BSNL VRS Compensation Exempt U/s 10(10B): Delayed Claims Allowed

Lata Muralidhar Joshi Vs ITO (ITAT, Bangalore Bench)

Wrong Section Is Not a Life Sentence: BSNL VRS Compensation Exempt U/s 10(10B)—Delayed Appeals & Fresh Claims Allowed

Summary: The appeals were filed by five former employees of Bharat Sanchar Nigam Ltd. (BSNL) who had retired under the BSNL Voluntary Retirement Scheme, 2019. Since the facts & legal controversy were common, the Bangalore ITAT disposed of all the appeals through a consolidated order.

The Scheme was introduced as part of BSNL’s restructuring exercise to reduce costs arising from persistent losses. The employees were around 50 years of age & were stated to be unfamiliar with the new technologies being adopted by BSNL.

Though labelled a Voluntary Retirement Scheme, the assessees contended that, in substance, it was a retrenchment exercise intended to reduce the workforce.

Compensation Paid in Four Instalments

Under the Scheme, employees received ex gratia/compensation in four equal instalments. The first instalment was paid during FY 2019-20 relevant to AY 2020-21, while the remaining three instalments were paid during FY 2020-21 relevant to AY 2021-22.

BSNL deducted tax at source from the compensation. Because of such TDS, the employees believed that the amount was taxable. Some assessees claimed the limited exemption of ₹5 lakh u/s 10(10C) & offered the balance to tax. Others, for want of proper legal advice, did not claim any exemption.

The returns were processed by CPC & intimations u/s 143(1) were issued accepting the income returned.

Harish Kumar Decision Reveals the Correct Exemption

Subsequently, the employees came to know of the Chandigarh ITAT’s decision in Harish Kumar v. ITO (2025) 175 taxmann.com 379, holding that compensation received by BSNL employees under the VRS, 2019 was, in substance, retrenchment compensation eligible for exemption u/s 10(10B).

Based on that decision, the assessees filed delayed appeals before the CIT(A), claiming exemption under the correct provision. Applications seeking condonation of delay were also submitted.

The CIT(A)s, however, rejected the appeals on different technical grounds. In some cases, the appeals were dismissed solely as time-barred. In others, it was held that:

• no revised return had been filed;
• no application u/s 119(2)(b) had been made before the PCIT;
• a fresh claim could not be raised at the appellate stage;
• the intimations u/s 143(1) contained no apparent infirmity; or
• the compensation did not constitute retrenchment compensation.

Reliance was also placed upon Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC) to deny the fresh claim.

Same Employees Cannot Receive Different Tax Treatment

Before the ITAT, the assessees pointed out that several Benches at Ahmedabad, Pune, Chandigarh, Jaipur, Indore & Bangalore had already allowed exemption u/s 10(10B) to similarly placed BSNL employees.

It was argued that many CIT(A)s had condoned delays ranging from 900 to 2,000 days in identical cases. Numerous coordinate Benches had also condoned comparable delays & granted relief.

Denying exemption to the present employees only because their appeals were filed late would result in unequal treatment within the same class of BSNL retirees & unjust enrichment of the Revenue.

The Department argued that the assessees had voluntarily offered the compensation to tax, had not made the claim in their returns & had failed to establish sufficient cause for delay. It also contended that the employees were not “workmen” eligible for exemption u/s 10(10B).

Technical Delay Cannot Defeat Settled Substantive Relief

The Tribunal noted that the claim of BSNL employees stood covered by several earlier decisions granting exemption u/s 10(10B). Those decisions had attained finality, as the Revenue had not pursued further proceedings against them.

The ITAT referred particularly to its coordinate Bench order in ITA No. 992/Bang/2026 dated 29.05.2026, which recorded that CIT(A)s had condoned delay in 72 identical BSNL cases & coordinate Benches had condoned delay in a large number of similar appeals.

The Tribunal found no justification for denying equivalent treatment to the present assessees. An employee who paid tax under an incorrect understanding—reinforced by the employer’s deduction of TDS—could not be permanently deprived of the exemption lawfully available to him.

Accordingly, the delays in filing the appeals before the CIT(A) were condoned.

Goetze Restricts the AO—not Appellate Authorities

The ITAT rejected the CIT(A)’s reliance on Goetze (India) Ltd. It clarified that the Supreme Court’s decision restricts the AO from entertaining a fresh claim otherwise than through a revised return. It does not curtail the powers of appellate authorities to entertain a legitimate legal claim arising from facts already on record.

Therefore, failure to claim exemption u/s 10(10B) in the original or revised return did not prevent the CIT(A) or ITAT from granting lawful relief.

The employees had either claimed exemption under the wrong provision, namely s.10(10C), or omitted the claim due to lack of proper advice. Such a mistake could be corrected in appellate proceedings.

Instead of restoring the matters to the CIT(A), the Tribunal itself decided the appeals on merits. It held that the compensation received under the BSNL VRS, 2019 was eligible for exemption u/s 10(10B).

All five appeals were accordingly allowed.

Legal Principle

A legitimate exemption cannot be denied merely because the assessee claimed it under the wrong section, omitted it from the return or approached the appellate authority belatedly after discovering the correct legal position. Goetze (India) restricts only the AO’s power to entertain a fresh claim; it does not disable appellate authorities from granting lawful relief. When identically placed BSNL retirees have already received exemption u/s 10(10B), technicalities cannot create a separate class of taxable retirees from the same VRS.

Cases Discussed

• Harish Kumar v. ITO, ITA No. 42/CHD/2025, dated 30.05.2025 — ITAT Chandigarh.
• Goetze (India) Ltd. v. CIT, (2006) 284 ITR 323 (SC).
• ITA No. 992/Bang/2026, order dated 29.05.2026 — Coordinate Bench, ITAT Bangalore.
• Supreme Court judgment reported in (2014) 11 SCC 351.
• Majji Sannemma @ Sanyasirao v. Reddy Sridevi & Ors., Civil Appeal No. 7696 of 2021, dated 16.12.2021.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH

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 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. In some appeals, the assessees have not claimed the same in the return of income since they have no proper legal advice. 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 taxmann.com 379 in which the retrenchment compensation received by the BSNL employees were treated as eligible for exemption u/s. 10(10B) of the Act.

5. The assessees had filed their return of income showing the part of the retrenchment compensation as taxable income. 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. 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) of the Act.

6. In the appeals in ITA Nos. 2317 & 2524/Bang/2026, the appeals were rejected by the Ld.CIT(A) on the ground of limitation. In the appeals in ITA Nos. 2321/Bang/2026, the Ld.CIT(A) had dismissed the appeal on the ground of limitation as well as on the ground that the assessee had not filed any revised return and also not filed any application to condone the said delay in filing the return before the Ld.PCIT and further held that the Ld.CIT(A) has no power to accept the appeal in which the fresh claim was made by relying on the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze (India) Ltd.

7. In the appeal in ITA No. 2441/Bang/2026, the Ld.CIT(A) had dismissed the appeal on the ground of limitation and also held that the intimation does not suffer from any infirmity and the fresh claim could not be raised at the appellate stage. In the appeal in ITA No. 2468/Bang/2026, the Ld.CIT(A) had dismissed the appeal on the ground that fresh claim cannot be raised in the appeal and also the compensation received would not be a retrenchment compensation eligible for exemption u/s. 10(10B) 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.

10. 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 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. 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. 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. The respective Ld.ARs further submitted that in some appeals, 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 assessee is 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. cannot be applied to the AOs but applicable to the appellate authorities including this Tribunal.

11. 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. The Ld.DR further submitted that the assessees are not workmen and therefore they are not entitled for the exemption u/s. 10(10B) of the Act.

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

13. 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). 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.

14. 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. 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. In some of the orders, the Tribunals also granted the relief when the assessee had, on the wrong understanding of the provisions, not claimed the exemption under the respective provisions.

15. 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.”

16. 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 before the AO and not filed any delay condonation application before the Ld.PCIT u/s. 119(2)(b)of the Act 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 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. Therefore, the orders of the Ld.CIT(A)s are liable to be interfered.

17. 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.

18. Therefore, this issue is 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 themselves 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 210 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) 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 claim made u/s. 10(10B) of the Act.

19. In the result, the appeals filed against the dismissal orders of the Ld.CIT(A) are allowed and the assessees are entitled for the benefits of exemption u/s. 10(10B) of the Act.

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

Order pronounced in the open court on 28th August, 2026.