Mysore Ramaswamy Harish Vs ITO (ITAT Bangalore)
Bangalore ITAT allows retrenchment compensation claim despite earlier section 10(10C) claim and TDS by employer
An employee who offered part of his BSNL VRS compensation to tax after claiming ₹5 lakh exemption under section 10(10C) later sought exemption under section 10(10B). Could that claim be rejected because it was not made in the original or a revised return? The Bangalore ITAT answered in the employee’s favour in Mysore Ramaswamy Harish v. ITO, ITA No. 1833/Bang/2026, order dated 23 September 2026, for AY 2021–22. It held that the appellate authorities could examine the claim and allowed the assessee the benefit of section 10(10B).
How the claim arose
The assessee was a BSNL employee who opted to leave under the BSNL Voluntary Retirement Scheme, 2019. The order describes the scheme as a measure introduced while BSNL was restructuring and reducing workforce costs. Compensation was payable in four instalments: the first in FY 2019–20 and the remaining three in FY 2020–21, the year relevant to this appeal.
BSNL deducted tax at source on the payments. The assessee therefore proceeded on the understanding that the compensation was taxable, claimed exemption of ₹5 lakh under section 10(10C) and offered the balance in his return. The return was processed and accepted under section 143(1).
He subsequently came across the Chandigarh ITAT decision in Harish Kumar v. ITO, which treated compensation received by a BSNL employee under the same scheme as eligible for exemption under section 10(10B). He filed an appeal before the CIT(A), seeking that benefit. The CIT(A) condoned the delay in filing the appeal, but dismissed the claim on its merits.
Why the CIT(A) rejected section 10(10B)
The CIT(A) distinguished between the two exemption provisions. In its view, section 10(10B) concerned retrenchment compensation, while section 10(10C) concerned amounts received under a voluntary retirement scheme. Since the payment arose under a scheme expressly called a VRS, the CIT(A) held that the assessee could not claim section 10(10B) relief.
There was also a procedural objection. The assessee had claimed section 10(10C) in his return and had not filed a revised return claiming section 10(10B). Relying on the Supreme Court decision in Goetze (India) Ltd. v. CIT, the CIT(A) held that a claim omitted from the return could not be entertained in this manner.
Before the Tribunal, the Department maintained that the assessee had voluntarily declared the amount taxable and should not be allowed to reopen that position in appeal. It also argued that he was not a “workman” entitled to section 10(10B) relief.
The Tribunal’s view of the BSNL scheme
The assessee argued that, despite its name, the BSNL scheme operated in substance as a workforce reduction measure. His representative relied on the Chandigarh ruling and decisions of other Tribunal Benches concerning BSNL VRS 2019. He submitted that the section 10(10C) claim arose from a mistaken understanding, reinforced by BSNL’s deduction of TDS, and that the correct exemption could be considered in appeal. Other Tribunal orders addressing claims under the same scheme were also cited before the Bangalore Bench.
The Bangalore Bench considered the Chandigarh decision and the orders of other Benches that had granted section 10(10B) relief to BSNL employees. It found that the assessee’s claim should not be denied merely because he had initially relied on section 10(10C). Taking the same view as the coordinate Benches on compensation under the scheme, it allowed his section 10(10B) claim.
The order does not state the assessee’s total compensation or the exact additional exemption amount arising from this ruling. Its operative conclusion is that the assessee is entitled to the benefit of section 10(10B).
Why Goetze did not end the appeal
The Tribunal separately addressed Goetze (India). It held that the Supreme Court decision concerning a fresh claim made otherwise than through a revised return did not restrict the powers of appellate authorities. The assessee had made an exemption claim in his return, albeit under section 10(10C), and sought to establish in appeal that section 10(10B) was the applicable provision.
On that reasoning, the CIT(A) ought not to have rejected the claim simply because the return had not been revised. The Tribunal allowed the appeal and held the assessee entitled to section 10(10B) exemption.
Author’s comment
The decision has two distinct aspects. The first concerns the character of compensation paid under BSNL VRS 2019: the Bangalore Bench followed the line of Tribunal orders granting section 10(10B) relief under that scheme. The second concerns appellate power: an employee’s use of section 10(10C) in the return did not prevent the appellate forum from considering whether another exemption provision correctly applied.
TDS by the employer did not determine the final tax treatment. Nor did the assessee’s original reporting, by itself, settle the legal character of the payment. For a claim based on this order, the employee’s scheme documents, instalment details, return computation and TDS records remain important to establish the amount and year of receipt.
The ruling should be described accurately: the delay before the CIT(A) had already been condoned; the Tribunal’s principal intervention was to reverse the rejection of the section 10(10B) claim on merits and on the Goetze objection.
Cases Discussed
- Harish Kumar Vs ITO (ITAT Chandigarh) – (2025) 175 taxmann.com 379 – relied upon regarding exemption under section 10(10B) for retrenchment compensation received by BSNL employees under the Voluntary Retirement Scheme, 2019.
- Goetze (India) Ltd. Vs CIT (Supreme Court) – 284 ITR 323 – held not to restrict the powers of the appellate authority.
- Coordinate Bench order in ITA No. 992/Bang/2026 dated 29/05/2026 – considered regarding condonation of delay in identical BSNL employee cases.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 28/02/2026 in respect of the A.Y. 2021-22.
2. The brief facts of the case are that the assessee is an individual and an employee of the BSNL who was 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 assessee was 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.
3. Under the said scheme, the employee was entitled to receive 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 assessee was under the impression that the said compensation is liable for tax under the provisions of the Income Tax Act. On that basis, the assessee had also claimed exemption u/s. 10(10C) of the Act and offered the balance compensation as income in the return of income filed. Later on, the assessee 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 taxmann.com 379 in which the retrenchment compensation received by the BSNL employees were treated as eligible for exemption u/s. 10(10B) of the Act.
4. The assessee had filed his return of income showing the part of the retrenchment compensation as taxable income. The said return was processed by the CPC and the return was accepted and 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 taxmann.com 379 was known to the assessee and based on that, the assessee filed appeal before the Ld.CIT(A) with a delay and also enclosed application to condone the said delay. The Ld.CIT(A) considered the appeal filed by the assessee with the delay and condoned the delay in filing the appeal and thereafter dismissed the appeal on merits.
5. The Ld.CIT(A) had dismissed the appeal on the ground that section 10(10B) grants exemption in respect of retrenchment compensation received under the Industrial Disputes Act, 1947 whereas section 10(10C) deals with the amounts received under a voluntary retirement scheme and therefore held that the assessee is not entitled for exemption u/s. 10(10B) of the Act. The Ld.CIT(A) further held that the assessee had originally claimed exemption u/s. 10(10C) of the Act and therefore relying on the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze (India) Ltd. had held that the claim not made in the original return or in the revised return cannot be entertained.
6. As against the said order, the assessee filed the present appeal before this Tribunal.
7. The Ld.AR appearing for the assessee submitted that the deduction to be claimed u/s. 10(10B) of the Act was considered by the various Tribunals and all the Tribunals took a view that the retrenchment compensation received by the employees of the BSNL are eligible for deduction u/s. 10(10B) of the Act.
8. The Ld.AR 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 assessee will get his benefit in accordance with the provisions of the Act. The Ld.AR further submitted that if the appeal is dismissed 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 appeal. The Ld.AR further submitted that on the ground of equity, the assessee is also entitled for the benefits similar to the several assessees got from the Ld.CIT(A)s / ITATs. The Ld.AR further submitted that the issue has to be looked into based on the provisions and simply it cannot be rejected by citing the technicalities. The Ld.AR further submitted that the assessee had claimed the deduction u/s. 10(10C) of the Act thereby the deduction has been granted for Rs. 5 Lakhs whereas he is entitled for deduction of the entire amount u/s. 10(10B) of the Act. The Ld.AR further submitted that the assessee had claimed the deduction under a wrong provision since the employer had deducted the TDS and if the said claim is not in order, in order to render justice, the AO can modify the said claim and grant the deduction under the correct provision and therefore prayed to consider the said facts and allow the appeal filed by the assessee. The Ld.AR submitted that even the AO is not authorized to grant the deduction other than the one claimed in the return of income and also not filed a revised return, the appellate authorities i.e. this Tribunal is having enormous powers to entertain a plea and if it is in order, grant the benefit to the assessee. The Ld.AR submitted that the compensation received by the assessee is nothing but retrenchment received by the assessee and therefore the benefit should be granted u/s. 10(10B) of the Act. The Ld.AR further submitted that the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze India Ltd. cannot be applied to the AO but applicable to the appellate authorities including this Tribunal.
9. The Ld.DR submitted that the assessee is not entitled to reagitate the issue and also submitted that the assessee had voluntarily filed his return of income declaring the income as taxable and therefore he cannot now dispute the same before the appellate authority for the first time. The Ld.DR further submitted that the assessee is not workman and therefore he is not entitled for the exemption u/s. 10(10B) of the Act.
10. We have heard the arguments of both sides and perused the materials available on record.
11. The merit involved is that the assessee was not granted the benefit u/s. 10(10B) of the Act since the assessee himself voluntarily filed his return of income and claimed the deduction only u/s. 10(10C) of the Act. The said return was processed and the return was accepted as such. Now the assessee had claimed the deduction under the correct provision 10(10B) of the Act based on the order of the Chandigarh Bench of this Tribunal and the said claim was rejected by the Ld.CIT(A) on the ground that the correct provision has been invoked by the assessee and on the ground that the new plea cannot be raised for the first time before him.
12. We have considered the facts and also the order of the Chandigarh Bench of this Tribunal in which the Tribunal had granted the deduction u/s. 10(10B) of the Act on the retrenchment compensation received by the BSNL employees pursuant to the Voluntary Retirement Scheme, 2019. 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 employee. 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 assessee mistakenly since the employer had deducted the TDS while making the said payments. In some of the orders, the Tribunals also granted the relief when the assessee had, on the wrong understanding of the provisions, not claimed the exemption under the respective provisions.
13. 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.”
14. We have also considered the reasoning given by the Ld.CIT(A) that the assessee had not claimed such deductions in his return of income and also not filed any revised return before the AO and therefore the appeal is liable to be dismissed. It is not the case of the revenue that the assessee is not entitled for such deduction but on technical grounds, the revenue had denied the deductions. Further, the assessee had mistakenly claimed the deduction in the original return of income under the wrong provision and therefore there is no question of saying that the assessee cannot raise the issue for the first time before the Ld.CIT(A). Further, the department had accepted that the benefit should be granted in respect of the employees of BSNL. Therefore, the order of the Ld.CIT(A) is liable to be interfered.
15. Further, the Ld.CIT(A) had also relied on the judgment of the Hon’ble Supreme Court reported in 284 ITR 323 in the case of Goetze (India) Ltd. vs. CIT and rejected the appeal on the ground that the claim not made in the return cannot ordinarily be entertained otherwise, than by filing a revised return. We have also gone through the above cited judgment and we do not find that the Hon’ble Supreme Court had restricted the powers of the appellate authority. In fact, the judgment had restricted the power of the AO and therefore the above said judgment would not be applicable to the facts of the present case.
16. Therefore, this issue is 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 have become final and in that circumstances, we are also taking the same view.
17. Considering the several orders of the Coordinated Benches of this Tribunal as well as the order of the Ld.CIT(A), we are allowing the appeal filed by the assessee insofar as the claim made u/s. 10(10B) of the Act.
18. In the result, the appeal filed against the dismissal order of the Ld.CIT(A) is allowed and the assessee is entitled for the benefit of exemption u/s. 10(10B) of the Act.
19. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 23rd September, 2026.
