Usmangani Ahemadbhai Manva Vs ITO (ITAT Ahmedabad)
BSNL VRS Relief Beyond Cadre Labels; Leave Encashment Needs DoT Verification
Two Retirement Benefits, Two Distinct Questions
The Ahmedabad Tribunal granted relief concerning BSNL VRS-2019 compensation and directed verification of a separate claim for leave-encashment exemption.
For the VRS receipts, the Tribunal held that mere executive status should not, by itself, disqualify an employee from exemption under section 10(10B).
For leave encashment, it directed the Assessing Officer to verify whether the assessee was a former Department of Telecommunications employee absorbed into BSNL, in light of the Kerala High Court’s decision concerning such employees.
The Tribunal did not decide whether the ₹25 lakh leave-encashment limit introduced in 2023 applied retrospectively. Relief on that issue followed a different legal basis.
VRS Compensation Originally Offered to Tax
The assessee received compensation under BSNL’s Voluntary Retirement Scheme, 2019.
For assessment year 2020-21, the compensation was ₹17,00,453, against which exemption of ₹5 lakh had been claimed. The balance of ₹12,00,453 was not claimed as exempt.
For assessment year 2021-22, the disputed compensation was ₹37,32,303.
The assessee explained that lack of awareness of the legal provisions, together with the employer’s deduction of tax at source, had resulted in the amounts being offered to tax. The returns were processed under section 143(1).
Subsequently, relying on Harish Kumar v. ITO, ITA No. 42/CHD/2025, dated 30 May 2025, the assessee raised an additional claim before the CIT(A) seeking exemption under section 10(10B).
CIT(A) Links Exemption to Non-Executive Status
The CIT(A) directed the Assessing Officer to verify whether the compensation had been received under BSNL VRS-2019 and whether the assessee belonged to the non-executive cadre at retirement.
The appellate authority stated that exemption could be allowed if both conditions were satisfied. Conversely, it held that an employee retiring from the executive cadre, who did not fall within the definition of “workman” under the Industrial Disputes Act, would not qualify.
The assessee challenged this cadre-based restriction and sought a direction allowing the exemption.
Tribunal Rejects Automatic Disqualification by Cadre
The Tribunal relied on its decision in Jayeshkumar Tulsidas Sutaria v. ITO, ITA Nos. 2387 & 2388/Ahd/2025, involving a similarly placed BSNL employee.
It noted that this decision had been followed in Kirtida Rajeshkumar Shah, Chhaganlal Bhimabhai, and Pravinkumar Ramjibhai Patel.
The Bench also referred to Jayganesan Veerabadran v. DCIT of the Chennai Tribunal and Shraddha Pralhad Arote and connected cases, decided by the Pune Tribunal on 24 March 2026.
Following these coordinate Bench decisions, it held that mere executive status, by itself, should not disqualify a BSNL VRS-2019 employee.
The section 10(10B) issue was decided in the assessee’s favour for both years. The Assessing Officer was directed to recompute taxable income and grant the refund due, if any, in accordance with law.
The assessee was directed to furnish compensation details and the computation claiming exemption.
Leave Encashment: A Different Route to Relief
For assessment year 2020-21, the assessee also sought exemption for leave encashment beyond the ₹3 lakh already allowed.
The CIT(A) rejected the claim for the enhanced limit on the ground that CBDT Notification No. 31/2023 dated 24 May 2023, increasing the limit to ₹25 lakh, was effective from 1 April 2023 and was prospective.
The order contains inconsistent figures for leave encashment: one paragraph mentions ₹13,71,410, while the substantive discussion later records ₹6,07,992. The actual amount therefore requires reconciliation with the supporting records.
Before the Tribunal, the assessee additionally contended that he continued to be governed by the CCS (Pension) Rules, 1972.
DoT Absorption and Pension Status Become Decisive
The Tribunal referred to Sanchar Nigam Pensioners’ Welfare Association v. Union of India, WP(C) No. 16360 of 2023, decided by the Kerala High Court.
As understood and applied in the order, DoT employees absorbed into BSNL, whose pension continued under Rule 37A of the CCS (Pension) Rules, constituted a special category entitled to treatment at par with Central Government employees for section 10(10AA)(i).
The Assessing Officer was therefore directed to grant the exemption benefit after verifying that the assessee was a DoT employee absorbed by BSNL.
The assessee must furnish the relevant documents and revised computation. The Tribunal also relied on Ajitha Chandramohan Nair v. ITO, ITA Nos. 749 & 750/Ahd/2026, dated 13 August 2026.
Both appeals were ultimately allowed for statistical purposes.
Author’s Comments
The distinction between the two claims is important. VRS relief followed the Tribunal’s BSNL VRS-2019 precedents, while leave-encashment relief depended on verification of the assessee’s DoT absorption and relevant pension status.
This order should not be reported as holding that the 2023 notification applies retrospectively. The Tribunal expressly left that alternative contention unexamined.
Likewise, the leave-encashment direction is not an unconditional exemption for every BSNL employee. The employment and pension documents remain central, and the inconsistent receipt figures must be reconciled before giving effect to the order.
The retirement scheme supports one claim; the employee’s service history determines the other.
Cases Discussed
- Harish Kumar v. ITO, ITA No. 42/CHD/2025, ITAT Chandigarh, order dated 30.05.2025 — relied upon by the assessee for exemption of compensation received under BSNL VRS-2019 under section 10(10B).
- Jayeshkumar Tulsidas Sutaria Vs ITO, ITA Nos. 2387 & 2388/Ahd/2025, ITAT Ahmedabad — followed; compensation under BSNL VRS-2019 was held exempt under section 10(10B).
- Kirtida Rajeshkumar Shah Vs ITO, ITA No. 151/Ahd/2026, ITAT Ahmedabad, AY 2020-21 — cited as a coordinate Bench decision following the same section 10(10B) position.
- Chhaganlal Bhimabhai Vs ITO, ITA Nos. 2547 & 2548/Ahd/2025, ITAT Ahmedabad, AYs 2020-21 & 2021-22 — cited as a coordinate Bench decision following the BSNL VRS section 10(10B) exemption.
- Pravinkumar Ramjibhai Patel Vs ITO, ITA No. 1273/Ahd/2026, ITAT Ahmedabad, AY 2020-21 — cited as a coordinate Bench decision supporting section 10(10B) exemption.
- Jayganesan Veerabadran Vs DCIT, Circle 1(1), Trichy, ITA Nos. 2159 & 2160/Chny/2026, ITAT Chennai — relied upon for entitlement to exemption of compensation under section 10(10B).
- Shraddha Pralhad Arote and connected cases Vs ITO, ITA Nos. 262 to 301/Pune/2026, ITAT Pune, order dated 24.03.2026 — relied upon for treating BSNL VRS-2019 compensation as retrenchment compensation exempt under section 10(10B).
- Sanchar Nigam Pensioners’ Welfare Association Vs Union of India, WP(C) No. 16360 of 2023, Kerala High Court — relied upon for treatment of qualifying DoT employees absorbed in BSNL at par with Central Government employees for section 10(10AA)(i).
- Ajitha Chandramohan Nair Vs ITO, Ward 7(2)(1), Ahmedabad, ITA Nos. 749 & 750/Ahd/2026, ITAT Ahmedabad, order dated 13.08.2026 — relied upon on the leave-encashment exemption issue.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The assessee has filed the two appeals against the orders dated 19-06-2026 passed by Commissioner of Income Tax (Appeals)/Addl/JCIT(A)-1, Coimbatore (in short, referred to as the CIT(A)) u/s. 250 of the Income Tax Act, 1961 (herein referred to as “the Act”) relating to Assessment Year 2020-21 & 2021-22 respectively.
2. The assessee raised the following grounds of appeals:-
ITA No. 2525-Ahd-2026 A.Y. 2020-21
“1. The Lrd. CIT A has erred in law and on facts in not directing the Ltd. AO to grant full and unconditional exemption under section 10(10B) of the Income tax Act 1961 in respect of compensation received by the Appellant under the BSNL Voluntary Retirement Scheme 2019 despite accepting the Appellants eligibility. The Lrd. CIT A failed to appreciate that the issue stands conclusively settled in favour of the assessee by the consistent decisions of the Hon’ble ITAT including the Ahmedabad, Chandigarh and Pune Benches holding that all similarly situated BSNL employees are entitled to exemption under section 10(10B) and also failed to apply the settled principle that beneficial provisions should receive a liberal interpretation as laid down by the Hon’ble Madras High Court in Hindustan Photo Films Workers Welfare Centre v Government of India. The impugned order is therefore liable to be modified by directing the Lrd. AO to allow the exemption in full without any condition.
2. That on the facts and in the circumstances of the case and in law the Lrd. CIT A has erred in not granting exemption under section 10(10AA) of the Income tax Act 1961 in respect of the leave encashment received by the Appellant by holding in Para 5.8 of the impugned order that CBDT Notification No. 31/2023 dated 24.05.2023 is prospective and inapplicable to the year under appeal without appreciating that the said Notification is a beneficial and remedial provision applicable to pending proceedings as consistently held by various Benches of the Honble ITAT and recognized by the Hon’ble Kerala High Court in Sanchar Nigam Pensioners Welfare Association v Union of India. The Appellant therefore prays that exemption under section 10(10AA) be granted in full together with consequential relief.”
ITA No. 2526-Ahd-2026 A.Y. 2021-22
“Ground The Lrd. CIT A has erred in law and on facts in not directing the Lrd. AO to grant full and unconditional exemption under section 10(10B) of the Income tax Act 1961 in respect of compensation received by the Appellant under the BSNL Voluntary Retirement Scheme 2019 despite accepting the Appellants eligibility. The Lrd. CIT A failed to appreciate that the issue stands conclusively settled in favour of the assessee by the consistent decisions of the Honble ITAT including the 1 Ahmedabad Chandigarh and Pune Benches holding that all similarly situated BSNL employees are entitled to exemption under section 10(10B) and also failed to apply the settled principle that beneficial provisions should receive a liberal interpretation as laid down by the Honble Madras High Court in Hindustan Photo Films Workers Welfare Centre v Government of India. The impugned order is therefore liable to be modified by directing the Lrd. AO to allow the exemption in full without any condition.”
3. Since, one common issue is involved in both assessment years, both appeals are taken up together and decided for the sake of convenience.
4. The Assessee in the present case is an individual. During the relevant previous years 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 did not claim exemption under Section 10(10B) of the Act in respect of compensation of INR.12,00,453/- [compensation of INR.17,00,453/- received Less exemption of INR.500,000/- claimed] in the income tax return for the Assessment Year 2020-2021 and Rs. 37,32,303/- for AY. 2021-22 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 for both assessment years. It was contended by the Assessee that the compensation was not taxable and therefore, the Assessee was eligible for the exemption of total compensation received u/s. 10(10B) for both assessment years 2020-21 & 2021-22 respectively.
4.1 However, the Learned CIT(A) while disposing of the appeal directed the A.O. to verify whether the amount claimed as exempt was received under the BSNL, 2019 and whether the appellant was in the non-executive cadre at the time of retirement and if both conditions are satisfied then AO could allow exemption u/s. 10(10B) of the Act. He further held that where the appellant is found to have retired from the executive cadre and does not fall within the definition of “workman” under the Industrial Dispute Act, the exemption u/s. 10(10B) shall not be admissible for both assessment years.
4.2 For A.Y. 2020-21 in respect of assessee’s claim of leave encashment of Rs. 13,71,410/- received on retirement is eligible for exemption u/s. 10(10AA) of the Act in view of judicial precendents, CIT(A) held that enhanced exemption limit cannot be applied to the year under consideration for the reason that CBDT Notification 31/2023 dated 24-05-2023 enhancing the exemption limit to Rs. 25 lakhs is effective w.e.f. 1st Day of April, 2023 and the notification is prospective in nature.
5. Aggrieved by the order of CIT(A), assessee preferred the appeal.
6. We have heard both parties and perused the materials available on record.
6.1 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 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 cases of
1. Kirtida Rajeshkumar Shah Vs. The Income Tax Officer, Ward 7(2)(1), Ahmedabad: ITA Nos.151/AHD/2026 (Assessment Years: 2020-21)
2. Chhaganlal Bhimabhai Vs. The Income Tax Officer, Ward 1(2), Bhavnagar: ITA Nos.2547 & 2548/AHD/2025 (Assessment Years: 2020-21 & 2021-22) and
3. Pravinkumar Ramjibhai Patel vs. ITO Wd 1 Mehsana: ITA No. 1273/Ahd/2026 A.Y. 2020-21.
6.2 In our considered view, the proposition that mere executive status, by itself, should not disqualify a BSNL VRS 2019 employee from exemption u/s. 10(10B) of the Act.
6.3 Hon’ble ITAT Chennai in the case of Jayganesan Veerabadran vs Dy. CIT, Circle 1(1), Trichy in ITA No. 2159 & 2160/Chny/2026 held that assessee is entitled for exemption of compensation u/s. 10(10B) of the Act.
6.4 Hon’ble ITAT, Pune, in the case of Shraddha Pralhad Arote and connected cases vide its order dated 24-03-2026 (ITA Nos. 262 to 301/Pune/2026) held that benefit u/s. 10(10B) of the Act was applicable for all employees covered by the scheme. It consequently treated the compensation under BSNL VRS 2019 as retrenchment compensation exempt u/s. 10(10B) of the Act
6.5 Since, there is no change in the legal proposition and the factual matrix of the case, respectfully following the decisions of the Co-ordinate Benches, the issue raised by the assessee (exemption u/s. 10(10B) of the Act) in the present case for both assessment years is decided in the favour of the assessee. The Assessing Officer is, therefore, directed to compute 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 in respect of both assessment years.
7. For A.Y. 2020-21, assessee received leave encashment of Rs. 6,07,992/-. A sum of Rs. 3 lakhs was allowed as exemption u/s. 10(10AA). In the light of CBDT Notification No. 31/2023 dated 24-05-2023 assesee claimed exemption for the full amount. The same was rejected by the CIT(A) for the reason that enhanced exemption limit cannot be applied to the year under consideration. Aggrieved by the order of CIT(A), assessee preferred this appeal for A.Y. 2020-21.
7.1 The Assessee has contended that the Assessee should be granted exemption under Section 10(10AA) of the Act as the Assessee continues to be governed by the CCS (Pension Rules), 1972. On perusal of the judgment of the Hon’ble Kerala High Court in the case of Sanchar Nigam Pensioners’ Welfare Association Vs. Union of India (WP(C) No.16360 of 2023 we find that Hon’ble High Court has held that Department of Telcom (DoT) employees absorbed in BSNL, whose pension continues to be governed under Rule 37A of the CSS (Pension) Rules, constituted a special category and are required to be treated at par with Central Government employees for the purpose of exemption under Section 10(10AA)(i) of the Act. Accordingly, we direct the Assessing Officer to grant benefit of exemption under Section 10(10AA) of the Act to the Assessee after verifying that the Assessee was an employee of DoT absorbed by BSNL. The Assessee is directed to place before the Assessing Officer the relevant details/documents and revised computation of income claiming exemption under Section 10(10AA) of the Act of the Act for the same.
7.2 As regards, the alternative legal contention of the Assessee regarding the applicability of Notification No. 31 of 2023, dated 24/05/2023, issued by the Central Board of Direct Taxes is concerned, does not require consideration in view of the above directions.
7.3 Reliance is placed on the Co-ordinate Bench decision on this issue in the case of Ajitha Chandramohan Nair vs. ITO Ward 7(2)(1), Ahmedabad in ITA No. 749 & 750/Ahd/2026 dated 13/08/2026.
7.4 In view of the above, the assessee’s ground for A.Y. 2020-21 raised by the Assessee is allowed for statistical purposes.
8. In result, the present appeal preferred by the Assessee for A.Y. 2021-22 is allowed for statistical purposes.
9. In the result, both appeals preferred by the assessee are allowed for statistical purposes.
Order pronounced in the open court on 05-10-2026
