BSNL VRS Employees Eligible for Full Exemption of Retrenchment Compensation & Leave Encashment: ITAT Bangalore

Jyothi Selvaraju Vs ITO (ITAT Bangalore)

ITAT Allows BSNL Employees’ Claims for Full Exemption of Retrenchment Compensation and Leave Encashment; Delay, Goetze India and Technical Objections Cannot Defeat Legitimate Relief

The Bangalore ITAT, deciding a batch of 18 appeals involving former BSNL employees who opted for the BSNL Voluntary Retirement Scheme, 2019, held that the entire retrenchment compensation was eligible for exemption under section 10(10B) and the entire leave encashment qualified for exemption under section 10(10AA). The Tribunal observed that merely because the assessees had originally claimed exemption under section 10(10C) or had omitted to claim the correct exemption in their returns, they could not be denied the statutory benefit when the claim was otherwise legally admissible.

The Tribunal noted that the assessees had filed their returns based on the employer’s tax deduction and subsequently sought the correct exemption after judicial decisions recognised that the compensation paid under the BSNL VRS was, in substance, retrenchment compensation eligible under section 10(10B). It held that the delay in filing appeals deserved to be condoned, particularly when numerous Coordinate Benches and several CIT(A)s had already condoned similar delays in identical BSNL cases. The Tribunal further observed that technical considerations should not prevail over substantive justice, especially where denial of relief would result in collection of tax contrary to law.

Rejecting the Revenue’s reliance on the Supreme Court decision in Goetze (India) Ltd., the Tribunal held that the restriction contained therein applies only to the Assessing Officer and does not curtail the powers of appellate authorities to entertain a lawful claim not made in the original return. It also rejected the view that the assessees were required to file revised returns or seek condonation under section 119(2)(b), observing that appellate authorities are fully competent to grant legitimate relief where the facts are already on record.

On the issue of leave encashment, the Tribunal followed the Kerala High Court and other Coordinate Bench decisions holding that employees retiring under the BSNL VRS, 2019 are entitled to the enhanced exemption, treating them as eligible for the benefit available to Central Government employees. Since the issues stood consistently concluded by earlier judicial precedents and no contrary view had been shown, the Tribunal condoned the delays, set aside the orders of the CIT(A), and allowed all the appeals, granting exemption under sections 10(10B) and 10(10AA) to the respective assessees.

Cases Discussed

• Sanchar Nigam Pensioners Welfare Association vs. Union of India (Kerala HC), W.P. No. 16360 of 2023 dated 06/02/2026
• Harish Kumar vs. ITO (ITAT Chandigarh), (2025) 175 taxmann.com 379
• Goetze (India) Ltd. vs. CIT (SC), 284 ITR 323
• ITA No. 992/Bang/2026 (ITAT Bangalore), dated 29/05/2026
• ITA No. 1139/JPR/2025 (ITAT Jaipur), dated 07/10/2025
• ITA No. 233/IND/2025 (ITAT Indore), dated 27/02/2026
• Supreme Court, (2014) 11 SCC 351
• Civil Appeal No. 7696 of 2021 (SC), dated 16/12/2021

FULL TEXT OF THE ORDER OF ITAT BANGALORE

These are the appeals filed by the various assessees challenging the separate orders of the NFAC, Delhi in respect of the A.Ys. 2020-21 and 2021-22. For the sake of easy reference, the details of the appeals as well as the issues involved are tabulated below:

2. The facts involved in all the appeals are similar to each other and in some appeals, one more issue was raised. For the sake of convenience, the common facts are narrated hereunder. Insofar as the other issues involved in some appeals, they will be decided independently.

3. The brief facts of the case are that the assessees are individuals and employees of the BSNL who were opted to retire under the BSNL Voluntary Retirement Scheme, 2019. The Scheme was formulated for restructuring as well as to reduce the cost faced in view of the losses suffered by BSNL. The assessees are aged about 50 years and not conversant with the new technological systems being adopted by BSNL and therefore the organization had formulated the VRS, 2019. Even though the Scheme was named as Voluntary Retirement Scheme, in sum and substance, it is a retrenchment scheme designed to compulsorily reduce the workforce.

4. Under the said scheme, the employees were entitled to receive ex-gratia / compensation and the disbursement was made in four equal installments and the first installment starts during the fourth quarter of the F.Y. 2019-20 (A.Y. 2020-21) and the balance three installments during the F.Y. 2020-21 (A.Y. 2021-22). While paying the retrenchment compensation, the BSNL also deducted the tax at source and therefore the assessees were under the impression that the said compensation is liable for tax under the provisions of the Income Tax Act. On that basis, the assessees had also claimed exemption u/s. 10(10C) of the Act and offered the balance compensation as income in the return of income filed. Later on, the assessees came to know about the decision of the Hon’ble Chandigarh Bench of this Tribunal in the case of Harish Kumar vs. ITO reported in (2025) 175 com379 in which the retrenchment compensation received by the BSNL employees were treated as eligible for exemption u/s. 10(10B) of the Act.

5. Similarly, in some of the assessees’ case, part of the leave encashment received was claimed as exemption u/s. 10(10AA) of the Act as per the statutory limits prevailing at that time. During the disputed assessment years, the exemption available u/s. 10(10AA) is restricted to Rs. 3,00,000/-and subsequently the same was enhanced to Rs. 25,00,000/- by way of Gazette Notification dated 24/05/2023. The assessees had now disputed the restricted amount based on the enhancement granted by the Government, by relying on the judgment of the Hon’ble Kerala High Court.

6. The assessees had filed their return of income showing the part of the retrenchment compensation as taxable income and also claimed the leave encashment of Rs. 3,00,000/-. In some cases no claim was made. The said returns were processed by the CPC and the returns were accepted and intimations u/s. 143(1) were made. Thereafter the order of the Hon’ble Chandigarh Bench of this Tribunal in the case of Harish Kumar vs. ITO reported in (2025) 175 taxmann.com 379 was known to the assessees and based on that, the assessees filed appeals before the Ld.CIT(A) with a delay and also enclosed applications to condone the said delays. Some assesses filed rectification applications before the AO which were dismissed. Against which appeals are filed. The Ld.CIT(A) considered the appeals filed by the assessees with the delay and not satisfied with the reasons stated by the assessees and dismissed the appeals on the ground of limitation as well as on the ground of maintainability, thereby confirmed the denial of exemption u/s. 10(10B) as well as the exemption u/s. 10(10AA) of the Act.

7. In the appeals in ITA Nos. 1742, 1948, 1950 & 2150/Bang/2026, the appeals were rejected by the Ld CIT(A) on the ground of limitation. In the appeal in ITA No. 1743/Bang/2026, the Ld.CIT(A) had dismissed the claim of the retrenchment compensation and upheld the rejection made u/s. 154 of the Act. Similarly, the leave encashment has been rejected by the Ld.CIT(A). In the appeal in ITA No. 1745/Bang/2026, the Ld.CIT(A) had dismissed the appeal on the ground of limitation and also on the ground that no such claim was made either u/s. 10(10B) or u/s. 10(10C) of the Act. In the appeals in ITA No. 1757/Bang/2026, the Ld.CIT(A) had dismissed the appeal on merits and also observed that fresh claim cannot be raised before the appellate authority as per the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze India Ltd. In the appeal in ITA No. 1776 /Bang/2026, the Ld.CIT(A) had dismissed on the ground that the assessee had not claimed the relief in the return of income and also on the ground of limitation. In the appeal in ITA No. 1778/Bang/2026, the Ld.CIT(A) had dismissed the appeal filed against the 154 order on merits and observed that no such claim was made in the return of income and also relied on the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze India Ltd. In the appeal in ITA No. 1779/Bang/2026, the Ld.CIT(A) had dismissed the appeal filed against the 154 order on merits and also relied on the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze India Ltd. In the appeal in ITA No. 1949/Bang/2026, the Ld.CIT(A) had dismissed the appeal on the ground of limitation as well as on the ground no such claim was made in the return of income. In the appeal in ITA No. 2097/Bang/2026, the Ld.CIT(A) had dismissed the appeal on merits since the assessee had not claimed the deduction in the return of income and also relying on the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze India Ltd. In the appeal in ITA No. 2118/Bang/2026, the Ld.CIT(A) had dismissed the appeal on the ground that the compensation received is not eligible for exemption u/s. 10(10B) of the Act by following the judgment of the Hon’ble Supreme Court reported in 261 ITR 514. In the appeal in ITA No. 2151/Bang/2026, the Ld.CIT(A) had dismissed on the ground of limitation as well as maintainability. In the appeal in ITA No. 2154/Bang/2026, the Ld.CIT(A) had dismissed on the ground of limitation and also relying on the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze India Ltd. In the appeal in ITA No. 2215/Bang/2026, the Ld.CIT(A) had dismissed on the ground that the compensation is not the retrenchment by relying on the judgment of the Hon’ble Supreme Court reported in 261 ITR 514 and also on the ground that the assessee cannot raise for the first time before the appellate authority by relying on the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze India Ltd. Similarly, the leave encashment was rejected by saying that the amendment could not be applied retrospectively. In the appeal in ITA Nos. 2216 & 2228/Bang/2026, the Ld.CIT(A) had dismissed the appeals on the ground of limitation and also observed that the assessee can file a revised return and sought for the condonation of the same u/s. 119(2)(b) of the Act.

8. As against the said orders, the assessees filed these appeals before this Tribunal.

9. The respective Ld.ARs appearing for the assessees submitted that the deduction to be claimed u/s. 10(10B) of the Act was considered by the various Tribunals and all the Tribunals took a view that the retrenchment compensation received by the employees of the BSNL are eligible for deduction u/s. 10(10B) of the Act. The respective Ld.ARs further submitted that the delay in filing the appeals before the Ld.CIT(A) were also condoned by the various Tribunals by considering the peculiar facts and circumstances of the case and therefore submitted that the order of the Ld.CIT(A)s rejecting the appeals as barred by limitation is not in order. The respective Ld.ARs further submitted that the entire leave encashment received by the employees were also eligible for deduction u/s. 10(10AA) of the Act in view of the judgment of the Hon’ble Kerala High Court in the case of Sanchar Nigam Pensioners Welfare Association vs. Union of India dated 06/02/2026 in W.P. No. 16360 of 2023. The respective Ld.ARs also relied on the several orders of the Hon’ble Ahmedabad, Pune, Chandigarh, Jaipur & Indore Benches and Coordinate Bench order of this Tribunal and prayed to take a lenient view so that the assessees will get their benefits in accordance with the provisions of the Act. The respective Ld.ARs further submitted that if the appeals are dismissed on technicalities, it would amount to unjust enrichment to the revenue since the levies are made against the provisions of the Act and therefore prayed to allow the appeals. The respective Ld.ARs also submitted that some of the Ld.CIT(A)s had condoned the delay in filing the appeals even though there were delays and prayed to take a uniform view since the assessees are all belonged to the same category of employees employed by the BSNL. The respective Ld.ARs also submitted that the judgment of the Hon’ble Supreme Court would not apply to the appellate authorities and in fact, the same is applicable to the AOs. The respective Ld.ARs further submitted that on the ground of equity, the assessees are also entitled for the benefits similar to the several assessees got from the Ld.CIT(A)s / ITATs. The respective Ld.ARs further submitted that the issue has to be looked into based on the provisions and simply it cannot be rejected by citing the technicalities. The respective Ld.ARs further submitted that in all the cases, the assessees had claimed the deduction u/s. 10(10C) of the Act thereby the deduction has been granted for Rs. 5 Lakhs whereas they are entitled for deduction of the entire amount u/s. 10(10B) of the Act and therefore it is not the case of the revenue that the assessees had not claimed the deduction in their return of income. The respective Ld.ARs further submitted that the assessees had claimed the deduction under a wrong provision since the employer had deducted the TDS and if the said claim is not in order, in order to render justice, the AOs can modify the said claim and grant the deduction under the correct provision and therefore prayed to consider the said facts and allow the appeals filed by the assessees. The respective Ld.ARs submitted that even the AOs are not authorized to grant the deduction other than the one claimed in the return of income and also not filed a revised return, the appellate authorities i.e. this Tribunal is having enormous powers to entertain a plea and if it is in order, grant the benefit to the assessees. The respective Ld.ARs submitted that the compensation received by the assessees are nothing but retrenchment received by the assessees and therefore the benefit should be granted u/s. 10(10B) of the Act and therefore the judgment of the Hon’ble Supreme Court reported in 261 ITR 514 would not be applicable to the petitioners’ case. The respective Ld.ARs further submitted that the rectification application filed by some of the assessees are in order but on technical reasons, the same were rejected and therefore the same is against the provisions of the Act. The respective Ld.ARs further submitted that in some cases, the assessees without knowing the provisions had not claimed the said deduction but later on, challenged the same before the appellate authority which was not accepted by the appellate authorities and therefore prayed that the Tribunal being the final fact finding authority can entertain the claim and grant the deduction if the assessees are eligible. The respective Ld.ARs further submitted that the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze India Ltd. can be applied to the AOs but not applicable to the appellate authorities including this Tribunal.

10. The Ld.DR submitted that the assessees are not entitled to reagitate the issue and also submitted that the assessees had voluntarily filed their return of income declaring the incomes as taxable and therefore they cannot now dispute the same before the appellate authorities for the first time. Similarly, the Ld.DR submitted that there are no valid reasons stated by the assessees to condone the delay and therefore the appeals dismissed on the ground of limitation are in order. The Ld.DR also relied on the judgment of the Hon’ble Supreme Court reported in (2014) 11 SCC 351 and unreported judgment of the Hon’ble Supreme Court in Civil Appeal No. 7696 of 2021 dated 16/12/2021 wherein the Hon’ble Supreme Court had not condoned the huge delays of more than 10 years and 1011 days in preferring the appeals and therefore submitted that by applying the said principles, the delays are not condonable and therefore the orders of the Ld.CIT(A)s are in order and prayed to dismiss all the appeals.

11. We have heard the arguments of both sides and perused the materials available on record.

12. In all the appeals, the merits involved are that the assessees were not granted the benefit u/s. 10(10B) of the Act since the assessees themselves voluntarily filed their return of income and claimed the deduction only u/s. 10(10C) of the Act. The said return was processed and the return was accepted as such. Now the assessees had claimed the deduction under the correct provision 10(10B) of the Act based on the order of the Chandigarh Bench of this Tribunal and the said claims were rejected by the Ld.CIT(A)s on the ground of delay and maintainability. In some cases, the Ld.CIT(A)s hold that there is no mistake in the intimation made u/s. 143(1) and therefore, the proper course of action to be taken by the assessees are that they have to file a revised return by claiming the deduction and got the delay condoned from the authorities. In some cases, the Ld.CIT(A)s had rejected the appeals on the ground that the new plea cannot be raised for the first time before them. In some cases, rectification applications filed by the assessees were dismissed as the intimation is in accordance with the return of income filed by the assessee.

13. We have considered the facts and also the order of the Chandigarh Bench of this Tribunal in which the Tribunal had granted the deduction u/s. 10(10B) of the Act on the retrenchment compensation received by the BSNL employees pursuant to the Voluntary Retirement Scheme, 2019. Similarly, the assessees had restricted their claim of deduction on the leave encashment at Rs. 3,00,000/- as per the limit prescribed during such period. Before us, it was demonstrated that the issues have been decided by the several benches of this Tribunal and therefore the benefits could not be denied to the same set of employees by citing the delay in filing the appeals. We have also considered the various orders pronounced by the several Tribunals in which the Tribunals had condoned the similar delays in filing the appeals and also granted exemption u/s. 10(10B) of the Act on the compensation received on retrenchment. The Tribunals also accepted that the claim was made by the assessees mistakenly since the employer had deducted the TDS while making the said payments.

14. We have also considered the order of the Coordinate Bench of this Tribunal in ITA No. 992/Bang/2026 dated 29/05/2026 wherein the Tribunal had given the findings as follows:

“15. However, with respect to condonation of delay, the ld. AR submitted that the ld. CIT(A) should have condoned the delay as in the case of 72 cases before the Coordinate Benches across the country in the case of BSNL employees on identical facts and circumstances, delay has been condoned by the ld. CIT(A) itself ranging from 900 to 2000 days. The assessee has produced the list of 72 cases where the delay is condoned by the ld. CIT(A). Further in case of 144 appeals, the Coordinate Benches have condoned the delay in the case of BSNL employees on identical facts and circumstances. Thus on the parity itself, the appeal of the assessee should have been admitted by the ld. CIT(A). Accordingly, I reverse the order of the ld. CIT(A) in not condoning the delay.”

15. We have also considered the reasoning given by the Ld.CIT(A)s in some of the appeals that the assessees had not claimed such deductions in their return of income and also not filed any revised return or application u/s. 154 before the AO and therefore the appeals are not maintainable. It is not the case of the revenue that the assessees are not entitled for such deduction but on technical grounds, the revenue had denied the deductions. Further, the Ld.CIT(A) had also relied on the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze (India) Ltd. vs. CIT and rejected the appeals on the ground of maintainability. We have also gone through the above cited judgment and we do not find that the Hon’ble Supreme Court had restricted the powers of the appellate authorities. In fact, the judgment had restricted the power of the AO and therefore the above said judgment would not be applicable to the facts of the present case. Further, the assessees had mistakenly claimed the deduction in the original return of income and therefore there is no question of saying that the assessees cannot raise the issue for the first time before the Ld.CIT(A). Further, the department had accepted that the benefit should be granted in respect of the employees of BSNL and therefore the plea that they are not workman to get the benefit is not correct. Therefore, the orders of the Ld.CIT(A)s are liable to be interfered.

16. Similarly, the other issue of exemption claimed on the leave encashment was also addressed by the Hon’ble Kerala High Court in the above referred judgment by holding that the retired employees from BSNL under the Voluntary Retirement Scheme, 2019 are entitled for the leave encashment tax exemption as they are deemed to be Central Government employees. We have also considered the decisions of the Hon’ble Jaipur and Indore Benches in ITA No. 1139/JPR/2025 dated 07/10/2025 and ITA No. 233/IND/2025 dated 27/02/2026 wherein it was held that the enhanced limit of exemption of Rs. 25,00,000/- introduced by the Gazette Notification No.31/2023 dated 24.05.2023 w.e.f. 01/04/2023 u/s. 10(10AA) is a beneficial one and it should be applied at the time of the appellate jurisdiction. In all the appeals, the assessees had on the wrong understanding, had claimed a deduction of Rs. 3 Lakhs u/s. 10(10AA) of the Act whereas they are entitled for the entire leave encashment as eligible for deduction u/s. 10(10AA) of the Act. This dispute was also accepted by the various Tribunals and also by the Ld.CIT(A)s and by following the principle of equity, we are also allowing the entire leave encashment as eligible for deduction u/s. 10(10AA) of the Act.

17. Therefore, both the issues are covered by the earlier orders of the Coordinated Benches of this Tribunal and against which no further proceedings were taken up by the revenue and therefore the said orders have become final and in that circumstances, we are also taking the same view. Insofar as the delay in filing the appeals before the Ld.CIT(A), we have taken note of the fact that the Ld.CIT(A)s had condoned the delay in filing the appeals of 72 assessees on identical facts in which the delays are ranging from 900 to 2000 days. We have also taken note of another fact that the Coordinated Benches had condoned the similar delays in the 178 appeals filed by the employees on similar facts and circumstances. In view of the above said facts, we are of the view that the Ld.CIT(A) ought to have condoned the delay and entertained the appeals and decided the appeals on merits instead of dismissing the appeals. Similarly, the orders of the Ld.CIT(A)s dismissing the appeals on the ground of maintainability is also not correct. Therefore, in the interest of justice, instead of condoning the delays and remitting this issue back to the Ld.CIT(A), we are passing these orders on merits after condoning the said delays and allow the appeals filed by the assessees and granted the relief of exemption u/s. 10(10B) and also granted the entire leave encashment received as eligible for exemption u/s. 10(10AA) of the Act. Considering the several orders of the Coordinated Benches of this Tribunal as well as the orders of the Ld.CIT(A), we are allowing the appeals filed by the assessees insofar as the claims made u/s. 10(10B) and 10(10AA) of the Act.

18. In the result, the appeals filed against the dismissal orders of the Ld.CIT(A) are allowed and the benefits of exemption u/s. 10(10B) as well as benefit of the entire leave encashment is allowed u/s. 10(10AA) of the Act.

19. In the combined result, all the appeals filed by the assessees are allowed.

Order pronounced in the open court on 24^th July, 2026.