BSNL VRS Compensation Is Fully Exempt as Retrenchment Compensation

Vikas Vasant Tol Vs ITO (ITAT Pune)

The Pune ITAT held that compensation received by employees under the Bharat Sanchar Nigam Limited Voluntary Retirement Scheme (BSNL VRS-2019) constitutes retrenchment compensation and is a capital receipt fully exempt from tax under Section 10(10B) of the Income-tax Act, 1961, and not merely eligible for the restricted ₹5 lakh exemption under Section 10(10C). The appeals related to assessment years 2020-21 and 2021-22, where the assessees, former BSNL employees, had initially offered the compensation to tax after claiming exemption under Section 10(10C), but subsequently claimed exemption of the entire compensation under Section 10(10B). The Addl./JCIT(A) had dismissed the appeals on account of delay without adjudicating the merits. Relying on earlier Coordinate Bench decisions involving similarly situated BSNL employees, particularly Rajendra Himmatrao Patil vs. ITO and other recent Pune ITAT decisions, the Tribunal held that the compensation was retrenchment compensation covered by Section 10(10B) and constituted a capital receipt exempt from tax. The Tribunal also condoned the 60-day delay in filing two appeals and, finding no contrary material from the Revenue, set aside the orders of the Addl./JCIT(A) and allowed the appeals. The assessees were directed to submit revised computations of income before the respective Jurisdictional Assessing Officers claiming exemption under Section 10(10B), following which the Revenue authorities were directed to verify the computations, recompute the tax liability and grant any resulting refund. The separate claim for full exemption of ₹13,29,910 towards leave encashment was withdrawn and therefore was not adjudicated. The order was pronounced in the open Court on 25 August 2026.

BSNL VRS Compensation Is Fully Exempt as Retrenchment Compensation

The Pune ITAT held that compensation received by employees under the BSNL Voluntary Retirement Scheme, 2019 constitutes retrenchment compensation and a capital receipt, fully exempt from tax under Section 10(10B). It is not merely eligible for the restricted ₹5 lakh exemption under Section 10(10C).

The Tribunal set aside the Addl./JCIT(A)’s orders, which had dismissed the assessees’ appeals because of delay. Following earlier Pune Tribunal decisions involving similarly situated BSNL employees, it directed the assessees to submit revised computations of income to their respective Assessing Officers. The Revenue must verify these computations, recalculate the tax liability and grant any resulting refund.

A 60-day delay in two appeals was also condoned. The separate claim concerning full exemption of ₹13,29,910 leave encashment was withdrawn and therefore not decided.

List of Cases Discussed / Relied Upon

• Shraddha Pralhad Arote & Others vs. ITO,ITA Nos.262 & 261/PUN/2026, order dated 24.03.2026 — cited as a Pune ITAT decision involving the same BSNL VRS-2019 exemption issue.
• Meghmala Sudhir Pathak & Others vs. ITO,ITA Nos.290 & 293/PUN/2026, order dated 24.03.2026 — cited as a Pune ITAT decision involving the same issue.
• Sanjay Bajarang Todali & Ors vs. ITO,ITA No.2090/PUN/2026 & Ors, order dated 30.06.2026 — cited as a recent Coordinate Bench decision on BSNL VRS-2019 compensation.
• Ravindra Kumar Saxena & Anr,ITA Nos.2655/PUN/2026 & Ors, order dated 31.07.2026 — cited as a recent Coordinate Bench decision on the same issue.
• Raju Goral & Ors vs. ITO,ITA Nos.2224/PUN/2026 & Ors, order dated 28.07.2026 — cited as a Coordinate Bench decision holding BSNL VRS-2019 compensation exempt under section 10(10B).
• Prakash Dhondiram Gavali vs. ITO,ITA No.1214/PUN/2026, order dated 21.07.2026 — cited as a Coordinate Bench decision involving the same BSNL VRS compensation issue.
• Tanaji Kedari Sapkar vs. ITO,ITA No.2478/PUN/2024, order dated 07.01.2025 — cited as a Tribunal decision relied upon in support of the exemption claim.
• Avinash Arvind Kulkarni & Anr vs. ITO,ITA Nos.1043 to 1046/PUN/2026, order dated 21.05.2026 — cited as a Coordinate Bench decision on BSNL VRS-2019 compensation.
• Rajendra Himmatrao Patil vs. ITO,ITA Nos.302 & 303/PUN/2026 & Others, order dated 27.03.2026 — followed on identical facts; the decision held BSNL VRS-2019 compensation to be retrenchment compensation and a capital receipt exempt under section 10(10B).
• Jayeshkumar Tulsidas Sutaria Vs. ITO,(2026) 183 taxmann.com 587 (Ahmedabad-Trib.) — relied upon regarding exemption under section 10(10B) and the claim raised at the appellate stage.
• Harish Kumar Vs. ITO,(2025) 175 taxmann.com 379 (Chandigarh-Trib.) — relied upon for treating BSNL VRS compensation as eligible for exemption under section 10(10B).
• Dayal Singh Vs. ITO,ITA 519/CHD/2024 — cited as a decision relied upon concerning the nature and exemption of retrenchment compensation.
• Suresh Pal Chauhan vs. ITO,(2023) 154 taxmann.com 529 (Chandigarh-Trib.) — relied upon regarding exemption under section 10(10B).
• Hindustan Photo Film Workers Welfare Centre Vs. Govt. of India,(2017) 79 taxmann.com 298 (Madras) — relied upon concerning the applicability of section 10(10B) to employees covered by the scheme.
• CIT (TDS) Vs. Hindustan Photo Film Workers Welfare Centre,(2021) 129 taxmann.com 356 (Madras) — cited in relation to the Hindustan Photo Film Workers Welfare Centre litigation.
• Union of India Vs. M/s. Hindustan Photo Film Workers Welfare Centre and others,Special Leave Petition (Civil) Diary No.37247/2017 — cited in relation to the same litigation.
• Shree Rajeshwar Sharma Vs. ITO,ITA No.870/CHD/2018 — cited as a decision relied upon concerning the claim under section 10(10B).
• CIT Vs. Mahalakshmi Textile Mills Ltd.,(1967) 66 ITR 710 (SC) — relied upon regarding the Tribunal’s power to consider a claim on another legal ground.
• PCIT Vs. Karnataka State Cooperative Federation Ltd.,(2021) 128 taxmann.com 1 (Karnataka) — cited among the decisions relied upon.
• CIT Vs. Pruthvi Brokers & Shareholders,(2012) 23 taxmann.com 23 (Bombay) — relied upon regarding the raising of additional claims before appellate authorities.
• Vijay Vishin Meghani vs DCIT,[2017] 398 ITR 250 (Bombay) — cited regarding condonation of substantial delay attributable to professional advice.

FULL TEXT OF THE ORDER OF ITAT PUNE

All the above captioned appeals are directed against the separate orders of the Ld. Addl / JCIT(A) pertaining to assessment years 2020-21 and 2021-22. Since identical grounds have been raised by the respective assessees, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order.

2. Although various grounds of appeal have been raised by the assessees in their respective appeals, all these grounds relate to the issue whether compensation received under the Bharat Sanchar Nigam Limited Voluntary Retirement Scheme – 2019 (in short ‘BSNL VRS-2019’) by the respective assessee – employees of BSNL is in the nature of retrenchment compensation and is a capital receipt not liable to tax and fully exempt under section 10(10B) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). In ITA No.2734/PUN/2026, the assessee has raised an additional ground “On the facts and in the circumstances of the case, the Learned CIT(A) has grossly erred in law and on merits in denying the assessee the benefit of exemption in respect of the entire amount of leave encashment of Rs.13,29,910/- and in arbitrarily restricting such relief to Rs.6,81,040/-, without appreciating that the assessee was entitled to exemption of the full amount under the applicable provisions” which has been withdrawn by the assessee by letter dated 11.08.2026 and hence not adjudicated.

3. There is a delay of 60 days in filing of the appeals in ITA Nos.2734 & 2735/PUN/2026 before the Tribunal for which the assessee has filed separate condonation applications along with the affidavits explaining the reasons for such delay. After considering the contents of the condonation applications filed along with the affidavits and after hearing the Ld. DR, the delay in filing of both the appeals is condoned and both the appeals are admitted for adjudication.

4. Briefly stated, the facts of the case are that the assessees in the captioned appeals are ex-employees of BSNL. As a part of its revival package, the Government decided to reduce the workforce through BSNL VRS-2019 to the employees of aged 50 years and above and on retirement from BSNL such employees were paid ex-gratia compensation by BSNL under the said Scheme. During the relevant assessment years 2020-21 and 2021-22, each of the respective employees offered the amount so received to tax after claiming exemption u/s 10(10C) of the Act of Rs.5,00,000/- and paid the due taxes on the remaining amount of compensation over and above Rs.5,00,000/- wherever applicable.

5. Before the Ld. Addl / JCIT(A) the assessee(s) raised a new claim that the entire amount of compensation received from BSNL being capital receipt is not liable to tax and fully exempt as per the provisions of section 10(10B) of the Act. However, the Ld. Addl / JCIT(A) dismissed the appeals on account of delay in filing of the appeals.

6. Aggrieved, the assessee(s) are in appeal before the Tribunal and all the grounds of appeal relate to the above issues.

7. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. Addl / JCIT(A) and the paper book filed by the Ld. AR. We have also considered the various decisions cited before us. At the outset, the Ld. AR submitted that the impugned issue stands squarely covered in favour of the assessee(s) by the decision of the Co-ordinate Bench of the Tribunal in various bunch of appeals wherein the Tribunal in turn relying on the orders of other Tribunals involving the identical set of facts have allowed the appeal of the assessee. In support thereof, the Ld. AR further relied on following cases:

i) Shraddha Pralhad Arote & Others vs. ITO vide ITA Nos.262 & 261/PUN/2026 order dated 24.03.2026 for assessment years 2020-21 and 2021-22 & Ors.

ii) Meghmala Sudhir Pathak & Others vs. ITO vide ITA Nos.290 & 293/PUN/2026 order dated 24.03.2026 for assessment years 2020-21 and 2021-22 & Ors.

iii) Sanjay Bajarang Todali & Ors vs. ITO vide ITA No.2090/PUN/2026 & Ors order dated 30.06.2026 for assessment years 2020-21 and 2021-22.

iv) Ravindra Kumar Saxena & Anr vide ITA Nos.2655/PUN/2026 & Ors order dated 31.07.2026 for assessment years 2020-21 and 2021-22.

v) Raju Goral & Ors vs. ITO vide ITA Nos.2224/PUN/2026 & Ors order dated 28.07.2026 for assessment years 2020-21 and 2021-22.

vi) Prakash Dhondiram Gavali vs. ITO vide ITA No.1214/PUN/2026 order dated 21.07.2026 for assessment year 2021-22.

vii) Tanaji Kedari Sapkar vs. ITO vide ITA No.2478/PUN/2024 order dated 07.01.2025 for assessment year 2018-19.

viii) Avinash Arvind Kulkarni & Anr vs. ITO vide ITA Nos.1043 to 1046/PUN/2026 order dated 21.05.2026 for assessment years 2020-21 and 2021-22

8. The Ld. DR on the other hand though supported the order of the Ld. Addl / JCIT(A) but he could not bring on record any contrary material to controvert the submissions of the Ld. AR.

9. We find that the Pune Bench of the Tribunal under the identical set of facts in the case of Rajendra Himmatrao Patil vs. ITO (ITA Nos.302 & 303/PUN/2026) & Others for assessment years 2020-21 and 2021-22, vide its order dated 27.03.2026 has decided the impugned issue in favour of the assessee by observing as under:

“5. Ld. Counsel for the assessee at the outset justifying the delay in filing of appeals before ld.CIT(A) submitted that the issue of claiming benefit of exemption u/s.10(10B) of the Act for the amount received as compensation from BSNL for the force retirement has been adjudicated by the Coordinate Benches of Chandigarh as well as Ahmedabad and other Tribunals consistently holding in favour of the assessee(s). He also submitted that in various cases dealt by the Coordinates Benches, the alleged claim of exemption u/s.10(10B) of the Act has been made for the first time and the same has been admitted by the Tribunal and relief has been granted. Reliance placed on the decision of Coordinate Bench, Ahmedabad in the case of Jayesh Kumar Tulsidas Sutaria Vs. ITO (2026) 183 taxmann.com 587 (Ahmedabad-Trib.)

6. So far as the claim that the alleged sum received in the form of Retrenchment Compensation from BSNL under the forced retirement is a Capital receipt not chargeable to tax and exemption available u/s.10(10B) of the Act has been decided in favour of the assessee(s), ld. Counsel for the assessee placed reliance in the following decisions:

1. Harish Kumar Vs. ITO (2025) 175 taxmann.com 379 (Chandigarh-Trib.)

2. Dayal Singh Vs. ITO – ITA 519/cHD/2024

3. Suresh Pal Chauhan vs. ITO (2023) 154 taxmann.com 529 (Chandigarh- Trib.)

4. Hindustan Photo Film Workers Welfare Centre Vs. Govt. of India (2017) 79 taxmann.com 298 (Madras)

5. CIT (TDS) Vs. Hindustan Photo Film Workers Welfare Centre (2021 129 taxmann.com 356 (Madras)

6. Union of India Vs. M/s. Hindustan Photo Film Workers Welfare Centre and others _ Special Leave Petition (Civil) Diary No.37247/2017

7. Shree Rajeshwar Sharma Vs. ITO – ITA No.870/CHD/2018

8. CIT Vs. Mahalakshmi Textile Mills Ltd.(1967) 66 ITR 710 (SC)

9. PCIT Vs. Karnataka State Cooperative Federation Ltd. (2021) 128 taxmann.com 1 (Karnataka)

10. CIT Vs. Pruthvi Brokers & Shareholders (2012) 23 taxmann.com 23 (Bombay)

7. On the other hand, ld. DR supported the orders of ld.CIT(A) and submitted that firstly the assess(s) have not made this claim in the regular returns of income and themselves paid due taxes and such claim ought to have been made through revised return. He also submitted that the sum received from BSNL is on account of Voluntary Retirement Scheme and for such amount received under the VRS, 2019, the assessee(s) are only eligible for the exemption to the extent of Rs.5.00 lakh as provided u/s.10(10C) of the Act.

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 Assessee have filed Returns of Income based on professional Advise 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 2984days, 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, 1961 and 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 facts 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.

12. Respectfully following the decision of ITAT Pune (supra) 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 Officer s 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.”

10. Similar view has been taken by the Coordinate Bench in the recent case of Sanjay Bajarang Todali and others, order dated 30.06.2026 and in the case of Ravindra Kumar Saxena and others, order dated 31.07.2026.

11. Since the facts of the all the above captioned appeals are identical to the facts in the case of Rajendra Himmatrao Patil vs. ITO (ITA Nos.302 & 303/PUN/2026) & Others (supra) and other recent decision of the Tribunal (supra) and therefore, respectfully following the above decisions of the Coordinate Bench(es) and in the absence of any contrary material brought on record by the Ld. DR, we set aside the order of the Ld. Addl / JCIT(A). The grounds of appeal raised by the respective assessee(s) are accordingly allowed.

12. In the result, all the captioned appeals filed by the respective assessee(s) are allowed.

Order pronounced in the open Court on 25th August, 2026.