Ahmedabad ITAT Grants Full Section 10(10B) Exemption on BSNL VRS Compensation Despite Delayed Claim; Refund Directed

Bharat Dudhabhai Purabiya Vs ITO (ITAT Ahmedabad)

Ahmedabad ITAT Grants Full Section 10(10B) Exemption on BSNL VRS Compensation Despite Delayed Claim; Refund Directed

The Ahmedabad ITAT partly allowed the appeals of a former BSNL employee for AYs 2020-21 and 2021-22, holding that the compensation received under BSNL VRS-2019 is fully exempt under section 10(10B). The Tribunal directed the Assessing Officer to recompute the assessee’s income and grant the consequential refund, notwithstanding that the exemption had not been claimed in the original return.

The Tribunal observed that the assessee had offered the VRS compensation to tax only because of lack of awareness of the legal position and because TDS had been deducted by the employer. After learning of favourable Tribunal decisions holding BSNL VRS-2019 compensation to be exempt, the assessee raised the claim before the appellate authority. The CIT(A) rejected the appeal as time-barred and refused to entertain the fresh claim.

Reversing the CIT(A), the Tribunal relied on its earlier decisions in Jayeshkumar Tulsidas Sutaria, Kirtida Rajeshkumar Shah and Chhaganlal Bhimabhai, and held that appellate authorities have ample jurisdiction to entertain a fresh legal claim, even if it was not made in the original return. It also relied on the Supreme Court decision in Collector, Land Acquisition v. Katiji for condoning delay and CBDT Circular No. 14 of 1955, which requires tax authorities to assist taxpayers in claiming lawful reliefs instead of taking advantage of their ignorance. The Tribunal further clarified that Goetze (India) Ltd. restricts only the powers of the Assessing Officer and does not curtail the powers of appellate authorities.

However, the Tribunal rejected the assessee’s additional claim for enhanced exemption of leave encashment under section 10(10AA). It held that the increased exemption limit of ₹25 lakh introduced by CBDT Notification No. 31/2023 is prospective and applies only from 1 April 2023. Since the appeals related to AYs 2020-21 and 2021-22, the enhanced limit was unavailable, and the additional ground was dismissed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

1. These are two appeals filed by the same Assessee against two separate Orders passed by the Commissioner of Income Tax, Appeal ADDL/JCIT(A) – Chennai [hereinafter referred to as ‘the CIT(A)’] for the Assessment Years 2020-2021 and 2021-2022. Since the issues involved in both the appeals are common and arise from the same factual matrix identical, both the appeal were heard together and are therefore, being disposed off by way of a common order.

ITA No.660/AHD/2026

2. We would first take up ITA No.660/AHD/2026 pertaining to Assessment Year 2020-2021 preferred by the Assessee against the Order, dated 19/02/2026, passed by CIT(A) whereby the Learned CIT(A) had dismissed the appeal against the Intimation Order, dated 26/11/2021, passed under Section 143(1) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]as barred by limitation. 3. The grounds raised by the Assessee read as under:

“1. The learned CIT(A) has erred in law in holding that the claim of exemption under section 10(10B) could not be entertained merely because it was not made in the original return of income. The learned CIT(A) failed to appreciate that appellate authorities are fully empowered to entertain and adjudicate a fresh legal claim even if not raised in the return, as held by the Hon’ble Supreme Court in Jute Corporation of India Ltd. v. CIT and NTPC Ltd. v. CIT and by the Hon’ble Bombay High Court in CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd.. The reliance placed on Goetze (India) Ltd. v. CIT is misconceived, as the said judgment restricts only the powers of the Assessing Officer and does not curtail the jurisdiction of appellate authorities. The impugned order is therefore contrary to settled law and liable to be set aside.

2. The Ld. CIT(A) has erred in law and on facts in refusing to condone the delay in filing the appeal without appreciating that the delay occurred solely due to the Appellants bonafide ignorance regarding the availability of exemption under Section 10(10B) and lack of legal knowledge. These circumstances constitute a reasonable cause within the meaning of Section 249(3) of the Income-tax Act, 1961. The Ld. CIT(A) failed to apply the settled legal principles laid down by the Honorable Supreme Court in Collector, Land Acquisition vs. Katiji. and N. Balakrishnan vs. M. Krishnamurthy., wherein it has been held that substantial justice must prevail over technicalities and that the length of delay is immaterial when the explanation is bona fide.

3. The Ld. CIT(A) has erred in holding that the Appellant is making a new claim, ignoring that appellate authorities have plenary powers to grant all legitimate reliefs, even if not claimed in the return, as mandated by CBDT Circular No. 14 of 1955 and upheld by various judicial precedents including decisions of the Honorable Supreme Court and High Courts.

4. The Ld. CIT(A) has erred in dismissing the appeal at the threshold without appreciating that the Appellants case is factually identical to Harish Kumar vs. ITO. (ITA No. 42/CHD/2025), where compensation received under the same BSNL VRS-2019 was held fully exempt under Section 10(10B). The Ld. CIT(A) failed to adjudicate the merits despite the existence of a legitimate, legally sustainable, and directly applicable claim under Section 10(10B).

5. The Ld. CIT(A) has passed the impugned order without granting reasonable opportunity of hearing and without issuing statutory notice under Section 250 of the Act during appellate proceedings. The order is thus vitiated for breach of natural justice and is bad in law.

Additional Ground

6. The Ld CIT(A) has erred in confirming the action of the Lrd AO in restricting the exemption claimed by the appellant under section 10 10AA to Rs 3,00,000 and in upholding the addition of the remaining amount, without properly appreciating the facts, submissions and evidences placed on record. The impugned order is contrary to the beneficial nature of section 10 10AA and is not sustainable in view of CBDT Notification No 31/2023 dated 24.05.2023, the decision of the Honble ITAT Jaipur Bench in the case of Chandra Prakash Vashisthavs ITO ITA No 1139/JPR/2025, and CBDT Circular No 14 XL 35 dated 11.04.1955. It is respectfully submitted that the entire leave encashment amount is eligible for exemption”

4. We have heard both the sides and have perused the material on record.

5. The Assessee in the present case is an individual. During the relevant previous year the Assessee received compensation under Bharat Sanchar Nigam Limited Voluntary Retirement Scheme – 2019 [for short ‘BSNL VRS-2019’]. Due to lack of awareness of the legal provisions at the time of filing the return of income and on account of the fact that the employer deducted tax at source from the said compensation received under the BSNL VRS-2019, the Assessee inadvertently offered the same to tax in the return of income for the Assessment Year 2020-2021 which was processed under Section 143(1) of the Act. Subsequently, based on the decision of the Chandigarh Bench of the Tribunal in the case of Harish Kumar vs. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025 dated 30/05/2025), wherein compensation under the BSNL VRS-2019 scheme was held to be exempt under Section 10(10B), the Assessee filed appeal before the Learned CIT(A) raising additional claim of exemption under Section 10(10B) of the Act in respect of the compensation received. It was contended by the Assessee that the compensation was not taxable and therefore, the Assessee was eligible for the refund of the amount of tax deducted at source from such compensation. However, the Learned CIT(A) dismissed the appeal declining to condone the delay in filing the appeal. Therefore, the Assessee has preferred the present appeal.

6. We find that identical issue had come up for consideration before the Tribunal in the case of Jayeshkumar Tulsidas Sutaria Vs. The Income Tax Officer, Ward 7(2)(1), Ahmedabad: ITA Nos.2387 & 2388/AHD/2025 (Assessment Years: 2020-21 & 2021-22) wherein in the case of identically placed employee of BSNL, the Tribunal accepted contentions of the Assessee; condoned similar delay in filing appeal before the Learned CIT(A) against intimation issued under Section 143(1) of the Act; and directed the Assessing Officer to grant refund to the Assessee holding that the compensation received by the assessee under the same BSNL VRS – 2019 was exempt under Section 10(10B) of the Act. The aforesaid decision of the Tribunal was followed in the case of Kirtida Rajeshkumar Shah Vs. The Income Tax Officer, Ward 7(2)(1), Ahmedabad: :ITA Nos.151/AHD/2026 (Assessment Years: 2020-21) and ChhaganlalBhimabhai Vs. The Income Tax Officer, Ward 1(2), Bhavnagar: ITA Nos.2547 & 2548/AHD/2025 (Assessment Years: 2020-21 & 2021-22).

7. There is no change in the legal proposition and the factual matrix. Revenue has failed to distinguish the above decisions of the Tribunal either on facts or in law. Further, the view taken by the Tribunal finds support in the (a) judgment of the Hon’ble Supreme court in the case of Collector, Land Acquisition, Anantnag and Ors. vs. Katiji and Ors.(1987) 167 ITR 471 (SC) – on the issue of condonation of delay; and (b) Circular No. 14 of 1955 issued by the Central Board of Direct Taxes directing officers not to take advantage of ignorance of an assessee as to their rights and assist them in claiming and securing reliefs/refunds. On the other hand, the reliance placed by the Learned CIT(A) on the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd V CIT: 284 ITR 323 is clearly misplaced as the Learned CIT(A) could entertain a fresh claim raised by an assessee for the first time in the appellate proceedings.

8. In view of the above, accepting the claim of the Assessee we hold that the compensation of received by the Assessee during the relevant previous year under BSNL VRS – 2019 is exempt under Section 10(10B) of the Act. The Assessing Officer is, therefore, directed to computed the taxable income of the Assessee accordingly and grant refund due, if any, as per law. The Assessee is directed to place before the Assessing Officer the details of compensation received under BSNL VRS – 2019 and the computation of income claiming exemption under Section 10(10B) of the Act for the same. Thus, in terms of the aforesaid, Ground No 1 to 4 raised by the Assessee are allowed while Ground No. 5 is dismissed as being infructuous.

Additional Ground

9. As regards, Ground No. 6 (raised by the Assessee as additional ground) relation to exemption claimed by the Assessee in respect of Leave Encashment under Section 10(10AA) of the Act is concerned, we do not find merit in the said additional ground raised by the Assessee. The reliance placed by the Assessee on Notification No. 31 of 2023, dated 24/05/2023, issued by the CBDT is clearly misplaced. The said notification clearly provides that the same applies from 01/04/2023. Since the appeal before us pertains to prior assessment years (ie. Assessment Year 2020-2021 and 2021-2022), enhanced exemption limit of INR.25,00,000/- provided by the aforesaid notification would not be available to the Assessee as the same would have no application to the relevant assessment year. Accordingly, the additional ground raised by the Assessee is dismissed. Our view draws support from the decision of Ahmedabad Bench of the Tribunal in the case of Madan Lal Grover Vs The Income Tax Officer, Ward-7(2) (1), Ahmedabad: ITA No. 2204/AHD/2025 (Dated 10/04/2026, Assessment Year 2020-21) and Govardhan Deepchand Bhambhani vs ITO:ITA No. 289/AHD/2025 (Dated 28/07/2025, AY 2020-21). Thus, Additional Ground raised by the Assessee is dismissed. Thus, Ground No. 6 raised by the Assessee is dismissed.

10. In result the present appeal preferred by the Assessee is partly allowed.

ITA No.661/AHD/2026

11. We would next take up ITA No.661/AHD/2026 pertaining to Assessment Year 2021-2022 preferred by the Assessee against the Order, dated 19/02/2026, CIT(A) whereby the Learned CIT(A) had dismissed the appeal against the Intimation Order, dated 26/11/2023, passed under Section 143(1) of the Act as barred by limitation.

12. During the course of hearing both the sides had agreed that our finding/adjudication in ITA No.660/AHD/2026 pertaining to the Assessment Year 2020-2021 shall apply mutatis mutandis to the present appeal for the Assessment Year 2021-2022. Therefore, adopting the reasoning given while allowing appeal for the Assessment Year 2020-2021 hereinabove, we hold that the compensation received by the Assessee during the relevant previous year under BSNL VRS – 2019 is exempt under Section 10(10B) of the Act. The Assessing Officer is, therefore, directed to computed the taxable income of the Assessee for the Assessment Year 2021-2022 accordingly and grant refund due, if any, to the Assessee as per law. The Assessee is directed to place before the Assessing Officer the details of compensation received under BSNL VRS – 2019 and the computation of income claiming exemption under Section 10(10B) of the Act for the same. Thus, in terms of the aforesaid, Ground No 1 to 4 raised by the Assessee are allowed while Ground No. 5 is dismissed as being infructuous.

13. In result the present appeal preferred by the Assessee is partly allowed.

14. In conclusion both the appeal preferred by the Assessee are partly allowed.

Pronounced on 24.06.2026