the Tribunal, the assessee reiterated that the entire leave encashment amount should be exempt and relied upon Notification No. 31/2023, the explanatory memorandum, and decisions of the Jaipur Bench in Govind Chhatwani and Devendra Kumar Gupta. The Revenue supported the orders of the lower authorities.
The Tribunal examined the issue and noted that it was no longer res integra in view of earlier decisions of coordinate benches. It referred to the Jaipur Bench decision in Govind Chhatwani v. CIT(A), which had followed the decision in Ram Charan Gupta v. ITO. In those decisions, the Tribunal had considered observations of the Delhi High Court regarding the long-standing non-revision of the exemption limit and had taken note of the subsequent enhancement of the limit to ₹25 lakh through Notification No. 31/2023. The earlier decisions had held that where the leave encashment amount claimed was below the revised ceiling, the assessee was entitled to exemption under Section 10(10AA).
Following the same reasoning and respectfully relying on the earlier decisions, the Tribunal held that the restriction of deduction under Section 10(10AA) by ₹4,65,404 was not sustainable in law. Since the assessee’s leave encashment claim of ₹7,65,404 was within the revised exemption limit of ₹25 lakh, the Tribunal held that the assessee was entitled to the deduction claimed in the return of income. Accordingly, the disallowance made by the lower authorities was deleted and the appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee as against appellate order dated 09.12.2023 passed by the Additional Commissioner of Income Tax (Appeals)-9, Delhi arising out of the intimation passed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2020-21.
2. Brief facts of the case is that the assessee is an individual and retired from Punjab National Bank, filed his Return of Income for the Asst. Year 2020-21 on 25-12-2020 declaring total income at Rs.5,82,970/- and making a claim of leave encashment salary of Rs.7,65,404/- u/s. 10(10AA)(ii) of the Act. The return was processed u/s. 143(1) and the claim of deduction u/s. 10(10AA)(ii) was restricted to Rs. 3 lakhs.
3. Aggrieved against the same, the assessee filed an appeal before Ld. CIT(A) who confirmed the addition by observing as follows:
“5.2 The major contention of the appellant is he should be allowed full exemption of leave encashment as government has not increased the limit under section 10(10AA) (ii) since 2002, thus his exemption has been restricted to Rs 3,00,000 by CPC. It is important to note here that the exemption limit has now been increased to 25 Lakhs with effect from 01.04.2023 vide Notification No. 31/2023 dated 24.05.2023 which is reproduced hereunder:
S.O. 2276(E). In exercise of the powers conferred by sub-clause (ii) of clause (10AA) 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.”
……….
The concluding para of the writ petition decision (Patna High Court CWJC No.12326 of 2017 dt. 26-02-2024) is particularly relevant in this case:
32. We have taken note of the fact that subsequently the amount/limit of leave encashment has been raised to Rs. 25,00,000/- effective 01.04.2023.
We must record that it has been a belated exercise as the last revision took place in the year 2002. However, this does not benefit the petitioner as he has already retired in the year 2017.
Given the finding of the Apex court in numerous cases that the State undoubtedly enjoys greater latitude in the matter of taxing statute. It may impose a tax on a class of people whereas it may not do so in respect of the other class, the case of discrimination made out by assessee cannot be basis of any relief.
Thus, the benefit claimed by the appellant is not available under law as the notification is applicable from 01.04.2023 and appellant has already retired in FY 2019-20.
4.5 In view of the above grounds of appeal and submissions made by the appellant the grounds of appeal of the appellant are hereby dismissed.”
4. Aggrieved against the appellate order, the assessee is in appeal before us raising the following Grounds of Appeal:
1. That assessee retired from service of Punjab National Bank during the year and received leave encashment of Rs. 765404/-claimed exemption of such leave encashment amount of Rs. 765404 u/sec. 10 (10AA) of Income Tax Act, 1961. Thus the Ld CIT(A) has wrongly disallowed the same.
2. That in view of CBDT notification number 31/2023 dated 24/05/2023 even non-government employees are entitled u/sec. 10(10AA)(ii) of Income Tax Act, 1961 exemption upto Rs. 25.00 Lakhs maximum (Retrospectively).
3. Any other matter with prior permission of the chair.
5. None appeared on behalf of the assessee whereas the assessee filed written submission as follows:
1. Assessee retired from services of M/s Punjab National Bank in F.Y. 2019-20.
2. Received Rs. 7,65,404/- as “Leave Encashment” benefit in terms of sec 10(10AA) of Act.
3. Return of Income was filed on 25.12.20 claiming whole of such amount of Leave Encashment of Rs. 7,65,404/- u/sec 10(10AA) of Act.
4. While processing the return u/sec 143(1)(a) of Act dated 08.12.2021 the amount of such leave encashment of Rs. 7,65,404/- was restricted to Rs. 3,00,000/- U/sec 10(10AA) & has Disallowed/Added A sum of Rs. 4,65,404 (Rs. 7,65,404/- Amount Actual Received -Rs. 3,00,000/-Maximum Amount Allowed u/sec 10(10AA) considering not in category of Central State Govt. Employee U/sec 10(10AA) (i) of Act.
5. No care for Board notification No. 31/2023/ F. No. 200/-/2023-ITA-1 dated 24.05.2023
(Effective retrospectively) made where limit for Non-Govt. Employees (others than Central/State) have been raised to Ras. 25,00,000/-(Maximum) u/sec 10(10AA) (ii) of Act: The CIT(A) considering that this notification is not with retrospective effect but w.e.f 01.04.2023 &n since Appellate has already retired in F.Y. 2019-20, hence the claim of assessee for Rs. 7,65,404/- u/sec. 10(10AA) is tenable and has restricted to Rs. 3,00,000/-.
………..
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 31-102023 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 result, the appeal filed by the Assessee is hereby allowed.
Order pronounced in the open court on 28-07-2025
Author Bio
