Bangalore ITAT Grants BSNL VRS Employees Exemption for Retrenchment Compensation and Full Leave Encashment

Thimmappa Gowda Anthibettu Vs ITO (ITAT Bangalore)

Bangalore ITAT Grants BSNL VRS Employees Exemption for Retrenchment Compensation and Full Leave Encashment

In a batch of appeals filed by former BSNL employees who retired under the BSNL Voluntary Retirement Scheme, 2019, the Bangalore ITAT held that the compensation received under the scheme is eligible for exemption under Section 10(10B) as retrenchment compensation. The Tribunal noted that although the employees had originally offered the compensation to tax and the NFAC had dismissed several appeals on grounds of limitation, numerous Tribunal decisions across the country had already recognized the BSNL VRS compensation as eligible for exemption. The Tribunal observed that the employees had disclosed the income only because BSNL had deducted TDS and they became aware of the legal position only after subsequent judicial pronouncements. Accordingly, the delays in filing appeals were condoned and relief was granted on merits.

The Tribunal also allowed exemption for the entire leave encashment amount under Section 10(10AA). Relying on the Kerala High Court decision in Sanchar Nigam Pensioners Welfare Association, it held that BSNL employees retiring under VRS are entitled to be treated on par with Central Government employees for this purpose. It further noted that the enhanced exemption limit of ₹25 lakh introduced by Notification No. 31/2023 is a beneficial provision and should be applied at the appellate stage. The Tribunal emphasized that denying relief on technical grounds would result in unjust enrichment of the Revenue when the exemptions are otherwise legally available. Consequently, all appeals were allowed, including the appeal arising from rejection of a rectification application under Section 154.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

These are the appeals filed by the various assessees challenging the separate orders of the NFAC, Delhi in respect of the A.Ys. 2020-21 and 2021-22. For the sake of easy reference, the details of the appeals as well as the issues involved are tabulated below:

2. The facts involved in all the appeals are similar to each other and in some appeals, one more issue was raised. For the sake of convenience, the common facts are narrated hereunder. Insofar as the another issue involved in some appeals it will be decided independently.

3. The brief facts of the case are that the assessees are individuals and employees of the BSNL who were opted to retire under the BSNL Voluntary Retirement Scheme, 2019. The Scheme was formulated for restructuring as well as to reduce the cost faced in view of the losses suffered by BSNL. The assessees are aged about 50 years and not conversant with the new technological systems being adopted by BSNL and therefore the organization had formulated the VRS, 2019. Even though the Scheme was named as Voluntary Retirement Scheme, in sum and substance, it is a retrenchment scheme designed to compulsorily reduce the workforce.

4. Under the said scheme, the employees were entitled to received ex-gratia / compensation and the disbursement was made in four equal installments and the first installment starts during the fourth quarter of the F.Y. 2019-20 (A.Y. 2020-21) and the balance three installments during the F.Y. 2020-21 (A.Y. 2021-22). While paying the retrenchment compensation, the BSNL also deducted the tax at source and therefore the assessees were under the impression that the said compensation is liable for tax under the provisions of the Income Tax Act. On that basis, the assessees had also offered the said compensation as income in the return of income filed. Later on, the assessees came to know about the decision of the Hon’ble Chandigarh Bench of this Tribunal in the case of Harish Kumar vs. ITO reported in (2025) 175 com379 in which the retrenchment compensation received by the BSNL employees were eligible for exemption u/s. 10(10B) of the Act.

5. Similarly, in some of the assessees’ case, the leave encashment received was claimed as exemption u/s. 10(10AA) of the Act as per the statutory limits prevailing at that time. During the disputed assessment years, the exemption available u/s. 10(10AA) is restricted to Rs. 3,00,000/-and subsequently the same was enhanced to Rs. 25,00,000/- by way of Gazette Notification dated 24/05/2023. The assessees had also disputed the restricted amount based on the enhancement granted by the Government.

6. The assessees had filed their return of income showing the retrenchment compensation as taxable income and also claimed the leave encashment of Rs. 3,00,000/-. The said return was processed by the CPC and the return was accepted and an intimation u/s. 143(1) was made. Thereafter the order of the Hon’ble Chandigarh Bench of this Tribunal in the case of Harish Kumar vs. ITO reported in (2025) 175 com379 was known to the assessees and based on that, the assessees filed appeals before the Ld.CIT(A) with a delay and also enclosed applications to condone the said delays. The Ld.CIT(A) considered the appeal filed by the assessee with the delay and not satisfied with the reasons stated by the assessee and dismissed the appeal on the ground of limitation thereby confirmed the denial of exemption u/s. 10(10B) as well as the exemption u/s. 10(10AA) of the Act.

7. In the case of the assessee in ITA No. 1832/Bang/2026, the assessee filed rectification application before the AO which was rejected against which the assessee filed an appeal before the Ld.CIT(A) which was also dismissed.

8. Similarly, in the case of assessee in ITA No. 1856/Bang/2026, the restriction of leave encashment to Rs. 3,00,000/- was disputed by the assessee which was confirmed by the Ld.CIT(A).

9. As against the said orders, the assessee filed these appeals before this Tribunal.

10. The respective Ld.ARs appearing for the assessees submitted that the exemption claimed u/s. 10(10B) of the Act was considered by the various Tribunals and all the Tribunals had took a view that the retrenchment compensation received by the employees of the BSNL are eligible for exemption u/s. 10(10B) of the Act. The respective Ld.ARs further submitted that the delay in filing the appeals before the Ld.CIT(A) were also condoned by the various Tribunals by considering the peculiar facts and circumstances of the case and therefore submitted that the order of the Ld.CIT(A)s rejecting the appeals as barred by limitation is not in order. The respective Ld.ARs further submitted that the entire leave encashment received by the employees were also eligible for deduction u/s. 10(10AA) of the Act in view of the judgment of the Hon’ble Kerala High Court in the case of Sanchar Nigam Pensioners Welfare Association vs. Union of India dated 06/02/2026 in W.P. No. 16360 of 2023. The respective Ld. ARs also relied on the several orders of the Hon’ble Ahmedabad, Pune, Chandigarh, Jaipur & Indore Benches and Coordinate Bench order of this Tribunal and prayed to take a lenient view so that the assessees will get their benefits in accordance with the provisions of the Act. The respective Ld.ARs further submitted that if the appeals are not allowed on technicalities, it would amount to unjust enrichment to the revenue since the levies are made against the provisions of the Act and therefore prayed to allow the appeals. The respective Ld.ARs also submitted that some of the Ld.CIT(A)s had condoned the delay in filing the appeals even though there were delays and prayed to take a uniform view since the assessees are all belonged to the same category of employees employed by the BSNL. The assessee in ITA Nos. 1857 & 1859/Bang/2026 had filed a common paper book enclosing the written submissions as well as the orders of the various Tribunals.

11. The Ld.DR submitted that the assessees are not entitled to reagitate the issue and also submitted that the assessees had voluntarily filed their return of income declaring the incomes as taxable and therefore they cannot now dispute the same before the appellate authorities for the first time. Similarly, the Ld.DR submitted that there are no valid reasons stated by the assessees to condone the delay and therefore the appeals dismissed on the ground of limitation are in order. The Ld.DR also relied on the judgment of the Hon’ble Supreme Court reported in (2014) 11 SCC 351 and unreported judgment of the Hon’ble Supreme Court in Civil Appeal No. 7696 of 2021 dated 16/12/2021 wherein the Hon’ble Supreme Court had not condoned the huge delays of more than 10 years and 1011 days in preferring the appeals and therefore submitted that by applying the said principles, the delays are not condonable and therefore the orders of the Ld.CIT(A)s are in order and prayed to dismiss all the appeals. Insofar as the appeal filed against the rejection of the rectification order which was confirmed by the Ld.CIT(A), the Ld.DR submitted that the section 154 would not be applicable to the facts of the case and therefore the order of the Ld.CIT(A) in rejecting the said appeal is in order.

12. We have heard the arguments of both sides and perused the materials available on record.

13. In all the appeals, the merits involved are that the disallowance of exemption claimed u/s. 10(10B) on the retrenchment compensation received by the BSNL employees pursuant to the Voluntary Retirement Scheme, 2019 and also against disallowance of the leave encashment u/s. 10(10AA) of the Act. Before us, it was demonstrated that the issue has been decided by the several benches of this Tribunal and therefore the benefits could not be denied to the same set of employees by citing the delay in filing the appeals. We have also considered the various orders pronounced by the several Tribunals in which the Tribunals had condoned the similar delays in filing the appeals and also granted exemption u/s. 10(10B) of the Act on the compensation received on retrenchment. The Tribunals also accepted that the claim was made by the assessees mistakenly since the employer had deducted the TDS while making the said payments.

14. We have also considered the order of the Coordinate Bench of this Tribunal in ITA No. 992/Bang/2026 dated 29/05/2026 wherein the Tribunal had given the findings as follows:

“15. However, with respect to condonation of delay, the ld. AR submitted that the ld. CIT(A) should have condoned the delay as in the case of 72 cases before the Coordinate Benches across the country in the case of BSNL employees on identical facts and circumstances, delay has been condoned by the ld. CIT(A) itself ranging from 900 to 2000 days. The assessee has produced the list of 72 cases where the delay is condoned by the ld. CIT(A). Further in case of 144 appeals, the Coordinate Benches have condoned the delay in the case of BSNL employees on identical facts and circumstances. Thus on the parity itself, the appeal of the assessee should have been admitted by the ld. CIT(A). Accordingly, I reverse the order of the ld. CIT(A) in not condoning the delay.”

15. Similarly, the other issue of exemption claimed on the leave encashment was also addressed by the Hon’ble Kerala High Court in the above referred judgment by holding that the retired employees from BSNL under the Voluntary Retirement Scheme, 2019 are entitled for the leave encashment tax exemption as they are deemed to be Central Government employees. We have also considered the decisions of the Hon’ble Jaipur and Indore Benches in ITA No. 1139/JPR/2025 dated 07/10/2025 and ITA No. 233/IND/2025 dated 27/02/2026 wherein it was held that the enhanced limit of exemption of Rs. 25,00,000/- introduced by the Gazette Notification No.31/2023 dated 24.05.2023 w.e.f. 01/04/2023 u/s. 10(10AA) is a beneficial one and it should be applied at the time of the appellate jurisdiction.

16. Therefore both the issues are covered by the earlier orders of the Coordinated Benches of this Tribunal and against which no further proceedings were taken up by the revenue and therefore the said orders became final and in that case, the same view has to be taken by us. Insofar as the delay in filing the appeals before the Ld.CIT(A), we have taken note of the fact that the Ld.CIT(A)s had condoned the delay in filing the appeals of 72 assessees on identical facts in which the delays are ranging from 900 to 2000 days. We have also taken note of another fact that the Coordinated Benches had condoned the similar delays in the 144 appeals filed by the employees on similar facts and circumstances. In view of the above said facts, we are of the view that the Ld.CIT(A) ought to have condoned the delay and decided the appeals on merits instead of dismissing the appeals. Therefore, in the interest of justice, instead of condoning the delays and remitting this issue back to the Ld.CIT(A), we are passing these orders on merits after condoning the said delays and allow the appeals filed by the assessees and granted the relief of exemption u/s. 10(10B) and also granted the entire leave encashment received as eligible for exemption u/s. 10(10AA) of the Act. Considering the several orders of the Coordinated Benches of this Tribunal as well as the orders of the Ld.CIT(A), we are allowing the appeals filed by the assessees insofar as the claim made u/s. 10(10B) and 10(10AA) of the Act.

17. Insofar as the appeal in ITA No. 1832/Bang/2026, the Ld.CIT(A) had dismissed the appeal on the ground that the rejection of the rectification application u/s. 154 is a valid one. We have considered the fact that the assessee was also denied the exemption u/s. 10(10B) of the Act and therefore instead of filing a regular appeal before the Ld.CIT(A), the assessee filed a rectification petition by relying on the decision of the Hon’ble Chandigarh Bench of this Tribunal. The AO had rejected the said application by stating that the rectification application is not maintainable. Subsequently, the Ld.CIT(A) also confirmed the same even though the merits were decided in favour of the assessees by a number of orders of various Tribunals. As against which the assessee is in appeal before this Tribunal.

18. The allowability of the exemption u/s. 10(10B) of the Act was decided by the Tribunals and in fact, the Ld.CIT(A)s also allowed the appeals filed by the assessees and therefore in order to render justice, we are also allowing the appeal filed by the assessee by holding that the rectification application is maintainable and therefore the exemption u/s. 10(10B) of the Act on the retrenchment compensation received by the assessee is an allowable one.

19. In the result, the appeals filed against the dismissal order of the Ld.CIT(A) on the ground of limitation are allowed and the benefits of exemption u/s. 10(10B) as well as benefit of the entire leave encashment is allowed u/s. 10(10AA) of the Act. Similarly, the appeal in ITA No. 1832/Bang/2026 in which the Ld.CIT(A) had confirmed the rejection of the rectification order was also allowed by granting the benefit u/s. 10(10B) of the Act.

20. In the combined result, all the appeals filed by the assessees are allowed.

Order pronounced in the open court on 23^rd June, 2026.