Shanmugasundar Vs ITO (ITAT Chennai)
BSNL VRS Ex-Gratia Claimed After Filing Return: Chennai ITAT Says Appellate Authority Can Entertain the Claim
An employee disclosed ₹38,23,242 received under BSNL’s VRS-2019 scheme in his return and paid tax on it. Later, relying on a Tribunal decision concerning the same scheme, he sought exemption under section 10(10B) through a rectification petition. The CPC refused the claim, and the first appellate authority rejected it as a fresh claim not made in the return.
The Chennai Tribunal disagreed with the appellate authority’s approach. It held that the restriction discussed in Goetze (India) Ltd. v. CIT applies to the Assessing Officer’s power to entertain a fresh claim outside a revised return; it does not prevent an appellate authority from considering that claim. Following an earlier Chennai Bench decision on BSNL VRS-2019, the Tribunal directed the AO to allow the assessee’s claim.
The claim arose after the return was filed
For AY 2021–22, Shanmugasundar filed a return declaring total income of ₹44,40,070. That figure included ₹38,23,242 of ex-gratia compensation received from BSNL under its Government-approved VRS-2019 scheme. The return was processed under section 143(1).
The assessee subsequently came across a coordinate Bench decision holding that compensation under the scheme was eligible for exemption under section 10(10B). He filed a petition under section 154, seeking correction of the tax treatment of the amount already disclosed. The CPC did not grant the exemption in its rectification order.
On appeal, the first appellate authority declined to consider the claim. It reasoned that the assessee was making a fresh claim which would alter the return, and relied on the Supreme Court decision in Goetze (India) Ltd. v. CIT, 284 ITR 323. The question before the Tribunal was therefore both procedural—whether the appellate authority could consider the claim—and substantive—whether the BSNL payment qualified under section 10(10B).
Goetze does not bar a claim before appellate authorities
The Tribunal held that the first appellate authority had applied Goetze too widely. The Supreme Court’s restriction in that case concerns a claim made before the AO without filing a revised return. It does not curtail the powers of an appellate authority to entertain a claim omitted from the original return.
Here, the payment and the scheme under which it was received were already on record. The Tribunal therefore found that the assessee was entitled to raise the claim before the first appellate authority, even though he had included the ex-gratia amount as taxable income in his return. The appeal could not be rejected merely because granting relief would change the income originally declared.
That distinction was decisive. Reporting a receipt as taxable in a return does not, by itself, prevent an assessee from arguing in appeal that its correct treatment under the Act is different. The appellate authority must address the claim within its jurisdiction where the necessary facts are available.
Tribunal follows earlier BSNL VRS ruling
On the nature of the payment, the Bench followed Sekar Gnanprakasam v. DCIT, ITA Nos. 1608 and 1609/Chny/2026, dated 21 May 2026. In that decision, the Chennai Bench considered BSNL’s VRS-2019 scheme in the context of the Government’s revival package and budgetary support. It treated the ex-gratia compensation as eligible for exemption under section 10(10B), following judicial precedent cited before it, including a Chandigarh Bench decision in Harish Kumar v. ITO.
Applying that precedent to Shanmugasundar’s case, the Tribunal held that the first appellate authority ought to have entertained the claim and directed the AO to allow it. The assessee’s appeal was allowed.
Author’s comments
The ruling has two distinct aspects. The first is the appellate power to consider an omitted claim. This is the clearer procedural holding: Goetze cannot be used by the CIT(A) as a blanket reason to refuse a claim merely because it was not made in the return. In this case, the assessee had already disclosed the receipt; the dispute concerned its legal character and eligibility for exemption.
The second aspect is the treatment of BSNL VRS-2019 ex-gratia under section 10(10B). The Tribunal followed its coordinate Bench ruling and directed relief. Practitioners should nevertheless read the direction together with the text and monetary limits of section 10(10B) when computing the exemption. The order records a receipt of ₹38.23 lakh but does not separately analyse the statutory ceiling or provide a calculation of the precise exempt amount. It should therefore not be described as an express, reasoned holding that the entire ₹38.23 lakh is exempt without limit.
There is also a narrower procedural point: the assessee originally sought relief through section 154, yet the Tribunal’s reasoning focuses on the power of the appellate authority to consider the claim. The order should not be read as deciding that every disputed exemption claim necessarily qualifies as a mistake apparent from the record for rectification purposes.
The decision is thus especially useful where a receipt has been fully disclosed but taxed in the original return, and the assessee later raises a supported exemption claim in appeal. The first appellate authority must consider the claim on its merits; the amount ultimately allowed must still be computed in accordance with the applicable statutory conditions.
- Goetze (India) Ltd. v. CIT, [2006] 284 ITR 323 (Supreme Court) — The FAA relied upon the decision to reject the fresh claim. The ITAT held that the restriction laid down in Goetze is confined to the power of the Assessing Officer and does not restrict appellate authorities from entertaining a claim not made in the original return.
- Sekar Gnanprakasam v. DCIT, ITA Nos. 1608 & 1609/Chny/2026, dated 21.05.2026 (ITAT Chennai) — Followed. The coordinate Bench held that ex-gratia compensation received under BSNL VRS-2019 was eligible for exemption under section 10(10B). :chatgpt-content-reference{index=”1″}
- Harish Kumar v. ITO (ITAT Chandigarh) — Referred to in the precedent reproduced by the Tribunal; the Chandigarh Bench had held that ex-gratia compensation received under BSNL VRS-2019 was eligible for exemption under section 10(10B).
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals), Addl./JCIT(A), Thane (in short “FAA”) passed u/s. 250 of the Income Tax Act, 1961 (in short “the Act”) dated 04.03.2026 for Assessment Year (AY) 2021-22. 2. The assessee is an individual and filed the return of income for AY 2021-22 on 29.11.2021 declaring total income of Rs.44,40,070/-. The assessee in the return of income has declared the ex-gratia amount of Rs.38,23,242/- received from Bharath Sanchar Nigam Ltd. (BSNL) under its Government approved VRS Scheme of 2019. The return was processed u/s. 143(1) of the Act. The assessee subsequently filed the petition u/s. 154 of the Act based on the decision of the Coordinate Bench where in another assessee’s case the exgratia amount received is held to be exempt u/s. 10(10B) of the Act. However, the Centralized Processing Centre (CPC) did not allow the exemption in the order passed u/s. 154 of the Act. Against which the assessee filed an appeal before the FAA. The FAA rejected the claim of the assessee stating that it is a fresh claim made that alters the return of income and therefore the same cannot be entertained at assessment stage by placing reliance of the decision of Hon’ble Supreme Court in the case of Goetze India Ltd. vs CIT [2006] 284 ITR 323 (SC). The assessee is in appeal before the Tribunal against the order of the CIT(A). 3. We heard the parties and perused the material on record. We notice that the coordinate bench in the case of Shri Sekar Gnanprakasam vs DCIT (ITA No.1608&1609/Chny/2026 dated 21.05.2026) has considered an identical issue and held that –
“11. We have heard the rival submissions and perused the material available on record, including the written submissions filed by the assessee and the judicial precedents relied upon. The short issue involved in the present appeals is whether the ex-gratia compensation received by the assessee under the BSNL VRS-2019 scheme is eligible for exemption u/s.10(10B) of the Act. From the materials placed before us, it is evident that the BSNL VRS-2019 scheme was formulated pursuant to the revival package approved by the Government of India and the Union Cabinet on 23.10.2019. It is further borne out from the records that the compensation payable under the scheme was funded through Government budgetary support. During the course of hearing, the assessee present submitted that though the nomenclature is mentioned as VRS, it is in effect a retrenchment scheme, since BSNL could not pay salary to employees just before rolling out the scheme. Therefore, the scheme partakes the character of a Government-approved retrenchment compensation scheme and cannot be treated as an ordinary voluntary retirement scheme simpliciter.
12. We further find that identical issue had come up for consideration before the Chandigarh Bench of the Tribunal in the case of Harish Kumar vs. ITO, wherein the Tribunal held that the ex-gratia compensation received under BSNL VRS-2019 is eligible for exemption u/s.10(10B) of the Act. Similar view has also been consistently taken by various appellate authorities across the country in the cases relied upon by the assessee. The Revenue has not brought on record any contrary judicial precedent to take a different view in the matter.
13. Considering the facts and circumstances of the case and respectfully following the judicial precedents cited supra, we hold that the ex-gratia compensation received by the assessee under the BSNL VRS-2019 scheme is eligible for exemption u/s.10(10B) of the Act. Consequently, the additions made by taxing the ex-gratia compensation are directed to be deleted. The AO is also directed to grant consequential relief, in accordance with law, in respect of exemption claimed u/s.10(10AA) of the Act, if otherwise found eligible.
14. In the result, the appeals filed by the assessee are allowed.”
4. In the present case, the FAA has dismissed the appeal on the ground that it is a fresh claim. We are of the view that the decision of the Hon’ble Supreme Court in Goetze (India) Ltd (supra) is confined to the power of the A O alone and does not restrict the appellate authorities from entertaining a claim not made in the original return. We accordingly hold that the assessee is entitled to raise the claim before the FAA for the first time, since the relevant facts necessary for adjudicating the same are already available on record and that FAA is not correct in rejecting the claim of the assessee on the said ground. Further the ratio laid down in the above case is that the BSNL VRS-2019 scheme is eligible for exemption u/s.10(10B) of the Act. Therefore, respectfully following the judicial precedence we direct the AO to allow the claim of the assessee. 5. In result the appeal of the assessee is allowed. Order pronounced on 23rd day of September, 2026 at Chennai.
