Kalpana Varshesh Panchal Vs ITO (ITAT Ahmedabad)
Tax Deducted by Employer Does Not Decide Taxability: BSNL VRS Compensation Exempt u/s 10(10B) Despite Omission in Return
The Ahmedabad ITAT has held that compensation received under the Bharat Sanchar Nigam Limited Voluntary Retirement Scheme, 2019 was eligible for exemption u/s 10(10B), even though the employee had not claimed the entire exemption while filing the original returns. The Tribunal condoned the delay in filing the appeals, entertained the fresh claim and directed the AO to recompute the taxable income & grant the consequential refund.
The assessee, Kalpana Varshesh Panchal, was an individual who received compensation under BSNL VRS-2019 during AYs 2020-21 & 2021-22. At the time of filing her returns, she was unaware that the compensation was eligible for exemption u/s 10(10B). BSNL had also deducted tax at source from the payments. Consequently, the assessee proceeded on the assumption that the compensation was taxable and offered a substantial portion of it as income.
For AY 2020-21, the assessee received VRS compensation of ₹11,08,691. She claimed exemption of ₹5 lakh and offered the balance amount of ₹6,08,691 to tax. The return was processed through an intimation u/s 143(1) dated 06.05.2021.
Subsequently, the Chandigarh ITAT in Harish Kumar v. ITO – ITA No. 42/Chd/2025, order dated 30.05.2025, held that compensation received under the same BSNL VRS-2019 was exempt u/s 10(10B). On becoming aware of this legal position, the assessee filed appeals before the CIT(A) claiming exemption for the compensation previously offered to tax and sought a refund of the tax deducted and paid.
The CIT(A), however, declined to condone the delay and dismissed the appeals at the threshold. The claim was not examined on merits. The assessee approached the Tribunal contending that the delay arose from bona fide ignorance of the exemption and lack of legal knowledge. She further submitted that the appellate authority had wide powers to entertain a legitimate claim even where it was not correctly made in the original return.
The ITAT found that the controversy was squarely covered by its earlier decision in Jayeshkumar Tulsidas Sutaria v. ITO – ITA Nos. 2387 & 2388/Ahd/2025. In that case, involving a similarly placed BSNL employee, the Tribunal had condoned the delay in filing the appeal against the intimation u/s 143(1), accepted the exemption claim u/s 10(10B) and directed the AO to grant the consequential refund.
The same legal position was subsequently followed in Kirtida Rajeshkumar Shah v. ITO – ITA No. 151/Ahd/2026 and Chhaganlal Bhimabhai v. ITO – ITA Nos. 2547 & 2548/Ahd/2025. The Revenue could not point out any material factual or legal distinction between those decisions and the assessee’s case.
The Tribunal observed that its liberal approach towards condonation was supported by the Supreme Court judgment in Collector, Land Acquisition, Anantnag v. Katiji [1987] 167 ITR 471 (SC). Procedural rules should advance substantial justice and a bona fide claim should not be rejected merely because of delay, particularly where the assessee gains nothing by deliberately postponing her own refund claim.
The ITAT also relied upon CBDT Circular No. 14 (XL-35) dated 11.04.1955, under which income-tax authorities have been instructed not to take advantage of an assessee’s ignorance of her legal rights. Departmental officers are expected to assist taxpayers in securing legitimate reliefs and refunds. Tax which is otherwise not chargeable cannot become the Revenue’s lawful income merely because the taxpayer failed to make an appropriate claim in the return.
The Revenue relied on the Supreme Court ruling in Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 (SC) to contend that a fresh claim could not be admitted without filing a revised return. The Tribunal rejected this contention. The limitation recognised in Goetze (India) applies to the AO’s power to entertain a fresh claim otherwise than through a revised return. It does not restrict the jurisdiction of the CIT(A) or the ITAT, which can entertain a legitimate claim when the relevant facts are already on record.
For AY 2020-21, the Tribunal held that the balance VRS compensation of ₹6,08,691 was exempt u/s 10(10B). The AO was directed to recompute the taxable income and grant the refund due, if any, after verifying the details of the compensation and the revised computation.
The Tribunal applied the same reasoning to AY 2021-22. The order records that the assessee received the VRS compensation in different instalments during the relevant previous year. The AO was directed to verify the aggregate compensation, allow the exemption u/s 10(10B), recompute the income & grant the consequential refund.
The grounds challenging the CIT(A)’s refusal to condone the delay and denial of the fresh exemption claim were allowed. Since substantive relief was granted, the ground alleging absence of reasonable opportunity and violation of natural justice was treated as infructuous. Both appeals were accordingly partly allowed.
Author’s Comment
The decision underlines that deduction of TDS does not determine the ultimate taxability of a receipt. An employer may deduct tax out of caution or due to an erroneous understanding of the law, but the character of the receipt must still be determined in accordance with the charging and exemption provisions of the Act.
Equally important is the Tribunal’s treatment of the fresh claim. An intimation u/s 143(1) generally accepts the income as returned and does not involve a detailed adjudication of whether the assessee overlooked a lawful exemption. The appellate remedy remains available to correct such an omission. Goetze (India) cannot be employed to prevent appellate authorities from determining the correct taxable income.
The order also applies CBDT Circular No. 14 of 1955 in its true spirit. The function of the Department is to collect the correct tax, not the maximum tax made possible by a taxpayer’s ignorance. Where the underlying facts are available and the receipt is legally exempt, a procedural omission should not permanently deprive the employee of the benefit.
There is, however, an apparent arithmetical inconsistency in the order for AY 2021-22. It records aggregate compensation of ₹23,33,453, while the three components mentioned – ₹7,96,986, ₹13,53,098 & ₹2,83,372 – mathematically aggregate to ₹24,33,456. The AO will have to verify the actual figures while giving effect to the order.
The principle emerging is clear: TDS may appear in Form 26AS, and the assessee may even have offered the receipt in the return, but neither circumstance can convert compensation legally exempt u/s 10(10B) into taxable income.
Cases Discussed
- Harish Kumar Vs. ITO – ITA No. 42/CHD/2025, dated 30.05.2025.
- Jayeshkumar Tulsidas Sutaria Vs. ITO – ITA Nos. 2387 & 2388/Ahd/2025.
- Kirtida Rajeshkumar Shah Vs. ITO – ITA No. 151/Ahd/2026.
- Chhaganlal Bhimabhai Vs. ITO – ITA Nos. 2547 & 2548/Ahd/2025.
- Collector, Land Acquisition, Anantnag v. Mst. Katiji [1987] 167 ITR 471 (SC).
- Goetze (India) Ltd. Vs CIT [2006] 284 ITR 323 (SC).
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
1. These are two appeals filed by the same Assessee against two separate Orders passed by the Learned Commissioner of Income Tax, Appeal ADDL/JCIT(A)-3, Chennai [hereinafter referred to as ‘the CIT(A)’] for the Assessment Years 2020-2021 and 2021-2022. Since the issues involved in both the appeals are common and arise from the same factual matrix, both the appeal were heard together and are, therefore, being disposed by way of a common order.
ITA No.622/AHD/2026
2. We would first take up ITA No.622/AHD/2026 pertaining to Assessment Year 2020-2021 preferred by the Assessee against the Order, dated 24/02/2026, whereby the Learned CIT(A) had dismissed the appeal against the Intimation Order, dated 06/05/2021, passed under Section 143(1) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]
3. The Assessee has raised the following Grounds of Appeal:
1. The Ld. CIT(A) has erred in law and on facts in refusing to condone the delay in filing the appeal without appreciating that the delay occurred solely due to the Appellants bonafide ignorance regarding the availability of exemption under Section 10(10B) and lack of legal knowledge. These circumstances constitute a reasonable cause within the meaning of Section 249(3) of the Income-tax Act, 1961. The Ld. CIT(A) failed to apply the settled legal principles laid down by the Hon’ble Supreme Court in Ltd. Collector, Land Acquisition vs. Katiji Ltd. and Lrd. N. Balakrishnan vs. M. Krishnamurthy Ltd., wherein it has been held that substantial justice must prevail over technicalities and that the length of delay is immaterial when the explanation is bona fide.
2. The Ld. CIT(A) has erred in holding that the Appellant is making a new claim, ignoring that appellate authorities have plenary powers to grant all legitimate reliefs, even if not claimed in the return, as mandated by CBDT Circular No. 14 of 1955 and upheld by various judicial precedents including decisions of the Hon’ble Supreme Court and High Courts.
3. The Ld. CIT(A) has erred in dismissing the appeal at the threshold without appreciating that the Appellants case is factually identical to Lrd.Harish Kumar vs. ITO (ITA No. 42/CHD/2025), where compensation received under the same BSNL VRS-2019 was held fully exempt under Section 10(10B). The Ld. CIT(A) failed to adjudicate the merits despite the existence of a legitimate, legally sustainable, and directly applicable claim under Section 10(10B).
4. The Ld. CIT(A) has passed the impugned order without granting reasonable opportunity of hearing and without issuing statutory notice under Section 250 of the Act during appellate proceedings. The order is thus vitiated for breach of natural justice and is bad in law.
2. We have heard both the sides and have perused the material on record.
3. The Assessee in the present case is an individual. During the relevant previous year 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 inadvertently offered to tax the compensation of INR.6,08,691/- (INR.11,08,691/- Less INR.5,00,000/- claimed to be exempt in the return of income) in the return of income for the Assessment Year 2020-2021 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. It was contended by the Assessee that the compensation was not taxable and therefore, the Assessee was eligible for the refund of the amount of tax deducted at source from such compensation. However, the Learned CIT(A) dismissed the appeal declining to condone the delay in filing the appeal. Therefore, the Assessee has preferred the present appeal.
4. 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; condoned similar delay in filing appeal before the Learned CIT(A) against intimation issued under Section 143(1) of the Act; and directed the Assessing Officer to grant refund to 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 case of Kirtida Rajeshkumar Shah Vs. The Income Tax Officer, Ward 7(2)(1), Ahmedabad: :ITA Nos.151/AHD/2026 (Assessment Years: 2020-21) and ChhaganlalBhimabhai Vs. The Income Tax Officer, Ward 1(2), Bhavnagar: ITA Nos.2547 & 2548/AHD/2025 (Assessment Years: 2020-21 & 2021-22).
5. There is no change in the legal proposition and the factual matrix. Revenue has failed to distinguish the above decisions of the Tribunal either on facts or in law. Further, the view taken by the Tribunal finds support in the (a) judgment of the Hon’ble Supreme court in the case of Collector, Land Acquisition, Anantnag and Ors. vs. Katiji and Ors.(1987) 167 ITR 471 (SC) – on the issue of condonation of delay; and (b) Circular No. 14 of 1955 issued by the Central Board of Direct Taxes directing officers not to take advantage of ignorance of an assessee as to their rights and assist them in claiming and securing reliefs/refunds. On the other hand, the reliance placed by the Revenue on the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd V CIT: 284 ITR 323 is clearly misplaced as the Learned CIT(A) could have entertained the fresh claim raised by Assessee for the first time in the appellate proceedings since the relevant facts were on record.
6. In view of the above, accepting the claim of the Assessee we hold that the compensation of INR.6,08,691/- received by the Assessee during the relevant previous year under BSNL VRS – 2019 is exempt under Section 10(10B) of the Act. The Assessing Officer is, therefore, directed to computed 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 for the same. Thus, in terms of the aforesaid, Ground No. 1 to 3 raised by the Assessee are allowed while Ground No.4 is dismissed as having been rendered infructuous.
7. In result the present appeal preferred by the Assessee is partly allowed.
ITA No.623/AHD/2026
8. We would We would first take up ITA No.623/AHD/2026 pertaining to Assessment Year 2021-2022 preferred by the Assessee against the Order, dated 24/02/2026, whereby the Learned CIT(A) had dismissed the appeal against the Intimation Order, dated 06/12/2021, passed under Section 143(1) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]
9. During the course of hearing both the sides had agreed that our finding/adjudication in ITA No.622/AHD/2026 pertaining to the Assessment Year 2020-2021 shall apply mutatis mutandis to the present appeal for the Assessment Year 2021-2022. Therefore, adopting the reasoning given while allowing appeal for the Assessment Year 2020-2021 hereinabove, we hold that the compensation received by the Assessee during the relevant previous year under BSNL VRS – 2019 is exempt under Section 10(10B) of the Act. The Assessing Officer is, therefore, directed to computed the taxable income of the Assessee for the Assessment Year 2021-2022 accordingly and grant refund due, if any, to the Assessee as per law. The Assessee is directed to place before the Assessing Officer the details of the aggregate compensation of INR.23,33,453/- (INR.7,96,986/- + INR.13,53,098/- + INR.2,83,372/-) received under BSNL VRS – 2019 during the relevant previous year and the computation of income claiming exemption under Section 10(10B) of the Act for the same. Thus, in terms of the aforesaid, Ground No 1 to 3 raised by the Assessee are allowed while Ground No. 4 is dismissed as being infructuous.
10. In result the present appeal preferred by the Assessee is partly allowed
11. In conclusion both the appeal preferred by the Assessee are partly allowed.
Pronounced on 10.09.2026
