Chandrakant Fula Patil Vs ITO (ITAT Ahmedabad)
BSNL VRS Compensation and Leave Encashment: ITAT Ahmedabad Allows Employee’s Exemption Claims
The Income Tax Appellate Tribunal, Ahmedabad, in Chandrakant Fula Patil v. Income Tax Officer, ITA No. 2808/Ahd/2026, allowed a BSNL employee’s appeal concerning exemption of compensation received under the BSNL Voluntary Retirement Scheme, 2019, and leave encashment. Following coordinate Bench decisions, the Tribunal accepted the assessee’s claims and overturned the adverse appellate outcome.
The order, pronounced on 22 October 2026, concerned Assessment Year 2020–21. The dispute involved Rs. 17,62,714 received as VRS compensation and Rs. 13,71,410 received as leave encashment. The Tribunal found no change in the factual matrix or legal position warranting departure from the precedents cited before it.
Background of the Dispute
The assessee was an employee of Bharat Sanchar Nigam Limited (BSNL) who received compensation under BSNL VRS-2019, introduced by the Department of Telecommunications, Government of India.
In his appeal, he sought exemption for the entire compensation of Rs. 17,62,714, instead of the Rs. 5,00,000 claimed in the return.
He also sought full exemption for leave encashment of Rs. 13,71,410, against Rs. 13,05,701 claimed in the return.
The appeal before the Tribunal challenged the order dated 31 July 2026 passed by the Additional/Joint Commissioner of Income Tax (Appeals), Mysore, under Section 250 of the Income-tax Act, 1961.
The assessee maintained that the first appellate authority had failed to appreciate the relevant facts and exemption provisions.
Claim Under Section 10(10B)
The assessee argued that the severance payment qualified for exemption under the second proviso to Section 10(10B).
According to him, BSNL VRS-2019 was a special protection package approved and funded by the Central Government. He contended that the compensation should therefore receive full exemption rather than remain restricted to the amount claimed in his return.
He further submitted that the payment arose from loss of employment and constituted a capital receipt, which should not be taxed.
These were the alternative legal propositions advanced in support of relief. The Tribunal ultimately allowed the appeal by following earlier decisions concerning the same scheme, rather than separately developing a detailed finding on the capital receipt argument.
Leave Encashment and the Enhanced Limit
For leave encashment, the assessee relied on CBDT Notification No. 31/2023 dated 24 May 2023, which specified an enhanced exemption limit of Rs. 25 lakh under Section 10(10AA)(ii).
The notification reproduced in the order states that it is deemed effective from 1 April 2023. Nevertheless, the assessee relied on Tribunal decisions that had extended relief by applying the enhanced limit in disputes concerning earlier assessment years.
Since his leave encashment of Rs. 13,71,410 was below Rs. 25 lakh, he sought exemption for the entire receipt.
The present decision adopted the reasoning of those earlier rulings. It should therefore be understood as relief granted through the cited judicial precedents, rather than as a finding that the notification expressly commenced in Assessment Year 2020–21.
Reliance on Goverdhan D Bhambhani
Both parties submitted that the issue was covered by Goverdhan D Bhambhani v. ITO, ITA No. 289/Ahd/2025, decided on 28 July 2025, concerning Assessment Year 2020–21.
The Tribunal reproduced the relevant discussion from that decision, including its reliance on Govind Chhatwani v. CIT(Appeals) and Devendra Kumar Gupta v. CIT(Appeals).
Those rulings addressed the enhanced leave encashment exemption limit and supported relief against restrictions imposed by the lower authorities.
The reproduced reasoning also referred to judicial observations concerning the prolonged absence of an upward revision in the earlier exemption ceiling despite increases in salaries and inflation.
Following this line of authority, the Tribunal accepted the precedent-based claim concerning leave encashment.
Earlier Decisions on BSNL VRS Compensation
The Tribunal also referred to Pravinkumar Ramibhai Patel v. ITO, decided on 9 July 2026, and Jayeshkumar Tulsidas Sutaria v. ITO, decided on 17 February 2026.
The reproduced decisions concerned compensation under BSNL VRS-2019 and claims for exemption under Section 10(10B).
They, in turn, relied on Harish Kumar v. ITO, ITA No. 42/CHD/2025, decided by the Chandigarh Tribunal on 30 May 2025.
The cited reasoning recognised that compensation described as VRS compensation could qualify for relief as retrenchment compensation in the circumstances examined. It also addressed claims made before the appellate authority after the compensation had initially been offered to tax.
Exemption Claim Beyond the Original Return
The reproduced precedent in Jayeshkumar Tulsidas Sutaria dealt with an assessee who had offered the compensation to tax because of a lack of awareness about the exemption.
That decision accepted the claim raised before the CIT(A) and recognised entitlement to refund of tax deducted where the relevant income was not taxable.
By relying on this reasoning, the Tribunal supported consideration of the present assessee’s exemption claims beyond the amounts originally claimed.
Final Decision
Finding no change in the factual matrix or legal position, the Tribunal followed the cited coordinate Bench rulings and allowed the appeal.
The assessee consequently succeeded in his claims concerning BSNL VRS compensation and leave encashment for Assessment Year 2020–21.
Cases Discussed
- Goverdhan D Bhambhani Vs ITO — ITA No. 289/Ahd/2025; 28.07.2025
- Neelam Gupta Vs Addl./JCIT — ITA No. 81/Del/2025; 21.04.2025
- Ram Dev Daiya Vs ITO — ITA No. 1280/JPR/2025; 01.01.2026
- Govind Chhatwani Vs CIT(Appeals) — ITA No. 385/JP/2023; 31.10.2023
- Devendra Kumar Gupta Vs CIT(Appeals) — MA No. 49/JP/2023; 18.02.2025
- Ram Charan Gupta — ITA No. 408/JP/2022
- Kamal Kumar Kalia & Ors. Vs Union of India & Ors. — WP(C) 11846/2019; 08.11.2019
- Pravinkumar Ramibhai Patel Vs ITO — ITA No. 1273/Ahd/2026; 09.07.2026
- Harish Kumar Vs ITO — ITA No. 42/CHD/2025; 30.05.2025
- Jayeshkumar Tulsidas Sutaria Vs ITO — ITA Nos. 2387 & 2388/Ahd/2025; 17.02.2026
- Suman Nandlal Raval — ITA Nos. 2389 & 2390/Ahd/2025; 18.02.2026
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed by the assessee against the order passed by the Ld. Addl./JCIT Commissioner of Income Tax(Appeal), Mysore, vide order dated 31.07.2026. (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 202021.
2. The assessee has raised the following grounds of appeal:
1. This Appeal before Income Tax Appellate Tribunal is filled to quash and set aside the Order passed u/s 250 by CIT(A) in Appeal No. ADDL/JCIT (A) MYSORE/10062/2019-20 and may be pleased to grant the full tax exemption for the Amount received Rs. 17,62,714/ instead of Rs.5,00,000/- claimed in the ITR filled during A.Y.2020-2021 by an assessee as this amount is Retrenchment Compensation Received From Central Government Under the Scheme Approved By Central Government is fully exempted from Income Tax Under Section 10(10B) of Income Tax Act, 1961.
2. The compensation amount receipts in the hands of assessee as an employee of the BSNL, pursuant to the severance package, titled as BSNL Voluntary Retirement Scheme-2019 announced by the Department of Telecommunications (DoT), Central Government of India under total budgetary allocation approved by the Government is a special privilege/protection package granted to the employees of the BSNL and therefore, the Second Proviso of the Section 10(10B) of the Income Tax Act, 1961 are attracted and accordingly, the same shall not fall within the definition of income, while computing the total income of an assessee and income tax not to be deducted from the severance package paid as an employee of DOT and BSNL Combined Service.
3. In the present case the compensation received by an Assessee is towards loss of employment for the reason of employer so it would amount to Capital Receipt and hence, no Income Tax is payable.
4. The amount received Rs. 13.71.410/- is fully exempted u/s.10(10AA) of the Income Tax Act, 1961 instead of Rs. 13.05,701/- claimed in the ITR filled in respect of leave 4 encashment received by an Applicant. This is as per Revised Limit of Leave Encashment Rs.25,00,000/- as per CBDT, Notification No.31/2023/F.No. 200/3/2023-ITA-1 Dated: 24/05/2023.
5. That Ld. CIT(A) has misdirected himself in law, facts and circumstances of the case, that Ld. CIT(A) has dismissed the Appeal on account of the fact that intimation passed u/s 143(1) of the Income Tax Act is not an appealable order within the meaning of section 246(1) of the Income Tax Act
3. The assessee was an employee of Bharat Sanchar Nigam Limited (BSNL) and received compensation under the BSNL Voluntary Retirement Scheme (VRS), 2019, introduced by the Department of Telecommunications (DoT), Government of India. The assessee contended that the compensation received under the severance package was exempt from tax under the second proviso to Section 10(10B) of the Income-tax Act, 1961, as the scheme was a special protection package approved and funded by the Central Government. The assessee further argued that the compensation received on account of loss of employment constituted a capital receipt and, therefore, was not taxable. The assessee also claimed that the leave encashment amounting to Rs. 13,71,410/-was fully exempt under Section 10(10AA) of the Act, in accordance with the enhanced exemption limit of Rs. 25,00,000/- notified by the CBDT vide Notification No. 31/2023 dated 24.05.2023, as against the exemption of Rs. 13,05,701/- claimed in the return of income.
4. Aggrieved by the assessment order, the assessee filed an appeal before the Ld. CIT(A), who dismissed the appeal of the assessee.
5. The Ld. Counsel for the assessee submitted that the Ld. CIT(A) had failed to properly appreciate the facts of the case and the applicable legal provisions while dismissing the appeal. Accordingly, the assessee sought appropriate relief in respect of the exemption claims raised in the appeal. The Ld. Counsel further relied upon the following decisions of the Coordinate Benches of the ITAT in support of the assessee’s contentions.
1. ITA no.289/Ahd/2025 dated 28.07.2025 in the case of Goverdhan D Bhambhani Vs. ITO
2. ITA Nos.81/Del/2025 dated 21.04.2025 in the case of Neelam Gupta Vs. Addl./JCIT
3. ITA No.1280/JPR/2025 dated 01.01.2026 in the case of Ram Dev Daiya Vs. ITO.
4. ITA Nos. 2387 & 2388/Ahd/2025dated 17.2.2026 in the case of Jayeshkumar Tulsidas Sutaria
6. Heard the argument of both the parties and perused the material available on record.
7. At the outset, both the parties fairly submitted that the issue raised by the assessee in the present appeal stands covered by the order of the Tribunal in the case of Goverdhan D Bhambhani Vs. ITO for AY 2020-21 dated 28.07.2025. For the sake of ready reference, the operative portion of said order is reproduced as under:
3. The CBDT’s Notification dated 24.05.2023 (No. 31/2023/F.No. 200/3/2023-ITA-1) (copy enclosed Page no. 1) clearly states that
“S.O. 2276(E).-In exercise of the powers conferred by sub-clause (ii) of clause (1044) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government, having regard to the maximum amount receivable by its employees as cash equivalent of leave salary in respect of the period of earned leave at their credit at the time of their retirement, whether superannuation or otherwise, hereby specifies the amount of Rs. 25,00,000 (twenty-five lakhs rupees only) as the limit in relation to employees mentioned in that sub-clause who retire, whether on superannuation or otherwise.
2. This notification shall be deemed to have come into force with effect from the 1st day of April, 2023.
[Notification No. 31/2023/F. No. 200/3/2023-ITA-I]
SOURABH JAIN, Under Secy.
Explanatory Memorandum: It is hereby certified that no person is being adversely affected by giving retrospective effect to this notification.”
4. Thus in view of such notification section 10(10AA) sub section (i) & (ii) both are at par & since it is clear that as per explanatory memorandum that no person is being adversely affected by giving retrospective effect to this notification.
Thus sec 10(10AA) (i) & (ii) both are at par (with RETROSPECTIVE effect & even the private employee on retirement are entitled for such higher limit of Rs. 25,00,000/-or actual amount received whichever is less; to claim u/sec 10 (10AA) of Act.
It is requested to kindly consider & grant relief. Under similar circumstances number of decisions already granted by Jaipur Bench; details as below:-
1. Govind Chatwani, Appeal No. ITA No. 385/JP/2023 dated 31.10.2023 copy as enclosed (Page 2108)
2. Devendra kumar Gupta M.A. No. 49/JP/2023 dated 18.02.2025 copy as enclosed.”
6. Ld. Sr. D.R. appearing for the Revenue supported the order passed by the lower authorities and requested to confirm the disallowance.
7. We have given our thoughtful consideration and perused the materials available on record. This issue of deduction u/s. 10(10AA)(ii) is no more res-integra based on the decisions passed by Co-ordinate Bench of this Tribunal in the case of Govind Chhatwani Vs. CIT(Appeals) in ITA No. 385/JP/2023 dated 31-10-2023 wherein it is held as follows:
“7. We have heard the rival contentions and perused the material placed on record. The bench noted that the apple of discord in this case that the assessee has received a sum of Rs. 17,68,479/- as leave encashment which was claimed in the return of income filed as exempt u/s 10(10AA) of the Act. The CPC and ld. CIT(A) contended that in the light of this specific notification being not issued the leave encashment allowable up to Rs. 3,00,000/- only whereas we note from the submission of the assessee that the assessee has relied upon the notification No. 31/2023/F.No. 200/3/2023-ITA-1 dated 24th May, 2023 and submitted that the revised limit of Rs. 25,00,000/-increased on account of leave salary is applicable and to be considered in the light of fact that government has issued this notification belatedly. The assessee has already claimed the leave salary as exemption the benefit should be given to the assessee. The similar issue has been decided by the bench in the case of Ram Charan Gupta in ITA No. 408/JP/2022 wherein the bench has already held as under:-
“8. We have heard the rival contentions and perused the material placed on record. The bench noted that the assessee relying the decision of Hon’ble Delhi High Court has issued a notice to the Union of India in the case of Kamal Kumar Kalia & Ors. Vs. Union of India & Ors in WP(C) 11846/2019 dated 08.11.2019 wherein the court has given following directions :-
“8. We are however of the, prima facie, view that the grievances of the petitioner with regard to exemption limit under Clause (ii) of Section 10 (10AA) not being raised since 1998, appears to be justified. This is so because over the decades, the pay-scales admissible to government servants, and even employees of the Public Sector Undertaking and Nationalised Banks and all others have been upwardly revised, keeping in view, the financial growth in the country as well as on account of rising inflation. The last drawn salaries have increased manifold since time and notification issued under Clause (ii) of Section 10(10AA) was lastly issued, as taken note of hereinabove, on 31.05.2002. We therefore, issue notice to the respondents limited to this aspect.
Issue notice, learned counsel for the respondents accepts notice. Respondents should file counter affidavits be filed within six weeks. Rejoinder thereto, if any, be filed before the next date.
” 8.1 Recently the Central Board of Direct Taxes Suomotu revised the limit for deduction u/s 10(10AA) of the Act and the revised limit now stood at Rs. 25,00,000 as specified vide notification no. 31/2023 issued by the ministry of finance. Since the leave encashment amount as claimed by the assessee is amount to Rs. 6,97,100/- which is below the revised limit of leave encashment exempt prescribed by the Board, the assessee is eligible to claim of deduction of said Rs. 6,97,100/-. Based on these observations the ld. AO is directed to allow the claim of the assessee u/s. 10(10AA) of the act within the revised limit as prescribed. In terms of these observations the appeal of the assessee is allowed.”
On being consistent to the said finding, we held 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.
8. Further this decision is followed in the case of Devendra Kumar Gupta Vs. CIT(Appeals) in M.A. No. 49/JP/2023 dated 18-02-2025. Thus respectfully following the above decisions, the restricting the deduction u/s. 10(10AA) of Rs. 4,65,404/- made by the lower authorities are not sustainable in law. Therefore the same is liable to be deleted.
7.1 A similar issue has been considered by the Co-ordinate Bench of the ITAT in its consolidated order dated 09.07.2026 passed in ITA No. 1273/Ahd/2026 for Assessment Year 2020-21 in the case of Pravinkumar Ramibhai Patel Vs. ITO. The relevant extract of the said order is reproduced hereunder:
7. The Ld. Counsel for the assessee submitted that the amount received by the assessee represented retrenchment compensation received from the Central Government under a scheme approved by the Government. It was submitted that the said amount is fully exempt from tax under section 10(10B) of the Income-tax Act, 1961, and, therefore, the assessee is entitled to full tax exemption. The Ld. Counsel for the assessee further relied upon the following decisions of Coordinate Benches of the ITAT in support of the claim of exemption.
“1. ITA No. 42/Chd/2025 AY 2021-22 in the case of Harish Kumar V/s. ITO Chandigarh dated 30.05.2025.
2. ITA Nos.2387 & 2388/Ahd/2025 in the case Jayeshkumar Tulsidas Sutaria dated 17.02.2026
3. ITA No.2389 & 2390/Ahd/2014 in the case of Suman Nandlal Raval dated 18.02.2026
8. I note that the issue under consideration is squarely covered by the above referred decisions of the Co-ordinate benches of this Tribunal. The Coordinate Bench of this Tribunal in ITA Nos. 2387 & 2388/Ahd/2025 for AYs 2020-21 & 2021- 22 vide order dated 17.02.2026, has held as under:
“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 by observing as follows:
“… The Appellant was employed with Bharat Sanchar Nigam Limited (BSNL), a Government of India enterprise. BSNL had notified the Voluntary Retirement Scheme (VRS) 2019 on 04.11.2019, which was duly approved and implemented by the employer. The Appellant opted for this scheme and accordingly received compensation under the VRS, as per the terms laid out by BSNL. The compensation amount received under the scheme was offered to tax by the appellant in the return of income due to lack of awareness about the availability of exemption under Section 10(108) of the Income Tax Act. 1961. The employer had also deducted TDS on the said amount. No exemption was claimed in the original or revised return for the year by the appellant. The CPC, Bengaluru issued an intimation u/s 143(1) for the said year without granting any exemption, and no rectification or appeal was initiated at that time. The issue on this appeal pertains to exemption u/s 10(10B) of the Income Tax Act
The appellant in his written submission has stated that it was only upon learning about the recent judgment of the Hon’ble ITAT Chandigarh, in the case of Harish Kumar vs. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025, dated 30.05.2025), that the Appellant came to know that the compensation received under the BSNL VRS 2019 scheme is eligible for full exemption u/s. 10(10B), subject to Rule 2BA compliance.
The grievance raised in the grounds of appeal does not emanate from the order appealed against. It is not a case where the appellant claimed exemption u/s.10(10B) and it was denied by the Assessing Officer. The appellant having omitted to claim relief in the return of income can claim the relief by filing the revised return. In cases where the time limit for filing the revised return has expired, the appellant may seek condonation of delay from the jurisdiction PCIT and then proceed with filing the revised return. The issue raised in grounds of appeal does not emanate from the order of intimation u/s.143(1), Hence, the appeal is dismissed…”
5. Aggrieved by the orders of the Ld.CIT(A, the assessee is in further appeal before us.
6. 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.
7. In the result, both the appeals of the assessee are allowed.”
9. Since, there is no change in the legal proposition and the factual matrix of the case, respectfully following the decision of the Co-ordinate Bench, the issue raised by the assessee in the present appeal is decided in favour of the assessee. It is held that the assessee is entitled to exemption u/s 10(10B) of the Act upon entire amount of retrenchment compensation (though named as VRS Compensation) and leave encashment, if any. The AO is directed to accordingly give the relief to the assessee.
7.2 A similar issue has also been considered by the Co-ordinate Bench of the ITAT in its consolidated order dated 17.02.2026 passed in ITA Nos. 2387-2388/Ahd/2026 for Assessment Years 2020-21 & 2021-22 in the case of Jayeshkumar Tulsidas Sutaria Vs. ITO. The relevant extract of the said order is reproduced hereunder:
“…6. 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.
7. In the result, both the appeals of the assessee are allowed. …”
8. In the absence of any change in the factual matrix or legal position, and respectfully following the judicial precedents cited above, the appeal of the assessee is hereby allowed.
9. In the result, the appeal of the assessee is allowed.
The order is pronounced in the open Court on 22.10.2026.
