Gauri Shankar Gupta Vs ITO (ITAT Jaipur)
Summary: The Income Tax Appellate Tribunal (ITAT), Jaipur SMC Bench, in Gauri Shankar Gupta Vs Income Tax Officer, allowed the appeal of a retired State Bank of India employee concerning exemption of leave encashment under Section 10(10AA)(ii) of the Income Tax Act, 1961, for Assessment Year 2020-21. The assessee had received leave encashment of ₹9,29,033 on retirement and claimed the entire amount as exempt in his return filed on 14 August 2020, declaring total income of ₹6,76,390. While processing the return under Section 143(1), the Centralized Processing Centre restricted the exemption to ₹3,00,000 under Notification No. S.O. 588(E) dated 31 May 2002, added the remaining ₹6,29,033 and determined total income at ₹13,05,430. The Commissioner of Income Tax (Appeals) upheld the adjustment, relying on the Delhi High Court decision in Kamal Kumar Kalia Vs Union of India, which distinguished government employees from employees of public sector undertakings and nationalised banks. Before considering the merits, the Tribunal condoned a delay of 781 days in filing the appeal. The assessee, a retired bank employee, explained through an affidavit that the appellate order had been communicated only by email and had escaped his attention because he did not regularly check his email. Relying on Collector, Land Acquisition Vs Mst. Katiji, the Tribunal found sufficient cause, noting that the delay was neither deliberate nor advantageous to the assessee.
On the substantive issue, the assessee contended that the ₹3 lakh exemption ceiling had remained unchanged for more than two decades despite successive revisions in Central Government salaries and that the enhanced ceiling of ₹25 lakh notified through S.O. 2276(E) dated 24 May 2023 should be applied. The Revenue maintained that the revised limit operated only from 1 April 2023. The Tribunal accepted that an SBI employee was governed by Section 10(10AA)(ii), rather than the unrestricted exemption applicable to government employees, and expressly declined to examine the validity of the earlier notification or direct the Government to prescribe a particular amount. However, it held that the 2023 revision represented the belated discharge of the continuing statutory obligation to fix the exemption ceiling having regard to the corresponding entitlement of Central Government employees. Treating the revision as remedial, the Tribunal followed coordinate Bench decisions in Dashrath Kumar Sen Vs ACIT, Govind Chhatwani Vs CIT (Appeals) and Chhaju Lal Gupta, involving similar leave encashment claims. Finding no contrary jurisdictional High Court judgment and noting that the entire receipt was within ₹25 lakh, with no other statutory ceiling invoked against the assessee, the Tribunal directed the Assessing Officer to allow exemption of ₹9,29,033 and delete the addition of ₹6,29,033. The appeal was accordingly allowed.
Cases Discussed
1. Collector, Land Acquisition Vs Mst. Katiji — [1987] 167 ITR 471 (SC); Supreme Court; 19/02/1987: Relied upon for the principle that substantial justice should ordinarily prevail over technical considerations while examining sufficient cause for condonation of delay. The Tribunal applied this principle while condoning the assessee’s delay of 781 days.
2. Kamal Kumar Kalia Vs Union of India — [2020] 268 Taxman 398 (Delhi); Delhi High Court; W.P.(C) No. 11846/2019; 08/11/2019: Considered for the distinction between government employees and employees of public sector undertakings or nationalised banks under Section 10(10AA). The Tribunal accepted that the assessee was governed by sub-clause (ii) and could not claim unrestricted exemption as a government employee.
3. Dashrath Kumar Sen Vs ACIT — [2025] 172 taxmann.com 772 (Jaipur – Trib.); ITAT Jaipur; AY 2020-21: Followed as a coordinate Bench decision concerning the same assessment year, supporting the application of the revised ₹25 lakh leave encashment exemption ceiling to an earlier retirement.
4. Govind Chhatwani Vs CIT (Appeals) — [2026] 187 taxmann.com 389 (Jaipur – Trib.); ITAT Jaipur: Relied upon for allowing the exemption claimed in the return where the notified limit had subsequently increased from ₹3 lakh to ₹25 lakh.
5. Chhaju Lal Gupta — ITA No. 75/JPR/2026; ITAT Jaipur; 31/08/2026; AY 2020-21: Followed as an identical coordinate Bench decision involving another retired State Bank of India employee. The Tribunal had directed exemption of the entire leave encashment receipt where the amount fell within the revised ₹25 lakh ceiling.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
1. This appeal by the Assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the learned CIT(A)”] dated 10.05.2023 for the assessment year 2020-21, arising out of the intimation dated 07.10.2021 issued under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the Centralized Processing Centre, Bengaluru (hereinafter referred to as “the AO”).
2. There is a delay of 781 days in filing this appeal before us. The assessee has filed a condonation application supported by his affidavit stating that he is a retired employee of the State Bank of India, that the order of the learned CIT(A) was communicated to him only by email, that he was not in the habit of checking his email regularly and the order did not come to his notice, and that on coming to know of it he consulted his chartered accountant and filed the appeal. In Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC), the Hon’ble Supreme Court held that where substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. Nothing on record shows that the delay was deliberate or that the assessee stood to gain by it. We are satisfied that there was sufficient cause. The delay is condoned and the appeal is admitted for hearing.
3. The grounds of appeal raised by the Assessee before us in the memorandum of appeal in Form No. 36 read as under:
“1. That, on the facts and in the circumstances of the case, The Ld ADDL/JCIT (A) has grossly erred in law and is not justified in confirming the addition made by the Ld AO under section 143(1) without deciding the involved question of law and not allowing the exemption exceeding Rupees 3.00/- lakhs under section 10(10AA)(ii) of the Act considering the invalid Gazette Notification No 50588 E dated 31.05.2002 issued by CBDT effective 01.04.1998.
2. That, on the facts and in the circumstances of the case, The Ld ADDL/JCIT (A) has grossly erred in law and is not justified while restricting the claim amounting to Rs 300000 u/s 10(10AA) and rejecting the amount of Rs 629033.00 out of Rs 929033.00, which is earned leave encashment on retirement made by AO.
3. That the appellant craves his right to add, annul, amend, alter, withdraw and/or substitute any / or all of the grounds of appeal before the finalization of the appeal.”
4. Briefly stated, the facts of the case are that the assessee, who retired from the service of the State Bank of India, filed his return of income on 14.08.2020 declaring a total income of Rs 6,76,390, claiming exemption of Rs 9,29,033 under section 10(10AA) of the Act in respect of the cash equivalent of leave salary received on retirement. While processing the return under section 143(1) of the Act, the AO restricted the exemption to Rs 3,00,000, added the balance of Rs 6,29,033 and determined the total income at Rs 13,05,430. The learned CIT(A) upheld the adjustment, relying on the judgment of the Hon’ble Delhi High Court in Kamal Kumar Kalia v. Union of India [2020] 268 Taxman 398 (Delhi), and concluded in paragraph 5.6 of the impugned order as under:
“In view of the above discussion, as the appellant is not a government employee he cannot claim that whole of Rs 9,29,033 received as leave encashment as fully exempt u/s 10(10AA) of the Act. … Therefore, the restriction of the claim of leave encashment to Rs 3,00,000 only has been made correctly. The appeal on this ground is treated as dismissed.”
5. The learned Authorised Representative (hereinafter referred to as “the learned AR”) submitted that the limit of Rs 3,00,000 specified by Notification No. S.O. 588(E) dated 31.05.2002 was fixed having regard to the entitlement of Central Government employees as it then stood, that it was not revised for over two decades although their pay was revised more than once, and that the limit of Rs 25,00,000 since specified by Notification No. S.O. 2276(E) dated 24.05.2023 ought to be given effect to. He relied upon the decisions of the Coordinate Benches noticed hereafter. The learned Departmental Representative (hereinafter referred to as “the learned DR”) supported the orders of the authorities below and submitted that the enhanced limit operates only from 01.04.2023.
6. We have heard the rival contentions and perused the material available on record. The facts are not in dispute. The assessee retired from the service of the State Bank of India and received Rs 9,29,033 as the cash equivalent of leave salary. Sub-clause (i) of clause (10AA) of section 10 of the Act exempts such a payment received by a Central or State Government employee without any ceiling. Sub-clause (ii), which governs every other employee, confines the exemption to the least of four amounts, namely,
i. the amount actually received,
ii. the entitlement at thirty days of earned leave for every year of service,
iii. ten months’ average salary, and
iv. the limit specified by the Central Government by notification.
Only the fourth of these, fixed at Rs 3,00,000 by Notification No. S.O. 588(E) dated 31.05.2002, has been applied against the assessee.
7. The nature of the employer is not in dispute. The classification drawn by clause (10AA) of section 10 of the Act between Government employees and others has been upheld by the Hon’ble Delhi High Court in Kamal Kumar Kalia (supra), which held that employees of public sector undertakings and nationalised banks cannot claim to be at par with Government employees. The assessee is therefore governed by sub-clause (ii), and the Tribunal can neither examine the validity of the notification nor direct the Central Government to notify a limit of a particular amount. To this extent the contentions raised in ground 1 are rejected.
8. What survives is the narrower question whether the exemption stands confined to Rs 3,00,000 notwithstanding the limit of Rs 25,00,000 since specified under the same sub-clause by Notification No. S.O. 2276(E) dated 24.05.2023, which is deemed to have come into force with effect from 01.04.2023. The power under sub-clause (ii) is not untrammelled, for it is to be exercised having regard to the limit applicable to the employees of the Central Government, and its exercise is a continuing obligation. The revision of 2023 was thus not the grant of a fresh exemption but the belated discharge of that obligation, the limit having remained at Rs 3,00,000 since 2002 through successive revisions of Central Government pay. A notification of that character is remedial, and to withhold its benefit from an employee who retired shortly before it was issued would perpetuate the very disparity it was meant to remove.
9. This is the view consistently taken by the Coordinate Benches in the case of retired bank employees, in Dashrath Kumar Sen v. ACIT [2025] 172 taxmann.com 772 (Jaipur – Trib.), which concerned the very assessment year before us, and Govind Chhatwani v. CIT (Appeals) [2026] 187 taxmann.com 389 (Jaipur – Trib.), where it was concluded in paragraph 7 as under:
“On being consistent to the said finding, we hold that the assessee is entitled to get the deduction as claimed in the return of income u/s 10(10AA) of the Act as the limit has been increased from 3 lac to 25 lacs.”
10. On identical facts, this Bench in Chhaju Lal Gupta (ITA No. 75/JPR/2026, order dated 31.08.2026), another retiree of the State Bank of India for the same assessment year 2020-21, directed the AO to allow the exemption of the entire leave encashment received, it being within the limit of Rs 25,00,000. Nothing has been placed before us to show that any of the above orders has been reversed, and we were not made aware of any judgment of the jurisdictional High Court to the contrary. Judicial discipline requires that the same view be taken here.
11. Accordingly, we hold that the exemption under sub-clause (ii) of clause (10AA) of section 10 of the Act cannot, in the case of the assessee, be confined to Rs 3,00,000. The amount of Rs 9,29,033 received by him is well within the limit of Rs 25,00,000, and no other limit prescribed by the sub-clause has been applied against him. The AO is directed to allow the exemption of Rs 9,29,033 under section 10(10AA) of the Act and to delete the addition of Rs 6,29,033. Grounds 1 and 2 are allowed to the extent indicated above. Ground 3 is general and requires no adjudication.
12. In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court 22.09.2026.
