Bangalore ITAT Allows Full Exemption for BSNL VRS Compensation 

Pradeep Hegde Vs ITO (ITAT Bangalore)

Bangalore ITAT Allows Full Exemption for BSNL VRS Compensation 

The Bangalore ITAT in the case of Pradeep Hegde v. ITO allowed the assessee’s claim for exemption of BSNL VRS ex-gratia compensation and condoned an extraordinary delay of more than 1,400 days in filing appeals. The Tribunal held that substantial justice should prevail over procedural delays, especially where the assessee acted on professional advice and subsequently became aware of favourable judicial precedents.

The assessee, a former Department of Telecommunications employee absorbed into BSNL, had received ex-gratia amounts under the BSNL Voluntary Retirement Scheme, 2019. The CPC and CIT(A) denied full exemption and the CIT(A) refused to condone the delay in filing appeals. However, the Tribunal relied on earlier decisions of the Pune, Ahmedabad and Chandigarh Benches holding that compensation received under the BSNL VRS was in the nature of retrenchment compensation eligible for exemption under section 10(10B) and not merely the limited exemption under section 10(10C).

Following the consistent view of coordinate benches, the ITAT held that the ex-gratia compensation received under the BSNL revival package was exempt from tax, directed the Assessing Officer to grant the exemption and consequential refund after verification, and ordered implementation within 90 days. Both appeals of the assessee were accordingly allowed.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. These are two appeals filed by Mr. Pradeep Hegde, the assessee/appellant, for the assessment years 2020-21 and 2021-22. The appeals are directed against the orders passed by the learned Commissioner of Income Tax (Appeals)-12, Mumbai [learned CIT(A)], arising from intimations issued under section 143(1) of the Income-tax Act, wherein the assessee’s claim for exemption was not fully allowed.

2. Briefly stated, the assessee joined the Department of Telecommunications in 1983 and was subsequently absorbed in Bharat Sanchar Nigam Limited (BSNL). He retired from BSNL on 1 January 2020 under the voluntary retirement scheme approved by the Union Cabinet through the Office Memorandum dated 29 October 2019. The assessee is now receiving pension from the Government of India in accordance with the applicable pension rules.

3. For assessment year 2020-21, he filed his return of income on 25 December 2020 based on Form 16 issued by the employer, declaring total income of ₹ 11,80,500. During the relevant year, he received ex gratia of ₹ 10,29,053. However, the employer restricted the exemption under section 10(10C) to ₹ 5,00,000, instead of allowing the full amount claimed as exempt under the second proviso to section 10(10C). The return was processed on 28 August 2021 without granting full exemption, which, according to the assessee, ought to have been allowed.

4. The assessee preferred an appeal before the learned CIT(A), contending that the disallowance of exemption amounting to ₹ 5,29,053 should be deleted. Since the appeal was filed belatedly, the assessee also sought condonation of delay on the grounds of appeal.

5. The learned CIT(A) noted that the intimation under section 143(1) was issued on 28 August 2021 and that the appeal ought to have been filed on or before 27 September 2021. Since it was filed only on 9 December 2025, there was a delay of 1438 days. The assessee explained that the delay arose because litigation was pending before various benches on the question whether BSNL employees should be treated as Central Government employees. The learned CIT(A), however, held that this explanation did not constitute sufficient cause for condoning the delay.

6. For assessment year 2021-22, the assessee filed his return of income on 20 October 2021 based on Form 16 issued by the employer, declaring total income of ₹ 22,22,716.During the year, he received ex gratia of ₹ 22,58,602. As the employer did not state that the entire ex gratia amount was exempt, the assessee inadvertently offered it to tax. According to him, the amount was exempt under section 10(10C), read with the second proviso thereto. The return was processed on 31 January 2022.

7. The assessee thereafter appealed before the learned CIT(A), contending that the ex gratia received under the BSNL Voluntary Retirement Scheme, 2019, approved by the Union Cabinet, was eligible for full exemption, particularly as he had originally served in the Department of Telecommunications.

8. The appeal was delayed by 1427 days. The learned CIT(A) declined to condone the delay, upheld the action of the Assessing Officer, and dismissed the appeal.

9. Aggrieved by the appellate orders for both years, the assessee filed the present appeals before us. The learned authorised representative filed a paper book of 270 pages and relied on several Coordinate Bench decisions rendered on identical facts. In those cases, the delays in filing the appeals were condoned, and the assessees’ claims were allowed by treating them as Government employees and granting full exemption.

10. The learned Departmental Representative strongly opposed the claim. He submitted that an identical issue had been decided in the case of State Bank of India employees by the Hon’ble Patna High Court, wherein it was held that State Bank of India employees cannot be regarded as Government of India employees. He further contended that the enhancement of exemption was prospective and applicable only from 2023, and therefore could not be extended to earlier years. Accordingly, he argued that the assessee’s claim was not sustainable.

11. In response, the learned authorised representative strongly supported the assessee’s claim and submitted that the issue is covered by several decisions of Coordinate Benches rendered on identical facts and circumstances. He contended that those decisions ought to be followed and that the assessee should be granted the claimed deduction. He also pointed out that several Commissioners of Income Tax (Appeals) have granted similar relief to other assessees.

12. We have carefully considered the rival submissions and perused the order of the Coordinate Bench in the case of Pratibha Jagdish Unawake, wherein the issue was considered as follows: the common question in that group of appeals was whether the amount received from Bharat Sanchar Nigam Limited (BSNL) on account of forced retirement under the BSNL Voluntary Retirement Scheme, 2019, was in the nature of retrenchment compensation and, therefore, a capital receipt not chargeable to tax under section 10(10B) of the Act.

13. The Coordinate Bench decided the issue as under:

“4. The core of this dispute rests on whether a tax tribunal can transform a voluntary exit from a reviving entity into an involuntary retrenchment from a dying one. It is submitted that these rulings have not appreciated the primary distinction between a “Going Concern” in revival and an undertaking in liquidation.

5. Section 10(10B),reproduced below, contains Explanation (a), which creates a deeming fiction; compensation paid at the time of “closing down of the undertaking” is deemed to be retrenchment:

“[(10B) any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act or Rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise, [at the time of his retrenchment:

Provided that the amount exempt under this clause shall not exceed-

(i)an amount calculated in accordance with the provisions of clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of 1947); or [(ii) such amount, not being less than fifty thousand rupees, as the Central Government may, by notification 79 in the Official Gazette, specify in this behalf,] whichever is less :

Provided further that the preceding proviso shall not apply in respect of any compensation received by a workman in accordance with any scheme which the Central Government may, having regard to the need for extending special protection to the workmen in the undertaking to which such scheme applies and other relevant circum- stances, approve in this behalf.] Explanation.-For the purposes of this clause-

(a) compensation received by a workman at the time of the closing down of the undertaking in which he is employed shall be deemed to be compensation received at the time of his retrenchment;

(b) compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed from the employer in relation to that undertaking to a new employer, shall be deemed to be compensation received at the time of his retrenchment if-

(i) the service of the workman has been interrupted by such transfer; or

(ii) the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer; or

(iii) the new employer is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer;

80(c) the expressions “employer” and “workman” shall have the same meanings as in the Industrial Disputes Act, 1947 (14 of 1947);]”

6. The appellants consistently rely on HPF case. However, HPF and BSNL represent two opposite poles of corporate existence. In HPF, the Hon’ble Madras High Court was dealing with a company that had officially ceased operations. Para 6 of the decision of the Hon’ble Madras High Court is reproduced herewith:

6.”The Government of India decided to close down the company… For specific purpose of enabling employees to come out of financial crisis, Government approved a non- budgetary support… same being compensation under section 10(10B) would be exempted.”

7. However, the BSNL facts are different. As per the Cabinet Note dated 29.10.2019, the BSNL scheme was part of a “Revival Package” involving 4G spectrum allotment and debt restructuring.)

11. The Tribunals in Harish Kumar (Chandigarh) and Rajendra Patil (Pune) have erroneously held that the BSNL VRS was “Retrenchment in the garb of VRS” due to financial stress. Section 10(10B)imports the definition of “Retrenchment” from Section 2(oo) of the Industrial Disputes Act, 1947 (IDA). Section 2(oo) of IDA explicitly excludes “voluntary retirement”:

“[(oo) “retrenchment” means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include-

(a) voluntary retirement of the workman; or

(b) retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or 3[(bb) termination of the service of the workman as a result of the non-renewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein; or]

(c) termination of the service of a workman on the ground of continued ill-health;]”

12. In BSNL VRS-2019, the separation was triggered by the employee’s “Option.” In retrenchment, the employer triggers the exit unilaterally. The law says “A is not B.” The Tribunals’ interpretation is that “A is B” because the employer was in financial distress. In BSNL VRS-2019, the employee exercised a “Voluntary Option” on a portal. This mutuality removes the stigma of retrenchment.

8. We are of the considered opinion that Ld.CIT(A) should have condoned the delay as assessee had filed elaborate explanation regarding delay and there was sufficient cause for delay. These Assessees have filed Returns of Income based on professional Advice received at that point of time. However, subsequently they made revised claim before CIT(A).

8.1 Substantial justice is more important than the procedural delay. The Hon’ble Bombay High Court in the case of Vijay Vishin Meghani vs DCIT [2017] 398 ITR 250 (Bombay) has condoned the delay of 2984 days , which was on account of professional advice of a CA.

9. The identical issue of BSNL employees is decided by ITAT Pune in favour of assessee in ITA Nos.290 and 293/PUN/2026,ITA Nos.294 and 295/PUN/2026. ITAT Pune has relied on the decision of ITAT Ahmedabad in the case of Jayeskumar Sutaria vs ITO ,ITAT has extensively reproduced the decision and finally allowed the appeal of the assessee. The relevant paragraph of the said order is reproduced here under :

Quote, “15. Further, I find the Coordinate Bench, Ahmedabad in the case of Jayeshkumar Tulsidas Sutaria Vs. ITO (supra) following the decision of Coordinate Bench, Chandigarh in the case of Harish Kumar vs. ITO Ward-5(5), Chandigarh -ITA No. 42/CHD/2025 order dated 30.05.2025 has decided the issue in favour of the assessee by observing as under :

“3. The assessee was employed with Bharat Sanchar Nigam Limited (BSNL), a Government of India enterprise. BSNL notified the Voluntary Retirement Scheme (VRS) 2019 on 04.11.2019, which was duly approved and implemented by the employer. The assessee opted for the scheme and accordingly received compensation under the VRS, as per the terms laid down by BSNL. It is submitted that the assessee had not been paid regular salary for several months prior to opting for the scheme and was under severe financial and professional uncertainty. In view of these circumstances, the assessee opted for the scheme as a measure of financial security. The compensation received by the assessee was in the nature of compensation under the BSNL VRS-2019 scheme. The compensation amount received under the scheme was offered to tax in the return of income due to lack of awareness regarding the exemption available under section 10(10B) of the Income-tax Act, 1961. The employer had also deducted tax at source on the said amount. No exemption was claimed in the original or revised return of income. The CPC, Bengaluru issued an intimation under section 143(1) for the said year without granting any exemption, and no rectification or appeal was initiated at that time. It was only upon learning about the recent judgment of the Hon’ble ITAT Chandigarh Bench in the case of Harish Kumar vs. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025, dated 30.05.2025) that the assessee became aware that the compensation received under the BSNL VRS-2019 scheme is eligible for exemption under section 10(10B), subject to compliance with Rule 2BA.

4. Aggrieved by the orders of the Assessing Officer, the assessee carried the matter in appeal before the Ld.CIT(A), who dismissed the appeal of the assessee as non maintainable by observing as follows:

“…In the present case, the delay in filing of the appeal is almost four years which is an inordinate and huge delay. Moreover, as has been elaborately discussed above, the appellant has also failed to provide any reasonable ground that could assist the first appellate authority to draw sufficient cause for the inordinate delay of 1,396 days in filing of this appeal. The inordinate delay in the present case, if condoned, would make the term “Sufficient cause”

in section 249(3) of the Income Tax Act, 1961 hollow and meaningless.

20. In light of the facts of the case, provisions of the Income Tax Act, 1961and judicial decisions in the matter as discussed above, I am constrained to conclude that the appellant has failed to submit any reasonable ground for condoning the inordinate delay of 1,396 days i.e almost four years in filing this appeal. Being bereft of any sufficient cause as envisaged in section 249(3) of the Act, the appeal cannot be admitted. Since the appeal is not maintainable, there is no need to adjudicate on the merits therein.

5. Aggrieved by the orders of the Ld.CIT(A, the assessee is in further appeal before us.

6. We have gone through the records and considering the merits of the case, we condoned the delay and proceed to adjudicate the issue.

7. The Ld. Counsel for the assessee submitted that due to lack of awareness of the legal provisions at the time of filing the return of income, the assessee inadvertently offered the compensation received under BSNL VRS-2019 to tax. Subsequently, based on the decision of the Hon’ble ITAT Chandigarh Bench in Harish Kumar vs. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025 dated 30.05.2025), wherein compensation under the same BSNL VRS-2019 scheme was held to be exempt under section 10(10B), the assessee now seeks exemption of such compensation. We find that the assessee filed theclaim before the Ld. CIT(A)and since the income of the assessee is not taxable, the assessee is eligible for the refund of the TDS.

8. In the result, both the appeals of the assessee are allowed.”

16. The contention of ld. DR that only a ‘workman’ as defined under the Act is eligible for benefit u/s.10(10B) of the Act has no force as the Hon’ble High Court of Madras in the case of Hindustan Photo Film Workers Welfare Centre vs. Govt. of India (2018) 400 ITR 299 (Madras) has held that benefit u/s.10(10B) would be applicable to all employees covered by the scheme.

17. In light of the above decisions which are squarely applicable on the facts of instant cases and the consistent view taken by the Coordinate Benches, I am of the considered view that the alleged sum is in the nature of Retrenchment Compensation received by the assessee(s) in appeal, under the forced retirement scheme as per the standing orders dated 29.10.2019 issued by the Union Cabinet for the revival plan of BSNL/MTNL and such compensation falls under the provisions of section 10(10B) of the Act and not u/s.10(10C) of the Act and therefore the alleged sum is in the nature of Capital receipt exempt from tax. In order to get relief as has been directed in this order, assessee(s) are directed to place revised computation of income before the respective Jurisdictional Assessing Officers claiming the exemption u/s.10(10B) of the Act as discussed (supra) and thereafter the Revenue authorities shall grant the refund (if any) entitled to the assessee(s) after due verification of such revised computation of income. Impugned findings of ld.CIT(A) are set aside. Common issue raised in the Grounds of appeal raised by respective assessee(s) stands allowed.”

9. Since the facts in the instant bunch of appeals are same, therefore, following the same parity of reasoning, I hold that the alleged sum received under BSNL Voluntary Retirement2019 Scheme is in the nature of Retrenchment Compensation received by the assessee(s) in appeal and such compensation falls under the provisions of section 10(10B) of the Act and not u/s.10(10C) of the Act and is in the nature of Capital receipt exempt from tax. Assessee(s) are directed to place revised computation of income before the respective Jurisdictional Assessing Officers claiming the exemption u/s.10(10B) of the Act of the alleged sum and thereafter the Revenue authorities shall compute the tax liability and grant the refund (if any) entitled to the assessee(s) after due verification of such revised computation of income. Impugned findings of ld.CIT(A) are set aside and the common issue raised in the Grounds of appeal by respective assessee(s) stands allowed.” Unquote.

10. Before us the Ld.AR also filed copies of the Orders of CIT(A) who have condoned the delay in identical and allowed the appeal of the assessee who were BSNL employees.

11. In following cases the CIT(A) has condoned the delay and allowed those BSNL employees Appeal on identical facts. It was submitted by Ld.AR that in these cases the Department has not filed any appeal. Ld.DR has not rebutted it. Thus, it is observed that CIT(A)’s have been taking different stand on identical issues. Consistency in judicial decisions is very important.

12. We have perused the submission of the Ld.DR. Ld. DR has not brought on record any contrary decision of Hon’ble High Court. We also find support from the decision of ITAT Ahmedabad in the case of Vishnu Mohan T Nair v. Income Tax Officer, [ 2018] 61 ITR(T) 796 (Ahmedabad- Trib.), the operative portion of the said order is extracted below:

“While on this subject, it is also useful to take note of Hon’ble Supreme Court’s judgment in the case of Mahendra Singh Dhantwal v. Hindustan Motors Ltd. [1985] 20 Taxman 1/152 ITR68, wherein compensation in lieu of reinstatement was treated as eligible for retrenchment compensation under section 10(10B). To us, the takeaway from this judgment seems to be that it is not the form but the substance that matters so far definition of retrenchment compensation is concerned. Right now we are dealing with an employee who is giving up his source of livelihood under the threat of dislocation, and the hyper technical interpretations based on technicalities about the wordings in the settlement deed, signed by him under these compelling circumstances, is being taken as the understanding about assessee’s actual conduct; that is too pedantic an approach and it cannot meet our approval. Let us also not forget that while taking calls on these issues, which deal with employees in the lower rung of hierarchy, we must not be too pedantic or hyper technical in approach. We have to be pragmatic in approach and we must give full effect to the true intent of the public welfare provisions. To us, the arrangement in question is nothing but a termination of employment with the offer of compensation. Viewed thus, the payment in question cannot be anything but retrenchment compensation.

10. In our considered view, the conditions of section 10(10B),so far as eligibility for exemption is concerned, is satisfied. That, however, is not the end of the matter”.

13. However, we are bound by the decision of ITAT Pune on identical facts mentioned above. Respectfully following the decision of ITAT Pune (supra), ITAT Ahmedabad & ITAT Chandigarh, we hold that the impugned amounts were exempt from tax. Assessee(s) are directed to place revised computation of income before the respective Jurisdictional Assessing Officers claiming the exemption u/s.10(10B) of the Act of the alleged sum and thereafter the Revenue authorities shall compute the tax liability and grant the refund (if any) entitled to the assessee(s) after due verification of such revised computation of income. Impugned findings of ld.CIT(A) are set aside and the common issue raised in the Grounds of appeal by respective assessee(s) stands allowed.

14. Accordingly, Appeals of the assessee(s) are allowed.”

14. Through the departmental representative vehemently contested that the decision of the honourable Patna bench applies to the facts of the case and the enhancement in the scheme of deduction is also covered by prospectively from 2023, we find that issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench, wherein the delay was condoned and exemption was allowed on identical facts. Since the assessee’s case involves the same employer and substantially similar circumstances, respectfully following the said decision, we allow the appeals and direct the learned Assessing Officer to grant the exemption in respect of the ex gratia compensation in accordance with the Coordinate Bench decision.

15. Accordingly, both appeals of the assessee are allowed. The learned Assessing Officer is directed to give effect to the assessee’s claim within 90 days from the date of receipt of this order.

16. In the result, both appeals are allowed.

Order pronounced in the open court on 22^ndJune, 2026