Yashavanth Nayak Vs ITO (ITAT Bangalore)
Retired Before 2023? Bangalore ITAT Allows ₹25 Lakh Leave Encashment Limit for AY 2020–21
Can a person who retired in 2019 claim the enhanced ₹25 lakh exemption for leave encashment, although the notification raising the limit was issued only in 2023? The Bangalore Bench of the Income Tax Appellate Tribunal has answered this question in favour of a retired bank employee in Yashavanth Nayak v. ITO, ITA No. 37/Bang/2026, order dated 28 September 2026.
The assessee, a former employee of the State Bank of India, retired on 31 July 2019. He received ₹9,22,762 towards leave encashment and claimed the entire amount as exempt under section 10(10AA)(ii) in his return for AY 2020–21. The CPC, however, restricted the exemption to ₹3 lakh, the limit applicable under the earlier government notification. The CIT(A) upheld the CPC’s adjustment. Thus, the dispute before the Tribunal concerned exemption for the balance ₹6,22,762.
Before reaching that question, the Tribunal had to consider a substantial procedural hurdle: the appeal was filed 1,102 days late. CA Akashdeep Pai, on behalf of the assessee, explained that, after the CIT(A)’s order, Assessee had relied on a tax consultant recommended through a pensioners’ association but had not received clear advice about pursuing an appeal. Assessee subsequently learned that the government had increased the leave encashment exemption limit and believed that the Department might reprocess the returns on its own. When the pensioners’ association later circulated guidance about remedies available to retired bank employees, Assessee consulted a new adviserCA Akashdeep Pai and filed the appeal.
The Department opposed condonation, arguing that the assessee had not established sufficient cause for such a long delay. The Tribunal accepted the assessee’s explanation. It noted his reliance on professional advice, the circumstances in which he learned of the possible remedy, and his prompt action thereafter. The delay was condoned, allowing the Tribunal to examine the exemption claim on merits.
The dispute over the notification’s effective date
Notification No. 31/2023 dated 24 May 2023 enhanced the leave encashment exemption limit for non-government employees from ₹3 lakh to ₹25 lakh. The difficulty for the assessee was that the notification stated that the revised limit would take effect from 1 April 2023. He had retired in July 2019, and his claim related to AY 2020–21.
The Revenue relied on this express effective date. Its submission was straightforward: a limit made effective from 1 April 2023 could not govern a receipt taxable in an earlier assessment year. The Department also urged the Tribunal to reconsider the coordinate Bench decisions that had taken a contrary view.
The assessee, on the other hand, relied on decisions of other Tribunal Benches which had applied the enhanced limit to earlier years. His argument was that the revision addressed a long-standing hardship. The ₹3 lakh ceiling had remained unchanged for more than two decades, even as salaries and retirement benefits increased considerably. On that reasoning, the enhancement was a remedial measure that should also benefit employees whose earlier claims were still under dispute.
The Bangalore Bench observed that coordinate Benches had already considered the issue and granted the benefit for assessment years preceding the notification. It referred, among other decisions, to a Jaipur Bench ruling concerning AY 2020–21 and an Ahmedabad Bench ruling concerning the same assessment year. It also noted the reasoning in other orders that the enhancement updated an existing exemption in response to changed economic circumstances.
Following those decisions, the Tribunal allowed the assessee’s appeal and directed the Assessing Officer to grant exemption for the full ₹9,22,762 received as leave encashment.
Author’s comments
This order is significant on two separate points. First, the Tribunal condoned a delay of 1,102 days after considering the retired employee’s explanation and conduct. Secondly, it applied the ₹25 lakh limit to AY 2020–21, notwithstanding the notification’s stated effective date of 1 April 2023. For the assessee, the result was exemption of the entire leave encashment receipt instead of only ₹3 lakh.
At the same time, the effective-date objection cannot be ignored. The notification expressly specifies when the higher limit takes effect, and the Revenue advanced that very objection before the Tribunal. The Bangalore Bench’s conclusion rests on its decision to follow coordinate Bench rulings treating the enhancement as beneficial and remedial. Practitioners considering similar claims should therefore present both the favourable Tribunal decisions and the notification’s wording candidly.
The decision also should not be read as an automatic refund direction for every person who retired before 2023. In this case, the assessee had an appeal before the Tribunal, and the Tribunal first exercised its discretion to condone the delay. Another taxpayer’s remedy will depend on the orders already passed, the procedural route still available, and the explanation for any delay.
For retired employees whose leave encashment exemption was restricted to ₹3 lakh, Yashavanth Nayak provides a useful Bangalore Bench precedent. Its most striking message is that the Tribunal was prepared to look beyond both a long appellate delay and the notification’s prospective wording to grant relief on the facts before it.
Cases Discussed
- Ram Charan Gupta v. ITO, ITA No. 408/JPR/2022, dated 27.06.2023 (ITAT Jaipur) — Followed as a coordinate Bench decision applying the enhanced ₹25 lakh leave-encashment exemption limit to AY 2020-21.
- ITA No. 1179/Ahmedabad/2024, dated 18.03.2025 (ITAT Ahmedabad) — Referred to as another coordinate Bench ruling applying Notification No. 31/2023 to AY 2020-21.
- Shyam Sundar Sahni v. Assistant Director of Income Tax, ITA No. 129/Del/2025, dated 21.04.2025 (ITAT Delhi) — Referred to for the same view concerning the enhanced leave-encashment exemption.
- Vinayaka Margin v. Income Tax Officer — Referred to as an Agra Bench decision dated 18.06.2025 following the same view for an earlier assessment year.
- On Income Country v. Income Tax Officer — Referred to as an Agra Bench decision dated 18.06.2025 following the same view.
- Satheesh Kumar v. ITO, ITA No. 211/CHD/2023 — Referred to among the coordinate Bench decisions taking the same view.
- Vattikundala Prsabhakara Rao v. ITO, ITA No. 3852/Chny/2025, dated 12.06.2026 (ITAT Chennai) — Referred to in the line of coordinate Bench decisions treating the ₹25 lakh enhancement as beneficial/remedial and applying it to AY 2020-21.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by Yashavanth Nayak (appellant/assessee) for Assessment Year 2020–21 challenges the appellate order dated 14 October 2022 passed by the National Faceless Appeal Centre (NFAC), Delhi, dismissing the assessee’s appeal against the intimation dated 29 November 2021 issued under section 143(1) of the Income-tax Act, 1961 (the Act). The sole issue is whether the enhanced leave-encashment exemption limit, increased from ₹3 lakh to ₹25 lakh, applies to the assessee’s claim under section 10(10AA)(ii) of the Act.
2. The Assessee has raised the following grounds of appeal:
1. The Order of the Learned CIT(A), NFAC passed under section 250 of the Income Tax Act 1961, is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant’s case.
2. The learned CIT(A), NFAC erred in law and on facts in denying the exemption claimed by the Appellant under section 10(10AA)(ii) respect of leave encashment amounting to 9,22,762/- and restricting the exemption to ₹3,00,000/- only, while confirming the adjustment made by the CPC under section 143(1) of the Income tax Act, 1961. The action of the learned CIT(A) is unjustified, contrary to the provisions of law and the facts of the case, and therefore deserves to be set aside.
3. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.
3. The assessee’s sole grievance in ground No. 2 is that the CPC wrongly limited the exemption under section 10(10AA)(ii) on leave encashment of ₹922,762 to ₹3 lakh, a restriction upheld by the learned CIT(A).
4. The assessee, a former State Bank of India employee, retired on 31 July 2019 and received ₹922,762 as leave encashment. In his return for Assessment Year 2020–21, he claimed the entire amount as exempt under section 10(10AA) of the Income-tax Act, 1961.
5. The assessee filed his return under section 139(1) of the Act on 2 November 2020. By an intimation dated 29 November 2021, the CPC assessed total income at ₹1,716,860 against the returned income of ₹1,094,090. Of the ₹2,931,212 claimed as exempt under section 10, the CPC allowed only ₹2,308,450. Aggrieved, the assessee appealed to the learned CIT(A).
6. The learned CIT(A) held that the Government notification dated 31 May 2002 capped the applicable exemption at ₹3 lakh. Finding no error in the computation, he restricted the leave-encashment exemption accordingly. The assessee therefore appeals against the order dated 14 October 2022.
7. The appeal was delayed by 1,102 days. In seeking condonation, the assessee explained that he had entrusted the matter to a Jaipur-based tax consultant recommended by the Pensioners’ Association. Despite repeatedly seeking guidance after the first appellate order, he received no clear advice on the next step. He later learned that CBDT Notification No. 31/2023 dated 24 May 2023 had raised the leave-encashment exemption limit and that its explanatory memorandum indicated that retrospective application would not adversely affect any person. Believing that the Income Tax Department would reprocess the returns suo motu, he took no further action, but no relief was granted. At about 65 years of age, unfamiliar with appellate procedures and reliant on professional advice, he acted only after receiving Circular No. 66/2025 dated 2 December 2025 from the All India Punjab National Bank Pensioners’ Association, which outlined remedies available to retired bank employees seeking refunds of excess tax paid in light of Notification No. 31/2023. On consulting a new tax adviser, he promptly filed this appeal. He submitted that these circumstances constituted sufficient cause and that refusal to condone the delay would prejudice him.
8. At the hearing, the learned authorised representative submitted that delay had been condoned in a group of similar cases involving several employees and reiterated the facts set out in the condonation application.
9. The learned Senior Departmental Representative, Mr Sandeep Kumar, Additional Commissioner of Income Tax, opposed condonation, arguing that the assessee had not shown sufficient cause for the delay.
10. We have considered the rival submissions. Although the appeal was filed 1,102 days late, the assessee has shown that the delay resulted from circumstances beyond his control. The Jaipur-based chartered accountant or tax consultant engaged through the Pensioners’ Association did not advise him how to proceed after the CIT(A)’s order. He learned of the remedy only after the Central Government revised the exemption limit and the Association guided retired bank employees. He then promptly filed the appeal on advice from a new tax consultant. We therefore find sufficient cause, condone the delay, and admit the appeal.
11. The learned authorised representative submitted that, although the CBDT notification states that the enhanced leave-encashment exemption limit of ₹25 lakh applies from 1 April 2023, corresponding to Assessment Year 2024–25, coordinate Benches at Jaipur, Delhi, Chennai, and Bangalore have treated the enhancement as retrospective beneficial legislation. Those decisions held that, because the amendment remedies hardship and a long-standing anomaly, it should apply to pending matters and earlier assessment years. Reliance was placed particularly on the decision reported at 2025 (7) TMI 1812.
12. The learned Departmental Representative relied on the notification’s express wording, which makes the revised limit effective from 1 April 2023. He therefore submitted that it could not apply to the present case and that the coordinate Bench decisions taking a contrary view required reconsideration.
13. We have considered the rival submissions on the merits. A coordinate Bench decided the same issue in ITA No. 408/JPR/2022 for Assessment Year 2020–21 on 27 June 2023, holding that the enhanced exemption limit of ₹25 lakh applied to that year despite Notification No. 31/2023 having been issued by the Ministry of Finance only on 24 May 2023.
14. Likewise, in ITA No. 1179/Ahmedabad/2024 for Assessment Year 2020–21, decided on 18 March 2025, the coordinate Bench held that Central Government Notification No. 31/2023 dated 24 May 2023, which raised the leave-encashment exemption limit from ₹3 lakh to ₹25 lakh, applied to the assessee in that case.
15. The same view was adopted in Shyam Sundar Sahni v. Assistant Director of Income Tax, ITA No. 129/Del/2025 for Assessment Year 2021–22, decided on 21 April 2025. The Agra Bench followed it in Vinayaka Margin v. Income Tax Officer and On Income Country v. Income Tax Officer, decided on 18 June 2025 for Assessment Years 2019–20 and 2020–21.
16. The same view was also taken in Satheesh Kumar v. ITO, ITA No. 211/CHD/2023, and in ITA No. 3852/109/2025 for Assessment Year 2020–21, decided on 12 June 2026, concerning an employee of Oil and Natural Gas Corporation. In paragraph 25, the coordinate Bench observed that the enhancement did not create a new exemption but rationalised and updated an existing provision to reflect current economic realities. It found that the amendment was intended to alleviate hardship and ensure parity and, being beneficial, should be construed liberally and, where appropriate, applied retrospectively where no vested right of the Revenue was adversely affected. The Bench further described the amendment as remedial. In paragraph 27, it held that denying the enhanced exemption would create an unjust and artificial distinction between similarly placed employees retiring before and after the notification, defeating the amendment’s purpose and offending the principles of equity and fairness in tax jurisprudence.
17. The question is whether Central Government Notification No. 31/2023, issued on 24 May 2023 and raising the leave-encashment exemption limit from ₹3 lakh to ₹25 lakh, applies to Assessment Year 2020–21. The ₹3 lakh limit had been fixed more than two decades earlier, with reference to the salary of the Cabinet Secretary, while pay scales across departments had since risen substantially. The enhancement recognised that the old limit had become outdated and had created a significant disparity between government and non-government employees. These considerations appear to underlie the policy change and the coordinate Benches’ view.
18. The coordinate Benches have answered the question in the affirmative. Respectfully following those decisions, we allow ground No. 2 and direct the Assessing Officer to grant exemption for the leave-encashment amount of ₹922,762 received by the assessee.
19. Accordingly, the assessee’s appeal is allowed.
Order pronounced in the open court on 28th September, 2026.
