BSNL VRS-2019 Compensation Exempt as Retrenchment Compensation: ITAT Pune

Sanjay Bajarang Todali Vs ITO (ITAT Pune)

Compensation received by BSNL employees under BSNL VRS-2019 constitutes retrenchment compensation exempt under section 10(10B) as a capital receipt, and such exemption cannot be denied merely because the claim was raised for the first time before the appellate authority or due to procedural objections.

Core Issue Whether the ex-gratia compensation received by BSNL employees under BSNL Voluntary Retirement Scheme (VRS)-2019 is taxable as voluntary retirement compensation eligible only for exemption under section 10(10C) or is in the nature of retrenchment compensation fully exempt under section 10(10B); and whether such exemption can be claimed for the first time before the appellate authority despite not being claimed in the original return of income.

Facts The assessees, all former employees of Bharat Sanchar Nigam Limited (BSNL), opted for BSNL VRS-2019, introduced pursuant to the Central Government’s revival package for BSNL/MTNL. While filing their returns for AYs 2020-21 and 2021-22, they treated the compensation as voluntary retirement compensation and claimed exemption of Rs.5 lakh under section 10(10C), offering the balance amount to tax. Subsequently, relying upon favourable judicial precedents, they contended before the appellate authorities that the compensation was actually retrenchment compensation under a Government-approved forced retirement scheme, constituting a capital receipt exempt under section 10(10B). The appellate authorities rejected the claims on grounds including delay in filing appeals, non-maintainability, or that a fresh claim could not be entertained without filing a revised return.

ITAT Findings  The Tribunal held that the controversy was no longer res integra and stood squarely covered by its earlier decision in Rajendra Himmatrao Patil and a consistent line of decisions rendered by the Pune, Ahmedabad, Chandigarh, Bangalore, Chennai and Mumbai Benches of the Tribunal.

The Tribunal observed that BSNL VRS-2019 was not an ordinary voluntary retirement scheme but formed part of a Government-approved revival package intended to substantially reduce the workforce of BSNL. The compensation paid under the scheme was therefore in the nature of retrenchment compensation arising from a forced retirement scheme and not merely voluntary retirement compensation contemplated under section 10(10C). Accordingly, such compensation constituted a capital receipt fully exempt under section 10(10B).

The Tribunal further held that substantive legal relief cannot be denied on procedural grounds. An assessee is entitled to raise a legitimate claim before the appellate authorities even if such claim was omitted in the original return or no revised return was filed. Similarly, delay in filing the appeals deserved liberal condonation where the assessees had acted on professional advice and subsequently became aware of the correct legal position through judicial pronouncements. Since the Revenue failed to place any contrary judicial precedent or distinguish the earlier co-ordinate Bench decisions, the Tribunal followed the settled legal position and granted relief to all the assessees. The assessees were directed to furnish revised computations before their respective Assessing Officers for verification and grant of consequential refund, wherever admissible.

Cases Relied Upon

(i) Rajendra Himmatrao Patil v. ITO (ITAT Pune)

(ii) Harish Kumar v. ITO (ITAT Chandigarh)

(iii) Jayeshkumar Tulsidas Sutaria v. ITO (ITAT Ahmedabad)

(iv) CIT v. Mahalakshmi Textile Mills Ltd. (Supreme Court)

(v) CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd. (Bombay High Court)

(vi) Vijay Vishin Meghani v. DCIT (Bombay High Court)

(vii) Hindustan Photo Film Workers Welfare Centre v. Government of India (Madras High Court)

(viii) PCIT v. Karnataka State Co-operative Federation Ltd. (Karnataka High Court)

Outcome The Tribunal allowed all the appeals, set aside the orders of the appellate authorities, and held that the compensation received by BSNL employees under BSNL VRS-2019 is fully exempt under section 10(10B) as retrenchment compensation. The Assessing Officers were directed to verify the revised computations of income and grant consequential refunds, wherever due, in accordance with law

FULL TEXT OF THE ORDER OF ITAT PUNE

All the above captioned appeals are directed against the separate orders of the Ld. Addl / JCIT(A) pertaining to assessment years 2020-21 and 2021-22. Since identical grounds have been raised by the respective assessee’s, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order.

2. Although various grounds of appeal have been raised by the assessee’s in their respective appeals, all these grounds relate to the issue whether compensation received under the Bharat Sanchar Nigam Limited Voluntary Retirement Scheme – 2019 (in short ‘BSNL VRS-2019’) by the respective assessee – employees of BSNL is in the nature of retrenchment compensation and is a capital receipt not liable to tax and fully exempt under section 10(10B) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

3. Briefly stated, the facts of the case are that the assessee’s in the captioned appeals are ex-employees of BSNL. As a part of its revival package, the Government decided to reduce the workforce through BSNL VRS-2019 to the employees of aged 50 years and above and on retirement from BSNL such employees were paid ex-gratia compensation by BSNL under the said Scheme. During the relevant assessment years 2020-21 and 2021-22, each of the respective employees offered the amount so received to tax after claiming exemption u/s 10(10C) of the Act of Rs. 5,00,000/- and paid the due taxes on the remaining amount of compensation over and above Rs. 5,00,000/- wherever applicable.

4. Before the Ld. Addl / JCIT(A) the assessee(s) raised a new claim that the entire amount of compensation received from BSNL being capital receipt is not liable to tax and fully exempt as per the provisions of section 10(10B) of the Act. However, the Ld. Addl / JCIT(A) in some cases dismissed the appeals on merits for the reason that said new claim cannot be entertained by him. Some of the appeals were dismissed by the Ld. Addl / JCIT(A) on account of delay in filing of the appeals whereas in some cases the delay in filing of the appeals has been condoned with dismissal of appeals on merit, the details of which are as under:

5. Aggrieved, the assessee(s) are in appeal before the Tribunal and all the grounds of appeal relate to the above issues.

6. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. Addl / JCIT(A) and the paper book filed by the Ld. AR. We have also considered the various decisions cited before us. At the outset, the Ld. AR submitted before us that the impugned issue stands squarely covered in favour of the assessee(s) by the decision of the Co-ordinate Bench of the Tribunal in various bunch of appeals wherein the Tribunal in turn relying on the orders of other Tribunals involving the identical set of facts have allowed the appeal of the assessee. In support thereof, the Ld. AR further relied on following cases:

i) Harish Kumar vs. ITO (2025) 175 com379 (Chandigarh – Trib.)

ii) Jayeshkumar Tulsidas Sutaria vs. ITO (2026) 183 com587 (Ahmedabad – Trib.)

iii) Suman Nandlal Raval vs. ITO vide ITA Nos.2389 & 2390/Ahd/2025 order dated 18.02.2026 for assessment years 2020-21 & 2021-22

iv) Shraddha Pralhad Arote vs. ITO vide ITA Nos.262 & 261/PUN/2026 order dated 24.03.2026 for assessment years 2020-21 and 2021-22 & Ors.

v) Meghmala Sudhir Pathak vs. ITO vide ITA Nos.290 & 293/PUN/2026 order dated 24.03.2026 for assessment years 2020-21 and 2021-22 & Ors.

vi) Rajedra Himmatrao Patil vs. ITO vide ITA Nos.302 & 303/PUN/2026 order dated 27.03.2026 for assessment years 2020-21 & 2021-22 & Ors.

vii) Bajirao Shankar Jagdale vs. ITO (2026) 185 taxmann.com 451 (Mumbai – Trib.)

viii) Prathibha Jagadish Unawane vs. ITO vide ITA Nos.1117 & 1118/PUN/2026 order dated 29.04.2026 for assessment years 2020-21 & 2021-22 & Ors

ix) Sameer Yadram Sharma vs. ITO vide ITA Nos.864 & 865/PUN/2026 order dated 20.05.2026 for assessment years 2020-21 & 2021-22 & Ors.

x) Renuka Narasimha Prabhu vs. ITO vide ITA No.992/BANG/2026 order dated 29.05.2026 for assessment year 2020-21 & Ors

xi) Shri Sekhar Gnanaprakasam vs. DCIT vide ITA Nos.1608 & 1609/Chny/2026 order dated 21.05.2026 for assessment year 2020-21 and 2021-22

xii) Shivnandan Narendra Sanvordekar vs. ITO vide ITA Nos. 141 & 142/PAN/2026 order dated 18.06.2026 for assessment year 2021-22

xiii) Ramesh Bhimshankar Budwatrao vs. ITO vide ITA No.1890/PUN/2026 order dated 19.06.2026 for assessment years 2020-21 & 2021-22 & Ors.

7. The Ld. DR on the other hand though supported the order of the Ld. Addl / JCIT(A) but he could not bring on record any contrary material to controvert the submissions of the Ld. AR.

8. We find that the Pune Bench of the Tribunal in the recent case of Rajendra Himmatrao Patil vs. ITO (ITA Nos.302 & 303/PUN/2026) & Others for assessment years 2020-21 and 2021-22, vide its order dated 27.03.2026 has decided the impugned issue in favour of the assessee by observing as under:

“5. Ld. Counsel for the assessee at the outset justifying the delay in filing of appeals before ld.CIT(A) submitted that the issue of claiming benefit of exemption u/s. 10(10B) of the Act for the amount received as compensation from BSNL for the force retirement has been adjudicated by the Coordinate Benches of Chandigarh as well as Ahmedabad and other Tribunals consistently holding in favour of the assessee(s). He also submitted that in various cases dealt by the Coordinates Benches, the alleged claim of exemption u/s. 10(10B) of the Act has been made for the first time and the same has been admitted by the Tribunal and relief has been granted. Reliance placed on the decision of Coordinate Bench, Ahmedabad in the case of Jayesh Kumar Tulsidas Sutaria Vs. ITO (2026) 183 taxmann.com 587 (Ahmedabad-Trib.)

6. So far as the claim that the alleged sum received in the form of Retrenchment Compensation from BSNL under the forced retirement is a Capital receipt not chargeable to tax and exemption available u/s. 10(10B) of the Act has been decided in favour of the assessee(s), ld. Counsel for the assessee placed reliance in the following decisions :

1. Harish Kumar Vs. ITO (2025) 175 taxmann.com379 (Chandigarh-Trib.)

2. Dayal Singh Vs. ITO – ITA 519/cHD/2024

3. Suresh Pal Chauhan vs. ITO (2023) 154 taxmann.com529 (Chandigarh-Trib.)

4. Hindustan Photo Film Workers Welfare Centre Vs. Govt. of India (2017) 79 taxmann.com298 (Madras)

5. CIT (TDS) Vs. Hindustan Photo Film Workers Welfare Centre (2021 129 taxmann.com356 (Madras)

6. Union of India Vs. M/s. Hindustan Photo Film Workers Welfare Centre and others _ Special Leave Petition (Civil) Diary No.37247/2017

7. Shree Rajeshwar Sharma Vs. ITO – ITA No.870/CHD/2018

8. CIT Vs. Mahalakshmi Textile Mills Ltd.(1967) 66 ITR 710 (SC)

9. PCIT Vs. Karnataka State Cooperative Federation Ltd. (2021) 128 taxmann.com1 (Karnataka)

10. CIT Vs. Pruthvi Brokers & Shareholders (2012) 23 taxmann.com23 (Bombay)

7. On the other hand, ld. DR supported the orders of ld.CIT(A) and submitted that firstly the assess(s) have not made this claim in the regular returns of income and themselves paid due taxes and such claim ought to have been made through revised return. He also submitted that the sum received from BSNL is on account of Voluntary Retirement Scheme and for such amount received under the VRS, 2019, the assessee(s) are only eligible for the exemption to the extent of Rs. 5.00 lakh as provided u/s. 10(10C) of the Act.

8. We are of the considered opinion that Ld.CIT(A) should have condoned the delay as assessee had filed elaborate explanation regarding delay and there was sufficient cause for delay. These Assessee have filed Returns of Income based on professional Advise received at that point of time. However, subsequently they made revised claim before CIT(A).

8.1 Substantial justice is more important than the procedural delay. The Hon’ble Bombay High Court in the case of Vijay Vishin Meghani vs DCIT [2017] 398 ITR 250 (Bombay) has condoned the delay of 2984 days, which was on account of professional advice of a CA.

9. The identical issue of BSNL employees is decided by ITAT Pune in favour of assessee in ITA Nos.290 and 293/PUN/2026,ITA Nos.294 and 295/PUN/2026. ITAT Pune has relied on the decision of ITAT Ahmedabad in the case of Jayeskumar Sutaria vs ITO, ITAT has extensively reproduced the decision and finally allowed the appeal of the assessee. The relevant paragraph of the said order is reproduced here under :

Quote, “15. Further, I find the Coordinate Bench, Ahmedabad in the case of Jayeshkumar Tulsidas Sutaria Vs. ITO (supra) following the decision of Coordinate Bench, Chandigarh in the case of Harish Kumar vs. ITO Ward- 5(5), Chandigarh -ITA No. 42/CHD/2025 order dated 30.05.2025 has decided the issue in favour of the assessee by observing as under :

“3. The assessee was employed with Bharat Sanchar Nigam Limited (BSNL), a Government of India enterprise. BSNL notified the Voluntary Retirement Scheme (VRS) 2019 on 04.11.2019, which was duly approved and implemented by the employer. The assessee opted for the scheme and accordingly received compensation under the VRS, as per the terms laid down by BSNL. It is submitted that the assessee had not been paid regular salary for several months prior to opting for the scheme and was under severe financial and professional uncertainty. In view of these circumstances, the assessee opted for the scheme as a measure of financial security. The compensation received by the assessee was in the nature of compensation under the BSNL VRS-2019 scheme. The compensation amount received under the scheme was offered to tax in the return of income due to lack of awareness regarding the exemption available under section 10(10B) of the Income-tax Act, 1961. The employer had also deducted tax at source on the said amount. No exemption was claimed in the original or revised return of income. The CPC, Bengaluru issued an intimation under section 143(1) for the said year without granting any exemption, and no rectification or appeal was initiated at that time. It was only upon learning about the recent judgment of the Hon’ble ITAT Chandigarh Bench in the case of Harish Kumar vs. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025, dated 30.05.2025) that the assessee became aware that the compensation received under the BSNL VRS-2019 scheme is eligible for exemption under section 10(10B), subject to compliance with Rule 2BA.

4. Aggrieved by the orders of the Assessing Officer, the assessee carried the matter in appeal before the Ld.CIT(A), who dismissed the appeal of the assessee as non maintainable by observing as follows:

“…In the present case, the delay in filing of the appeal is almost four years which is an inordinate and huge delay. Moreover, as has been elaborately discussed above, the appellant has also failed to provide any reasonable ground that could assist the first appellate authority to draw sufficient cause for the inordinate delay of 1,396 days in filing of this appeal. The inordinate delay in the present case, if condoned, would make the term ‘’Sufficient cause” in section 249(3) of the Income Tax Act, 1961 hollow and meaningless.

20. In light of the facts of the case, provisions of the Income Tax Act, 1961 and judicial decisions in the matter as discussed above, I am constrained to conclude that the appellant has failed to submit any reasonable ground for condoning the inordinate delay of 1,396 days i.e almost four years in filing this appeal. Being bereft of any sufficient cause as envisaged in section 249(3) of the Act, the appeal cannot be admitted. Since the appeal is not maintainable, there is no need to adjudicate on the merits therein.

5. Aggrieved by the orders of the Ld.CIT(A, the assessee is in further appeal before us.

6. We have gone through the records and considering the merits of the case, we condoned the delay and proceed to adjudicate the issue.

7. The Ld. Counsel for the assessee submitted that due to lack of awareness of the legal provisions at the time of filing the return of income, the assessee inadvertently offered the compensation received under BSNL VRS-2019 to tax. Subsequently, based on the decision of the Hon’ble ITAT Chandigarh Bench in Harish Kumar vs. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025 dated 30.05.2025), wherein compensation under the same BSNL VRS-2019 scheme was held to be exempt under section 10(10B), the assessee now seeks exemption of such compensation. We find that the assessee filed the claim before the Ld. CIT(A) and since the income of the assessee is not taxable, the assessee is eligible for the refund of the TDS.

8. In the result, both the appeals of the assessee are allowed.”

16. The contention of ld. DR that only a ‘workman’ as defined under the Act is eligible for benefit u/s. 10(10B) of the Act has no force as the Hon’ble High Court of Madras in the case of Hindustan Photo Film Workers Welfare Centre vs. Govt. of India (2018) 400 ITR 299 (Madras) has held that benefit u/s. 10(10B) would be applicable to all employees covered by the scheme.

17. In light of the above decisions which are squarely applicable on the facts of instant cases and the consistent view taken by the Coordinate Benches, I am of the considered view that the alleged sum is in the nature of Retrenchment Compensation received by the assessee(s) in appeal, under the forced retirement scheme as per the standing orders dated 29.10.2019 issued by the Union Cabinet for the revival plan of BSNL/MTNL and such compensation falls under the provisions of section 10(10B) of the Act and not u/s. 10(10C) of the Act and therefore the alleged sum is in the nature of Capital receipt exempt from tax. In order to get relief as has been directed in this order, assessee(s) are directed to place revised computation of income before the respective Jurisdictional Assessing Officers claiming the exemption u/s. 10(10B) of the Act as discussed (supra) and thereafter the Revenue authorities shall grant the refund (if any) entitled to the assessee(s) after due verification of such revised computation of income. Impugned findings of ld.CIT(A) are set aside. Common issue raised in the Grounds of appeal raised by respective assessee(s) stands allowed.”

9. Since the facts in the instant bunch of appeals are same, therefore, following the same parity of reasoning, I hold that the alleged sum received under BSNL Voluntary Retirement2019 Scheme is in the nature of Retrenchment Compensation received by the assessee(s) in appeal and such compensation falls under the provisions of section 10(10B) of the Act and not u/s. 10(10C) of the Act and is in the nature of Capital receipt exempt from tax. Assessee(s) are directed to place revised computation of income before the respective Jurisdictional Assessing Officers claiming the exemption u/s. 10(10B) of the Act of the alleged sum and thereafter the Revenue authorities shall compute the tax liability and grant the refund (if any) entitled to the assessee(s) after due verification of such revised computation of income. Impugned findings of ld.CIT(A) are set aside and the common issue raised in the Grounds of appeal by respective assessee(s) stands allowed.” Unquote

10. Before us the Ld.AR also filed copies of the Orders of CIT(A) who have condoned the delay in identical facts and allowed the appeal of the assessee who were BSNL employees.

11. In following cases the CIT(A) has condoned the delay and allowed those BSNL employees Appeal on identical facts.

12^. Respectfully following the decision of ITAT Pune (supra) we hold that the impugned amounts were exempt from tax. Assessee(s) are directed to place revised computation of income before the respective Jurisdictional Assessing Officers claiming the exemption u/s. 10(10B) of the Act of the alleged sum and thereafter the Revenue authorities shall compute the tax liability and grant the refund (if any) entitled to the assessee(s) after due verification of such revised computation of income. Impugned findings of ld.CIT(A) are set aside and the common issue raised in the Grounds of appeal by respective assessee(s) stands allowed.”

9. Since the facts of the all the above captioned appeals are identical to the facts in the case of Rajendra Himmatrao Patil vs. ITO (ITA Nos.302 & 303/PUN/2026) & Others (supra), therefore, respectfully following the decision thereof and in the absence of any contrary material brought on record by the Ld. DR, we set aside the order of the Ld. Addl / JCIT(A). The grounds of appeal raised by the respective assessee(s) are accordingly allowed.

10. In the result, all the captioned appeals filed by the respective assessee(s) are allowed.

Order pronounced in the open Court on 30th June, 2026.