Kesarkar Vittal Sathya Naryana Rao Vs ITO (ITAT Bangalore)
BSNL VRS Compensation and Entire Leave Encashment Held Exempt: Bangalore ITAT
In a batch of four appeals involving former BSNL employees, the assessees had initially claimed only ₹5 lakh exemption under section 10(10C) on VRS compensation and restricted the leave-encashment exemption to ₹3 lakh, following Form 16 and the legal understanding then prevailing. After learning of subsequent judicial decisions, they claimed complete exemption for the VRS compensation under section 10(10B) and the entire leave encashment under section 10(10AA)(i). The CIT(A) dismissed the appeals on limitation, including one involving a delay of 1,614 days.
The Bangalore ITAT held that the delay resulted from a bona fide misunderstanding of the applicable legal provisions and was neither wilful nor attributable to gross negligence. It distinguished the Supreme Court decisions relied upon by the Revenue, observing that those cases involved unexplained delay, lack of diligence or absence of bona fides. A long delay cannot automatically be rejected where sufficient cause is established.
On merits, the Tribunal held that ex-gratia or retrenchment compensation received under the BSNL VRS-2019 is fully exempt under section 10(10B). It further held that BSNL employees absorbed from the Department of Telecommunications are deemed to be Central Government employees for the purpose of leave-encashment exemption and are therefore entitled to exemption of the entire amount under section 10(10AA)(i).
The Tribunal reiterated that legitimate statutory relief cannot be denied merely because the assessee originally claimed exemption under an incorrect provision, failed to file a revised return or approached the appellate authority belatedly. The CIT(A)’s orders were accordingly set aside and the AO was directed to grant both exemptions.
Cases Discussed
- Harish Kumar vs. ITO, Ward 5(5), Chandigarh (ITAT), ITA No. 42/CHD/2025 dated 30.05.2025
- H. GURUSWAMY & ORS vs A. KRISHNAIAH SINCE DECEASED BY LRS (Supreme Court), Civil Appeal No. 317 of 2025
- SANCHAR NIGAM PENSIONERS’ WELFARE ASSOCIATION vs UNION OF INDIA (Kerala High Court), WP(C) No. 16360 of 2023
- ITA No. 233/IND/2025 (Indore Bench), ITA No. 233/IND/2025 dated 27/02/2026
- ITA No. 1139/JPR/2025 (Jaipur Bench), ITA No. 1139/JPR/2025 dated 07/10/2025
- Goetze (India) Ltd. vs. CIT, (Supreme Court), 284 ITR 323
- Majji Sannemma @ Sanyasirao v. Reddy Sridevi & Ors. (Supreme Court), Civil Appeal No. 7696 of 2021
- Brijesh Kumar & Ors. vs State of Haryana & Ors. (Supreme Court), SPECIAL LEAVE PETITION (CIVIL) NOS.6609-6613 OF 2014
- Civil Writ Jurisdiction Case Number 12326 of 2017 (Patna High Court), dated 26/02/2024
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals are filed by the different Assessees against the different orders of Ld. Commissioner of Income Tax-Appeal for the Assessment Years 2018-19, 2020- 21 and 2021-22. The issues involved in all appeals are common and interconnected. Therefore, all the appeals were clubbed together for convenience and brevity.
ITA No. 2440/Bang/2026 for the asst. year 2020-21
2. At the outset, we note that there is a delay of 34 days in filing the present appeal before us. The assessee has filed a petition for condonation of delay supported by a sworn affidavit explaining the circumstances which prevented him from filing the appeal within the prescribed time.
3. The assessee has explained that during the relevant period, his aged mother, who was 93 years old, was hospitalised and undergoing medical treatment and subsequently passed away on 07.03.2026. Being the only surviving son, the assessee was thereafter occupied with post-death ceremonies and other family obligations. Due to these circumstances, he could not attend to the tax-related compliances within the prescribed time. It was submitted that the delay was neither intentional nor deliberate, but occurred due to circumstances beyond his control. The above facts have been affirmed by the assessee on oath.
4. The Ld. DR, on the other hand, opposed the condonation of delay and submitted that the assessee was required to file the appeal within the period prescribed under the Act.
5. We have considered the explanation of the assessee and the objection of the Ld. DR. We find that the delay is only of 34 days. The reason given by the assessee is supported by a sworn affidavit. The illness and subsequent death of the assessee’s aged mother, followed by the related family obligations, provide a reasonable explanation for his inability for filing of the appeal within the prescribed time. There is nothing on record suggesting that the delay was deliberate or that the assessee stood to gain by filing the appeal late. In our considered view, the assessee has shown sufficient cause for the delay. The right to have the appeal decided on merits should not be denied merely because of a short delay arising from genuine personal circumstances. Accordingly, in the interest of justice and fair-play, we condone the delay of 34 days and admit the appeal for adjudication on merits.
6. The assessee in the appeal has raised multiple grounds in the appeal memo. However, the issues raised revolve around the allowability of exemption under section 10(10B) of the Act with respect to the receipt of ex gratia compensation under the BSNL Voluntary Retirement Scheme 2019 (VRS 2019) and claim of exemption of leave encashment u/s 10(10AA)(i) of the Act.
6.1 The facts in brief are that the assessee is an individual who was employed with the Bharat Sanchar Nigam Limited (BSNL) absorbed from the Department of Telecommunications. The assessee opted for voluntary retirement under the BSNL VRS scheme 2019. Accordingly, the assessee was entitled to receive ex gratia compensation on account of VRS received in two years, viz-a-viz the year under consideration as well as the next year (F.Y. 2019-20 & 2020-21). Accordingly, a sum of Rs. 8,97,679/-was received by the assessee during the year as part of the ex-gratia compensation, which was subject to TDS by BSNL after providing exemption under section 10(10C) of the Act for Rs. 5 Lakh.
6.2 In the return of income filed for the year, the assessee offered income on account of the impugned receipt of VRS compensation after claiming exemption of Rs. 5 Lakh under section 10(10C) of the Act as per Form 16 issued by BSNL. The return was processed, accepting the returned income vide intimation order u/s 143(1) dated 28th August 2021.
6.3 Subsequently, the assessee, based on several decisions of Tribunals in cases involving different employees of BSNL, came to know that the entire amount of retrenchment compensation received under the BSNL VRS scheme 2019 was exempt from tax as u/s 10(10B) of the Act.
6.4 Likewise, the assessee also received leave encashment on earned leave during the employment period with DOT as well as with BSNL. The receipt pertaining to DOT was claimed fully exempt, whereas with regard to the receipt pertaining to the BSNL employment period, exemption to the extent of Rs. 3 lakhs only was claimed out of the total receipt of Rs. 8,20,031/- only. Subsequently, he realised that the CBDT has increased the limit of exemption u/s 10(10AA)(ii) of the Act to Rs. 25 lakh and the various Benches of the Tribunal have held such increase in exemption limit as retrospective.
6.5 Therefore, the assessee opted to file an appeal before the learned CIT(A) against the intimation order dated 28th August 2021, requesting the learned CIT(A) to grant the exemption on the full amount of retrenchment compensation on account of the VRS scheme and exemption of the full amount of leave encashment from BSNL. Accordingly, it was requested to allow the refund of taxes paid.
6.6 However, the learned CIT(A) found that the assessee’s appeal was delayed by 1614 days, which is an inordinate and huge delay. Further, the reasons explained by the assessee do not amount to a reasonable and sufficient cause. Hence, the learned CIT(A) dismissed the assessee’s appeal in limine on account of limitation.
6.7 Being aggrieved by the order of the ld. CIT-A, the assessee is in appeal before us.
7. The learned AR for the assessee before us submitted that due to the 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 over 5 lakh and receipt of leave encashment over 3 lakhs to tax. Subsequently, based on the decision of the Hon’ble Chandigarh Bench of the Tribunal in the case of 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) of the Act, and based on various other decisions of Tribunal, the assessee now seeks exemption of such compensation and earned leave.
7.1 The learned AR further submitted that the Hon’ble Tribunal, dated 29-04-2026, involving more than 100 cases of BSNL employees in ITA Nos. 1117 & 1449/Pune/2026, condoned the delay in filing of appeal before the learned CIT(A) in identical facts and circumstances and allowed the assessee’s appeals on merit.
7.2 Regarding the receipt of leave encashment pertaining to the period of leave earned with BSNL employment. The learned AR submitted that the Hon’ble Kerala High Court in its recent judgment in the case of SANCHAR NIGAM PENSIONERS’ WELFARE ASSOCIATION vs UNION OF INDIA IN WP(C) No. 16360 of 2023 has held that BSNL employees who were absorbed from the Department of Telecommunications shall be deemed to be government employees for the purpose of exemption under section 10(10AA) of the Act. Accordingly, the learned AR contended that the assessee shall be entitled to the full amount of receipt of leave encashment as a government employee.
8. On the contrary, the learned DR supported the order of the Ld. CIT(A) and submitted that the assessee had failed to explain the delay of 1614 days. Relying on the judgments of the Hon’ble Supreme Court in the case of Majji Sannemma @ Sanyasirao v. Reddy Sridevi & Ors. in Civil Appeal No. 7696 of 2021, in the case of H. GURUSWAMY & ORS vs A. KRISHNAIAH SINCE DECEASED BY LRS in Civil Appeal No. 317 of 2025 and in the case of Brijesh Kumar & Ors. vs State of Haryana & Ors. in SPECIAL LEAVE PETITION (CIVIL) NOS.6609-6613 OF 2014, he argued that such a long delay could not be condoned in the absence of sufficient cause. On merits, he submitted that the assessee retired from BSNL and was therefore eligible only for the limited exemption under the provisions of the Act.
9. We have heard the rival contentions of both the parties and carefully perused the materials available on record. We find that the appeal before the Ld. CIT(A) was filed with a delay of 1614 days. The assessee explained that at the time of filing the return of income, the compensation received under the BSNL VRS-2019 was offered to tax based on the understanding and professional advice then available. Similarly, the receipt of earned leave pertaining to BSNL employment was also offered to tax on account of a wrong understanding and available professional advice. Subsequently, on becoming aware of the decisions of the Coordinate Benches granting exemption u/s 10(10B) of the Act in identical cases of BSNL employees, the assessee raised the claim by filing an appeal before the Ld. CIT(A), who, however, declined to condone the delay and dismissed the appeal in limine.
9.1 At the outset, we note that a coordinate bench of this Tribunal vide order dated 22nd July 2026 has passed a consolidated order involving 13 appeals filed by 10 different assessee who were the employees of BSNL in ITA Nos. 1624 & 1625, 1646, 1662, 1663, 1664, 1666, 1675 & 1697, 1692, 1694 &1695 /Bang/2026. In the mentioned appeals, some involve the issue of exemption of ex-gratia/retrenchment compensation received on opting for the BSNL Voluntary Retirement Scheme 2019, some involve exemption of receipt of leave encashments at the time of retirement, and some involve both the issues. The appeals filed by these assessees before the learned CIT(A) were dismissed on account of various reasons which are broadly categorised as under:
i. Dismissed on account of limitation being the delay in filing of appeal not condoned
ii. Dismissed on account of non-maintainability since no adjustment was made in the intimation issued under section 143(1) of the Act and no mistake was found in the intimation issued under section 143(1) of the Act.
iii. Dismissed on the ground that exemption was not claimed in the return of income and claimed before the authority without filing a revised return.
iv. Dismissed on the ground that the assessee is not a workman, the provisions of section 10(10B) of the Act are not applicable.
9.2 The Bench in the above-mentioned appeals, after considering all the material aspects and rival arguments, decided both the issues viz exemption of receipt of ex- gratia/retrenchment compensation under section 10(10B) of the Act and leave encashment under section 10(10AA)(i) of the Act, in favour of those assessees. In deciding the issue of claim of exemption under section 10(10B) of the Act for receipt of retrenchment compensation, the bench referred to the decision of the Chandigarh Bench of the Tribunal in the case of Harish Kumar vs ITO (supra) and other decisions of Tribunals also. Likewise, while deciding the issue of the exemption of leave encashment under section 10(10AA)(i) of the Act, the bench referred to the judgment of the Hon’ble Kerala High Court in the case of SANCHAR NIGAM PENSIONERS’ WELFARE ASSOCIATION vs UNION OF INDIA IN WP(C) No. 16360 of 2023.
9.3 In our considered opinion, since the facts involved in the case of the present assessee and the assessees in the above-mentioned appeals are identical, the finding of the coordinate bench vide order dated 22nd July shall be fully applicable to the present appeals before us. The consolidated finding of the coordinate bench in ITA Nos. 1624 & 1625, 1646, 1662, 1663, 1664, 1666, 1675 & 1697, 1692, 1694 &1695 /Bang/2026 for ready reference is extracted as under:
11. 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.
12. 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.
13. 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.”
14. 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.
15. 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. Further, the Hon’ble Patna High Court in its judgment in Civil Writ Jurisdiction Case Number 12326 of 2017 dated 26/02/2024 had decided about the provision that whether the same would be equally applicable to the employees of the State Bank of India or not since it discriminates between the employees of State Bank of India and government employees. In that context, the Hon’ble Patna High Court had held that there is no discrimination and therefore it is not ultra virus to the Constitution of India. Therefore, the said principles could not be applied to the facts of the present case.
16. 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 144 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.
17. 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.
9.4 We further note that the Coordinate Bench of Chandigarh Tribunal, Pune Tribunal, Ahmedabad Tribunal, etc also in a batch of appeals involving BSNL employees on identical facts and circumstances, has allowed the assessee’s appeal in those cases even though there was considerable delay in filing the appeal before the learned CIT(A) and the learned CIT(A) dismissed the appeal without condoning the delays. 9.5 Before parting, we also feel it pertinent to deal with case laws relied by the learned DR in the context of condonation of delay.
9.6 The reliance placed by the Ld. DR on the judgment of the Hon’ble Supreme Court in Majji Sannemma @ Sanyasirao v. Reddy Sridevi & Ors. in Civil Appeal No. 7696 of 2021, in our humble understanding, does not assist the Revenue in the facts of the present case. In that case, there was a substantial delay in filing a second appeal arising from a civil suit. The explanation furnished by the parties related only to illness for the period from 01.01.2017 to 15.03.2017. There was no explanation whatsoever for the period after 15.03.2017 until the filing of the second appeal in the year 2021. On those facts, the Hon’ble Supreme Court recorded a specific finding that there was gross negligence and want of due diligence. The Hon’ble Supreme Court further found that the Hon’ble High Court had condoned the delay merely by observing that the appeal should be heard on merits and that no prejudice would be caused. The Hon’ble High Court had not recorded any finding that sufficient cause was actually shown. It was in those circumstances that the order condoning the delay was set aside.
9.7 The present cases/appeals before us, in our humble understanding, stand on a materially different footing. As such, the assessee has explained the circumstances which led to the delay. The assessee earlier filed the return as per the wrong legal understanding by claiming only partial exemption on receipt of compensation under the BSNL VRS Scheme 2019. On the realisation of the correct legal position after the decision of the coordinate bench of Chandigarh in Harish Kumar vs. ITO, Ward 5(5), Chandigarh (ITA No. 42/CHD/2025 dated 30.05.2025), which was further followed by several benches of the Tribunal, the assessee proceeded to file an appeal before the learned CIT(A) seeking exemption of the full amount of receipt of VRS compensation. Thus, it is not a case where the assessee wilfully and knowingly filed a delayed appeal. We have independently examined the cause of delay and find it to be bona fide and reasonable. The ratio of the Hon’ble Supreme Court in the above-mentioned case relied by the learned DR, in our humble understanding, is that delay cannot be condoned where no sufficient explanation is furnished, and gross negligence or lack of bona fides is established. The said judgment does not lay down that every long delay must be rejected irrespective of the explanation furnished. In fact, the judgment itself recognises that where sufficient cause is shown and no negligence, inaction or want of bona fides is attributable to the party, the discretion should be exercised to advance substantial justice.
9.8 Similarly, the judgments of the Hon’ble Supreme Court in the case of H. GURUSWAMY & ORS vs A. KRISHNAIAH SINCE DECEASED BY LRS in Civil Appeal No. 317 of 2025 and in the case of Brijesh Kumar & Ors. vs State of Haryana & Ors. in SPECIAL LEAVE PETITION (CIVIL) NOS.6609-6613 OF 2014, relied on by the learned DR, is also distinguishable from the facts of the present case on a similar line as discussed in the above paragraphs.
9.9 In view of the above detailed discussion and respectfully following the decision of the Coordinate Bench on identical facts, we are of the view that the assessee is entitled to exemption under section 10(10B) of the Act in the context of receipt of retrenchment compensation on opting for BSNL VRS-2019. Likewise, the assessee shall be entitled to exemption of the entire amount of receipt of leave encashment under section 10(10AA)(i) of the Act as the BSNL employees are deemed as employees of the Department of Telecommunications. Accordingly, we hereby set aside the order of the learned CIT(A) and direct the AO to allow appropriate relief claimed by the assessee. Hence, the ground of appeal raised by the assessee is hereby allowed.
10. In the result, the appeal of the assessee is hereby allowed.
Coming to ITA Nos. 1647, 2430 and 2438/Bang/2026 for the asst. years 2018-19, 2020-21 & 2021-22
11. At the outset, we note that the issues raised by the assessee in its grounds of appeal for the ITA Nos. 1647, 2430 and 2438/Bang/2026 are identical to the issues raised by the assessee in ITA No. 2440/Bang/2026 for the assessment year 2020-21. Therefore, the findings given in ITA No. 2440/Bang/2026 shall also be applicable for ITA Nos. 1647, 2430 and 2438/Bang/2026. The appeal of the Assessee for the ITA No. 2440/Bang/2026 has been decided by us vide paragraph No. 9 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever the findings are for ITA No. 2440/Bang/2026 shall also be applied to ITA Nos. 1647, 2430 and 2438/Bang/2026. Hence, the grounds of appeal filed by the assessee in ITA Nos. 1647, 2430 and 2438/Bang/2026 are hereby allowed.
12. In the result, all the appeals of the different assessee are hereby allowed.
13. In the combined result, all the appeals of the different assessee are hereby allowed.
Order pronounced in the open court on 12th August, 2026
