Susheela Devi Vicharapu Vs Union of India (Telangana High Court)
Background: The petitioner, a retired employee of Power Grid Corporation of India, received terminal benefits including leave encashment. While filing her Income Tax Return for AY 2023–24, she claimed exemption of only ₹3 lakh under Section 10(10AA) of the Income-tax Act, 1961, as the enhanced exemption limit had not been reflected in the employer’s Form 16.
Subsequently, Notification No.31/2023 dated 24.05.2023 enhanced the exemption limit for non-government employees to ₹25 lakh. The petitioner approached the Income Tax Department under Section 119(2)(b), seeking condonation of delay to file a revised return. The application was rejected.
Petitioner’s Submissions
The petitioner contended that the notification was beneficial in nature and should extend to similarly situated employees, including those who retired before 01.04.2023. It was also argued that all terminal benefits had been disclosed and there was no suppression of income.
Department’s Submissions
The Department contended that the notification was prospective and applicable only to employees retiring on or after 01.04.2023, relying upon a decision of the Kerala High Court.
High Court’s Decision
The Division Bench, comprising Acting Chief Justice P. Sam Koshy and Justice Suddala Chalapathi Rao, disagreed with the interpretation adopted by the Department.
The Court observed that the petitioner had disclosed the terminal benefits and claimed exemption only to the extent permissible at the relevant time. It also noted that several ITAT Benches had extended the benefit of the notification to similarly situated employees.
The Court set aside the rejection order, condoned the delay and directed the Department to permit the petitioner to file a revised return and consider the claim by extending the benefit of Notification No.31/2023, strictly in accordance with law.
Key Takeaway
The judgment recognises the beneficial nature of the enhanced leave encashment exemption and provides relief to an employee who had disclosed the relevant income but could not claim the enhanced exemption within the prescribed time. It also highlights the scope of Section 119(2)(b) in cases involving genuine hardship.
FULL TEXT OF THE ORDER OF TELANGANA HIGH COURT
Heard Mr. T.Pradyoth, learned counsel for the petitioner and Mr. K.Sudhakar Reddy, learned Senior Standing Counsel for Income Tax Department appearing for respondent Nos.2 to 3.
2. The present Writ Petition has been filed seeking to grant the following relief:
“… to issue a Writ, Order or Direction, more particularly one in the nature of a Writ of Mandamus, declaring the order dated 30.07.2026 bearing DIN & Order No.ITBA/COM/F/17/2026-27/1091638004(1) passed by the 3rd respondent under Section 119(2)(b) of the Income Tax Act, 1961, rejecting the petitioner’s application for condonation of delay in filing a revised return of income for the Assessment Year 2023-24, as illegal, arbitrary, being non-speaking and in violation of principles of natural justice, contrary to Section 119(2)(b) of the Income Tax Act,1 961, and violative of Articles 14 and 265 of the Constitution of India, and consequently to set aside the same and direct the 3rd respondent to condone the delay and permit the petitioner to file a revised return of income tax for the said assessment year 2023-24 claiming exemption under Section 10(10AA)(ii) of the Income Tax Act, 1961 in terms of Notification No.13/2023 dated 24.05.2023 and pass …”
3. The brief facts of the case are that, petitioner was an employee, in the Executive cadre, of Power Grid Corporation of India, being Employee No.60030116, and retired from service on superannuation on 31.03.2023, upon attaining the age of 60 years. Upon such retirement, the petitioner became entitled to various terminal benefits, including the cash equivalent of the leave salary (encashment of earned leave and half pay leave) aggregating to Rs.22,54,070/-, as reflected in the petitioner’s Income Tax Return for the Assessment Year 2023-24. A part of the said retiral dues, including encashment of 300 days of Half Pay Leave amounting to Rs.15,16,191/- was regulated and paid through his salary from May, 2022 vide letter dated 31.05.2022 issued by the General Manager (Finance), employer of the petitioner. Thereafter, it is stated that the employer Corporation issued a certificate of tax deducted at source in Form No.16 (Parts A and B) for the period from 01.04.2022 to 31.05.2022. relevant to the Assessment Year 2023-24, on 29.05.2023 and in the said certificate, the employer did not grant any exemption under Section 10 (10AA) of the Income Tax Act, 1961, (for short, ‘Act, 1961) in respect of leave encashment, treated the entire amount as taxable salary allowing the leave encashment upto Rs.3,00,000/- and deducted tax at source of Rs.16,37,750/- for the said financial year. It is stated that, as on the date, on which the terminal benefits along with leave encashment amount paid to the petitioner, the exemption limit in respect of leave encashment was Rs.3,00,000/-, as fixed by the Central Government in the year 2002, which remained unchanged for over two decades and vide Notification No.31/2023, dated 24.05.2023 (S.O. 2276(E)), the Central Government enhanced the exemption limit to Rs.25,00,000/- under Section 10(10AA) (ii) of the Act, 1961 and stated that the said notification shall be deemed to have come into force with effect from 01.04.2023.
4. The petitioner filed her income tax return for the Assessment Year 2023-24 in Form ITR-2 on 22.06.2023, within the due date prescribed under Section 139(1) of the Act, 1961 vide acknowledgment No.278246070220623, claiming exemption of Rs.3,00,000/- towards leave encashment. Subsequently, by virtue of the said Notification No.31/2023, the exemption limit of Rs.3,00,000/- was enhanced to Rs.25,00,000/-, and the said notification being beneficial in nature, the petitioner claims entitlement to benefit there under. The petitioner retired on 31.05.2023 and in view of the restriction imposed by the employer upto Rs.3,00,000/-, the petitioner claims entitlement to the enhanced benefit as it is also extended to the Non-Government Employees.
5. It is further stated that, by the time the petitioner became aware of the applicability of the said notification and the enhanced exemption limit, the prescribed time for filing a revised return of income under Section 139(5) of the Act, 1961, for the Assessment Year 2023-24, has expired. Therefore, petitioner was constrained to move an application dated 13.07.2026 before the 3rd respondent under the provision of Section 119(2)(b) of the Act, 1961, seeking condonation of delay and permission to file a revised return of income for the Assessment Year 2023-24. It is also the case of the petitioner that application was made well within the period of five years from the end of the Assessment Year 2023-24. The 3rd respondent issued impugned order dated 30.07.2026, rejecting the petitioner’s application.
6. It is contended by the learned counsel for the petitioner that the 3rd respondent rejected the case of the petitioner as he was superannuated from the respondent-Corporation in the financial year 2022-23 and had received terminal dues including leave encashment by holding that the Notification No.31/2023 is applicable prospectively only to persons who retired on or after 01.04.2023 and by placing reliance upon the judgment of the High Court for the State of Kerala in WP(C) No.3145 of 2022 and connected cases, the 3rd respondent rejected the request of the petitioner for condonation of delay in filing the revised income tax return.
7. Aggrieved by the same, the present writ petition is filed assailing the impugned order.
8. Learned counsel for the petitioner would contend that the power under Section 119(2)(b) of the Act, 1961, is conferred on the competent authority for the avoidance of genuine hardship and the enquiry contemplated there under is whether the case is one of genuine hardship and whether the claim is prima facie genuine, and does not contemplate a final adjudication on the merits of a debatable question of law. It is further contended that Notification No.31/2023 is a beneficial notification and as there was no suppression of any material fact, as on the date of issuance of Form-16, the petitioner has submitted the same. The notification No.31/2023, enhancing the exemption limit to Rs.25,00,000/-, applies to the employees who retired even prior to 01.04.2023, and that the said notification is applied to many of the similarly situated persons across the country, along with the various Income Tax Appellate Tribunal Benches held that the Notification No.31/2023 being beneficial in nature to all those who retired prior to 01.04.2023. The learned counsel thus prays to condone the delay by setting aside the impugned order by directing the 3rd respondent to accept the revised return of income.
9. Per contra, learned Senior Standing Counsel appearing for the respondent Nos.2 to 4, vehemently contended that in fact, the competent authority i.e., 3rd respondent, has already considered the issue and placing reliance upon the judgment of the Hon’ble High Court of Kerala (supra) has rightly rejected the petitioner’s contention. It is further contended that, since the notification was issued subsequent to the petitioner’s retirement, the said notification would be effective prospectively and therefore, the said notification would not be applicable to the present case.
10. On a perusal of the record, evidently, as on the date of the petitioner’s retirement from the services of the respondent-Corporation, Form No.ITR2 specifically reflected the exemption in respect of leave encashment is only Rs.3,00,000/-. Subsequently, by virtue of Notification No.31/2023, dated 24.05.2023, the said exemption limit was enhanced to Rs.25,00,000/- and said notification was issued for the benefit of the employees, more so is a beneficial legislation. In the present case, the petitioner has duly disclosed the terminal benefits received at the time of retirement and claimed exemption only to the extent of Rs.3,00,000/- as was permissible at the relevant point of time. The petitioner has not suppressed any income that was derived out of the terminal benefits. Furthermore, several Benches of Income Tax Appellate Tribunal being quasi-judicial Tribunals have already taken a similar view and extended the benefit of the said notification to similarly situated employees of the respondent-Corporation and other public sectors and denial of the same to the petitioner is discriminatory, more particularly when there is no allegation of suppression of material facts. Thus, the impugned orders are not valid in the eye of law and liable to be set aside.
11. We respectfully disagree with the decision relied upon by the 3rd respondent in W.P.(C).No.3145 of 2022 and batch on the file of Hon’ble High Court of Kerala, and normally all the terminal benefits would relate from the date of joining till superannuation shall be computed and thus, the petitioner has made out a case for warranting interference with the impugned orders.
12. Therefore, in view of the above aforesaid facts and circumstances, the impugned proceedings, dated 30.07.2026 are hereby set aside, and the delay in filing the said application is hereby condoned, and the matter is remanded back to the 3rd respondent with a direction to afford an opportunity to the petitioner to file the revised returns and on such filing, the 3rd respondent shall consider the same and pass appropriate orders strictly in accordance with law, by duly extending the benefit available under the Notification No.31/2023 dated 24.05.2023.
13. With the aforesaid directions, the Writ Petition stands allowed accordingly. There shall be no order as to costs.
Miscellaneous petitions, if any, pending in this Writ Petition shall stand closed.
