ITAT Chennai Allows Enhanced ₹25 Lakh Leave Encashment Exemption for Retired Bank Employee

Karthikeyan Vs ITO (ITAT Chennai)

Summary: The appeal was filed by the assessee against the order dated 20.03.2026 passed by the Learned Commissioner of Income Tax (Appeal), Addl/JCIT(A)-1, Visakhapatnam, for A.Y. 2021-22. The dispute arose from the order under section 154 read with section 143(1) of the Income-tax Act, 1961 passed by CPC, Bengaluru, concerning exemption claimed on leave encashment received on retirement.

At the threshold, the Income Tax Appellate Tribunal, Chennai Bench, considered a delay of 1,221 days in filing the appeal. The assessee explained that he was a retired employee of Bank of Baroda, aged about 65 years, and had claimed exemption of leave encashment received in F.Y. 2020-21. The exemption had been denied by CPC and the appeal had subsequently been dismissed by the CIT(A). The assessee stated that, based on the statutory provisions and judicial position prevailing at the relevant time, no effective relief appeared to be available on the issue and therefore the order was not challenged within the statutory period. Subsequently, after CBDT issued Notification No.31/2023 dated 24.05.2023 and Tribunal decisions emerged on the issue, the assessee filed the delayed appeal and sought condonation.

The Revenue opposed condonation, submitting that there was no sufficient cause for condoning such a substantial delay.

The Tribunal adopted a liberal and justice-oriented approach. It referred to the Supreme Court decision in Collector, Land Acquisition v. Mst. Katiji, (167 ITR 471), for the principle that substantial justice should prevail over technical considerations in applications for condonation of delay. It also considered N. Balakrishnan v. M. Krishnamurthy, (7 SCC 123), for the proposition that the length of delay is not decisive and that the acceptability and bona fides of the explanation are material. The Tribunal further referred to Improvement Trust, Ludhiana v. Ujagar Singh, (6 SCC 786), and CIT v. K.S.P. Shanmugavel Nadar, (153 CTR 81), while considering the requirement of a pragmatic and justice-oriented approach.

On the facts, the Tribunal recorded that the assessee was an individual retired employee and that the reasons explained for the delay included prolonged illness and cancer treatment of his spouse, the death of his spouse, subsequent judicial developments and the CBDT notification concerning the disputed issue. It found no material indicating that the delay was wilful, deliberate or actuated by mala fide intention. The explanation was therefore held to constitute “sufficient cause” within the meaning of section 249(3) of the Act. The Tribunal consequently condoned the delay of 1,221 days and admitted the appeal for adjudication on merits.

On merits, the sole issue was whether the assessee was entitled to exemption under section 10(10AA)(ii) up to ₹25,00,000, instead of the ₹3,00,000 limit applied for the assessment year under consideration.

The assessee had retired from Bank of Baroda during financial year 2020-21 and, upon superannuation, received leave encashment of ₹11,27,576/-. He filed his return declaring total income of ₹23,40,330/- after claiming exemption of the entire leave encashment under section 10(10AA)(ii). The return was processed under section 143(1), with CPC restricting the exemption to ₹3,00,000 and bringing the balance to tax, resulting in total income of ₹31,67,910/-. The assessee’s rectification application under section 154 was also rejected.

Before the CIT(A), the assessee contended that the monetary limit applicable to non-government employees should be equated with the benefit available to government employees. He relied upon Notification No.31/2023 and contended that, although the notification was effective from 01.04.2023, it was beneficial and curative in nature. The CIT(A), however, dismissed the appeal in limine without condoning the 1,221-day delay.

Before the Tribunal, the assessee again relied upon CBDT Notification No.31/2023 dated 24.05.2023, which enhanced the leave encashment exemption limit for non-government employees from ₹3,00,000 to ₹25,00,000. The assessee contended that the notification was beneficial and curative and that its explanatory memorandum expressly stated that no person was adversely affected by giving retrospective effect to the notification. Reliance was placed on several Tribunal decisions, including Balasubramanian Venkatachalaperumal v. DCIT, ITA No.96/Chny/2026, Vattikundala Prsabhakara Rao v. ITO, Anil Kumar Shukla v. CIT(A)/CPC, Chandra Prakash Vashistha v. ITO, ITA No.1139/JPR/2025, Govardhan Deepchand Bhambhani v. ITO, ITA No.289/Ahd/2025, Vijay Kumar Jain and Anil Kumar Khattri v. ITO, Devi Dutt Agrawal v. Assessment Unit, Ram Charan Gupta v. ITO, ITA No.408/JPR/2022, and Ram Dev Daiya v. ITO, ITA No.1280/JPR/2025.

The Revenue argued that the enhanced limit could not be applied to A.Y. 2021-22 because Notification No.31/2023 increased the limit from ₹3,00,000 to ₹25,00,000 only with effect from 01.04.2023.

The Tribunal considered the statutory framework and held that section 10(10AA)(ii) provides exemption to non-government employees in respect of leave encashment subject to the monetary ceiling notified by the Central Government. It noted that CBDT Notification No.31/2023 enhanced the ceiling from ₹3,00,000 to ₹25,00,000 after nearly two decades and considered the enhancement to be aimed at aligning the benefit available to non-government employees with that available to government employees.

The Tribunal held that the enhancement was not the introduction of a new exemption, but a measure to rationalize and update an existing provision. According to the Tribunal, the object of the amendment was to mitigate hardship and ensure parity. It considered the enhanced provision beneficial and remedial in nature and held that such provisions could, in appropriate cases, be applied retrospectively, particularly where no vested right of the Revenue was adversely affected.

The Tribunal further observed that the absence of an express retrospective clause was not determinative because the amendment merely enlarged an existing benefit. It also found force in the assessee’s contention that denying the enhanced exemption would create an artificial distinction between similarly placed employees retiring before and after the notification, contrary to equity and fairness.

The Tribunal then considered the coordinate Bench decisions relied upon by the assessee. Particular reliance was placed on Ram Dev Daiya v. ITO, in which the Jaipur Tribunal had allowed the enhanced leave encashment exemption on similar facts. The Tribunal also considered Govardhan Deepchand Bhambhani v. ITO, where the Ahmedabad Tribunal had similarly dealt with the enhanced limit.

In the cited Govind Chhatwani v. CIT (Appeals) decision, the Jaipur Tribunal had followed the reasoning in Ram Charan Gupta and held that the assessee was entitled to the enhanced limit of ₹25 lakh. The Tribunal in the present case found that the coordinate Benches had taken a consistent view in favour of applying the enhanced limit in appropriate cases.

Accordingly, the Chennai Tribunal held that the assessee was entitled to the benefit of the enhanced exemption limit of up to ₹25,00,000 under section 10(10AA)(ii) in respect of leave encashment received on retirement. Since the amount received by the assessee was ₹11,27,576/-, i.e. within the enhanced limit, the entire amount was held eligible for exemption.

The Tribunal therefore set aside the action of CPC restricting the exemption to ₹3,00,000 and the confirmation thereof by the CIT(A), and directed the Assessing Officer to allow the exemption as claimed by the assessee. The appeal was consequently allowed.

Cases Discussed

• Collector, Land Acquisition v. Mst. Katiji & Ors., (167 ITR 471) — relied upon for the liberal and justice-oriented approach to condonation of delay and preference for substantial justice over technical considerations.
• N. Balakrishnan v. M. Krishnamurthy, (7 SCC 123) — referred to for the principle that the length of delay is not decisive and that acceptability and bona fides of the explanation are material.
• Improvement Trust, Ludhiana v. Ujagar Singh, (6 SCC 786) — referred to for the pragmatic and justice-oriented approach applicable to condonation applications.
• CIT v. K.S.P. Shanmugavel Nadar, (153 CTR 81) — referred to for the liberal approach where sufficient cause is demonstrated.
• Balasubramanian Venkatachalaperumal v. DCIT, ITA No.96/Chny/2026 — relied upon by the assessee in support of applying the enhanced leave encashment limit.
• Vattikundala Prsabhakara Rao v. ITO, ITA No.3852/Chny/2025 — relied upon by the assessee in support of the claim for the enhanced exemption.
• Anil Kumar Shukla v. CIT(A)/CPC, ITA No.76/Ind/2026 — relied upon by the assessee in support of the claim for the enhanced exemption.
• Chandra Prakash Vashistha v. ITO, ITA No.1139/JPR/2025 — relied upon by the assessee in support of applying the enhanced limit to an earlier assessment year.
• Govardhan Deepchand Bhambhani v. ITO, ITA No.289/Ahd/2025 — considered as a coordinate Bench decision supporting the enhanced leave encashment exemption.
• Vijay Kumar Jain and Anil Kumar Khattri v. ITO, ITA Nos.175 & 187/AGR/2022 — relied upon by the assessee in support of the enhanced exemption claim.
• Devi Dutt Agrawal v. Assessment Unit, ITA No.1375/JPR/2024 — relied upon by the assessee in support of the enhanced exemption claim.
• Ram Charan Gupta v. ITO, ITA No.408/JPR/2022 — considered as the earlier Jaipur Tribunal decision applying the enhanced ₹25 lakh limit.
• Ram Dev Daiya v. ITO, ITA No.1280/JPR/2025 — followed in support of the enhanced exemption limit on similar facts.
• Mr. Satish Kumar Thakur, ITA No.211/CHD/2023 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Mangala Ram Nimbark, ITA No.542/JPR/2023 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Govind Chatwani, ITA No.385/JPR/2023 — considered through the coordinate Bench reasoning reproduced in the order.
• Shri Devendra Kumar Gupta v. CIT, M.A. No.49/JPR/2023 — referred to as the decision subsequently followed in the coordinate Bench reasoning.
• Mr. Dashrath Kumar Sen, ITA No.1258/JPR/2024 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Suman Kumar Jha, ITA No.1179/AHD/2024 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Dinesh Kumar Mittal, ITA No.1570/JPR/2024 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Sham Sunder Sahani, ITA No.129/DEL/2025 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mrs. Neelam Gupta, ITA No.081/Del/25 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Sharad Shukla, ITA No.108/AGR/24 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mrs. Sujata Gupta, ITA No.915/JPR/25 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Om Prakash Khandelwal, ITA No.887/JPR/25 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Ashok Arora, ITA No.2942/DEL/25 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Rajiv Kumar Wadhwa, ITA No.5897/DEL/25 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Vijay Pal Gupta, ITA No.5915/DEL/25 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Mr. Sudhakar G. Paldewar, ITA No.1781/PUN/25 — included in the coordinate Bench decisions relied upon in Ram Dev Daiya and referred to in the present order.
• Kamal Kumar Kalia & Ors. v. Union of India & Ors., WP(C) 11846/2019 — referred to in the reproduced reasoning of Ram Charan Gupta concerning the grievance regarding the unchanged exemption limit under section 10(10AA)(ii).

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT CHENNAI

This appeal by the assessee is arising out of the order dated 20.03.2026, passed by the Learned Commissioner of Income Tax (Appeal), Addl/JCIT(A)-1, Visakhapatnam (in short “ld.CIT(A)”) for the assessment year (A.Y) 2021-22 against the order of u/s.154 r.w.s 143(1) of the Income Tax Act, 1961 (hereinafter the ‘Act’) passed by the CPC, Bangaluru (in short “the AO”), dated 22.06.2022.

2. At the threshold, we observe that there is a delay of 1,221 days in the filing of the present appeal by the assessee. The assessee has furnished an affidavit explaining that the assessee is a retired employee of Bank of Baroda, aged about 65 years, had claimed the exemption of leave encashment received in the F.Y.2020-21, which was denied by the CPC and on appeal dismissed by the ld.CIT(A). Based on the statutory provisions and judicial position prevailing at the relevant time that no effective relief was available on the issue involved, impugned order was not questioned in the statutory time limit fixed. Now, based on the Notification No.31/2023 dated 24.05.2023 of the CBDT and subsequent decisions of the Tribunal, the assessee filed the present appeal with a delay in filing the appeal and prayed for condoning the same.

3. Per contra the ld.DR submitted that there is no sufficient cause to condone the huge delay in filing the appeal before the Tribunal and hence opposed to admit the appeal of the assessee.

4. We have heard the rival submission on the issue of condonation of delay. Firstly, it is a settled principle of law that the expression “sufficient cause” occurring in section 249(3) of the Act should receive a liberal and justice-oriented interpretation. The Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji (167 ITR 471) has emphatically held that a liberal approach must be adopted while considering applications for condonation of delay and that substantial justice should prevail over technical considerations. Their Lordships observed that when substantial justice and technical considerations are in conflict, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non-deliberate delay.

5. In N. Balakrishnan v. M. Krishnamurthy (7 SCC 123), the Hon’ble Apex Court further clarified that the length of delay is not decisive; what is material is the acceptability and bona fides of the explanation. It was held that if the explanation does not smack of mala fides or is not intended as a dilatory tactic, the Court should ordinarily condone the delay so as to advance substantial justice.

6. Again, in Improvement Trust, Ludhiana v. Ujagar Singh (6 SCC 786), the Hon’ble Supreme Court reiterated that a pragmatic and justice-oriented approach must guide the adjudication of condonation applications, particularly when refusal to condone would result in foreclosing a party’s right to have the matter examined on merits.

7. The Hon’ble Jurisdictional High Court of Madras in CIT v. K.S.P. Shanmugavel Nadar (153 CTR 81) has also held that when sufficient cause is demonstrated, the appellate authority is duty-bound to adopt a liberal approach in order to render substantial justice rather than shutting the doors of adjudication on technical grounds.

8. Adverting to the facts of the present case, it is not in dispute that the assessee is an individual retired employee and explained the reasons for delay is only due to prolonged illness (cancer treatment) of his spouse and the assessee and death of his spouse and the subsequent development on the judicial front and also the notification issued by the CBDT on the impugned issue. These factors explain the circumstances leading to the delay.

9. We find that there is no material on record to indicate that the delay was willful, deliberate or actuated by mala fide intention. Therefore, in our considered view, the explanation offered by the assessee in filing the appeal constituted “sufficient cause” within the meaning of section 249(3) of the Act.

10. It is trite that quasi-judicial authorities are expected to adopt a justice-oriented approach. Denial of adjudication on merits in fiscal matters, which carry civil consequences, should be confined to cases of gross negligence or deliberate inaction. In the case on hand, the explanation tendered by the assessee, viewed in the totality of facts and surrounding circumstances, cannot be said to be either mala fide or lacking in bona fides. On the contrary, it constitutes sufficient cause warranting condonation.

11. Respectfully following the ratio laid down by the Hon’ble Supreme Court and the Hon’ble Jurisdictional High Court, as referred to above, we hold that the delay of 1,221 in filing the present deserves to be condoned as the assessee has demonstrated sufficient and reasonable cause for not presenting the appeal within the statutory period prescribed under law and the appeal is admitted for adjudication on merits.

12. The only issue raised by the assessee on his grounds of appeal is whether the assessee is eligible for exemption u/s.10(10AA)(ii) of the Act, upto Rs.25.00 lakhs in par with the government employees, instead of Rs.3.00 lakhs for the impugned A.Y.2021-22.

13. Brief facts of the case emanating from the records are that the assessee is an individual, retired from Bank of Baroda, during the financial year 2020-21. Upon superannuation, the assessee received leave encashment of Rs.11,27,576/- in the A.Y. 2020-21. The assessee filed his return of income declaring a total income of Rs.23,40,330/- after claiming exemption of entire amount of leave encashment of Rs.11,27,576/- u/s.10(10AA)(ii) of the Act. The return of income was processed by the CPC, Bengaluru, u/s.143(1) of the Act dated 22.03.2022 by restricting the exemption claimed u/s.10(10AA)(ii) of the Act to Rs.3,00,000/- and the balance was brought to tax by arriving a total income of Rs.31,67,910/-. Further, the assessee filed an application for rectification u/s.154 of the Act and the same was rejected on 22.0.2022 reiterating the denial of exemption u/s.10(10AA) of the Act beyond Rs.3.00 Lakhs.

14. Aggrieved by the order of the CPC, Bengaluru, the assessee preferred an appeal before the ld.CIT(A) on 23.11.2025.

15. Before the ld.CIT(A), the assessee submitted that in the absence of further notification issued by the Central Government having regard to the wordings of Notification No.123/2022 (F.No.200/23/98-ITA-I) the PSU employees are entitled to parity with the Central Government employees in respect of benefits u/s.10(10AA) of the Act. Accordingly, the assessee submitted that the maximum amount of exemption u/s.10(10AA)(ii) of the Act of Rs.3.00 lakhs fixed in 2002 shall be enhanced or equated with the Government employees i.e. Rs.25.00 Lakhs. Further, the ld.AR submitted that though the notification is effective from 01.04.2023, it is beneficial and curative in nature and the explanatory memorandum thereto expressly clarifies that no person is adversely affected, thereby warranting its application to the assessee case also. The assessee also relied on various decisions of the Tribunal in support of his claim. On perusal of the submission of the assessee, the ld.CIT(A), dismissed the appeal filed by the assessee in limine without condoning the delay in filing the appeal by 1,221 days stating that the assessee has not proved the sufficient and reasonable cause by passing an order dated 20.03.2026.

16. Aggrieved by the order of the ld.CIT(A), the assessee preferred an appeal before us.

17. The ld.AR for the assessee assailing the action of the ld.CIT(A) submitted that the denial exemption u/s.10(10AA)(ii) of the Act in respect of leave encashment received on retirement is unsustainable in law in view of subsequent statutory and judicial pronouncements having a direct and decisive bearing on the issue. The ld.AR submitted that the notification issued by the CBDT vide No.31/2023 dated 24.05.2023, enhancing the leave encashment on retirement for non-government employees also from Rs.3.00 Lakhs to Rs.25.00 Lakhs, is squarely applicable to the assessee’s case and hence the action of the ld.CIT(A) needs to be reversed in the interest of justice. Further, the ld.AR submitted that though the notification is effective from 01.04.2023, it is beneficial and curative in nature and the explanatory memorandum thereto expressly clarifies that no person is adversely affected, thereby warranting its application to the assessee case also.

18. In support of the above claim the ld.AR relied on the following Tribunal decisions:

– Balasubramanian Venkatachalaperumal v. DCIT (Chennai Tribunal) – ITA 96/Chny/2026 dated 04.05.2026 for the A.Y. 2020-21

–  Vattikundala Prsabhakara Rao v. ITO (Chennai Tribunal) – ITA 3852/Chny/2025 dated 12.06.2026 for the A.Y.2020-21

–  Anil Kumar Shukla v. CIT(A)/CPC (Indore Tribunal) – ITA 76/Ind/2026 dated 24.04.2026 for the A.Y.2020-21

– Chandra Prakash Vashista v. ITO (Jaipur Tribunal) – ITA 1139/JPR/2025 dated 07.10.2025 for the A.Y. 2021-22

– Govardhan Deepchand Bhambhani v.ITO (Ahmedabad Tribunal) – ITA 289/Ahd/2025 dated 28.07.2025 for A.Y. 2020-21

– Vijay Kumar Jain and Anil Kumar Khattri v.ITO (Agra Tribunal)

– Devi Dutt Agarwal v.Assessment Unit (Jaipur Tribunal) – ITA 1375/JPR/2024 dated 13.03.2025 for the A.Y.2020-21

– Ram Charan Gupta v.ITO (Jaipur Tribunal) – ITA 408/JPR/2022 dated 27.06.2023 for the A.Y. 2020-21.

– Ram Dev Daiya v.ITO (Jaipur Tribunal) – ITA 1280/JPR/2025 dated 01.01.2026 for the A.Y. 2020-21.

19. In view of the above arguments the ld.AR prayed for setting aside the order of the ld.CIT(A) by allowing the claim of the exemption claimed by the assessee u/s.10(10AA)(ii) of the Act to the tune of Rs.11,27,576/-

20. Per contra, the ld.DR submitted that the assessee’s claim for the A.Y.2021-22 cannot be considered as the notification for enhancement of deduction u/s.10(10AA)(ii) of the Act from Rs.3.00 lakhs to Rs.25.00 Lakhs for non-governmental employees has been increased only from 01.04.2023 and hence there is no error in the order of the ld.CIT(A) and hence, prayed for confirming the order of the ld.CIT(A) by dismissing the appeal of the assessee.

21. We have carefully considered the rival submissions perused the material available on record, including the orders of the lower authorities along with the judicial precedents relied on. The solitary issue that arises for our consideration in the present appeal is whether the assessee is entitled to exemption u/s.10(10AA)(ii) of the Act, in respect of leave encashment received on retirement, upto the extent of Rs.25,00,000/-, as claimed, or whether such exemption is to be restricted to Rs.3,00,000/- as per the provisions applicable for the assessment year under consideration.

22. It is an undisputed fact borne out from the records that the assessee, a retired employee of Bank of Baroda, received a sum of Rs.11,27,576/- towards leave encashment upon superannuation during the financial year relevant to the assessment year 2020-21. The assessee claimed exemption of the entire amount u/s.10(10AA)(ii) of the Act. However, the CPC, while processing the return u/s.143(1) of the Act, restricted the exemption to Rs.3,00,000/- in accordance with the then prevailing notification, and brought the balance amount to tax. The said action has been confirmed by the ld.CIT(A).

23. The contention of the ld.AR is that the subsequent enhancement of the exemption limit to Rs.25,00,000/- vide CBDT Notification No.31/2023 dated 24.05.2023, being beneficial in nature, ought to be applied retrospectively, particularly in view of the legislative intent to remove disparity between government and non-government employees. It has further been argued that such amendment is curative and intended to mitigate hardship, and therefore deserves to be applied to pending matters. Reliance has also been placed on certain decisions of coordinate benches of the Tribunal wherein a liberal interpretation has been adopted in favour of the assessee.

24. Upon careful consideration of the statutory framework, we find that Section 10(10AA)(ii) provides exemption to non-government employees in respect of leave encashment, subject to a monetary ceiling as notified by the Central Government. The enhancement of such ceiling from Rs.3,00,000/- to Rs.25,00,000/- vide Notification No.31/2023 is a significant upward revision after nearly two decades and is clearly aimed at aligning the benefit available to non-government employees with that available to government employees, thereby removing an evident disparity.

25. In our considered view, the said enhancement is not in the nature of introducing a new exemption but is a measure to rationalize and update an existing provision to reflect present economic realities. The object of the amendment, as discernible from the notification and surrounding circumstances, is to mitigate hardship and ensure parity. It is a settled principle that provisions which are beneficial in nature and intended to remove hardship are to be construed liberally and, in appropriate cases, applied retrospectively, particularly where no vested right of the Revenue is adversely affected.

26. We further note that the explanatory intent behind such enhancement makes it clear that the amendment is remedial in nature. The absence of an express retrospective clause, in such circumstances, cannot be determinative, especially when the amendment merely enlarges the scope of an existing benefit. The Hon’ble Courts have consistently held that beneficial and curative amendments deserve to be applied to pending proceedings so as to advance the cause of justice.

27. We also find considerable force in the contention of the assessee that denial of enhanced exemption results in an unjust and artificial distinction between similarly placed employees retiring before and after the date of notification, which would defeat the very purpose of the amendment. Such an interpretation, in our view, would be contrary to the principles of equity and fairness embedded in tax jurisprudence.

28. Further, the coordinate benches of the Tribunal in various decisions, as relied upon by the ld.AR, have taken a consistent view that the enhanced limit under Notification No.31/2023, being beneficial, should be applied in a liberal manner. Our above view, is supported by the decision of the Jaipur Tribunal in the case of Ram Dev Daiya (supra), wherein the Tribunal has allowed the enhanced deduction of leave encashment in the similar set of facts, by holding as under:

“21.Taking up now the appeal of the assessee, the grounds raised by the assessee read as under:-

“Leave Encashment Fully Exempted 1. Any payment received by an employee of the Central Govt. OR a State Govt. as the cash equivalent of the leave salary in respect of the period of Earned Leave at his credit at the time of his retirement (whether) on superannuation OR otherwise. 12 ITA No. 1280/JPR/2025 Ram Dev Daiya 2. Any such payment (as given in para (i) above) received by an employee ot her than employee Central OR State Govt in respect of so much of period of EL as does not exceed 10 months calculated on the basis of the average salary drawn by the employee during the period of 10 months immediately preceding his retirement. (Section 10(10AA) of the I-T Act, 1961.”

22. As noted above, the issue related to denial of exemption under Section 10(10AA) amounting to Rs.13,12,806/-. The assessee is a salaried individual who had returned leave encashment salary received on retirement amounting to Rs.13,12,806/- and claimed exemption of the same u/s 10(10AA) of the Act. The same was however restricted to Rs.3 lacs while processing the return of income of the assessee by the CPC in terms of the provisions of Section 10(10AA) of the Act.

23. I have noted above the contention of the Ld. Counsel for the assessee before me of various Co-ordinate Bench decisions of the ITAT, in as much as 22 cases, holding that the limit of exemption of leave encashment as per Section 10(10AA) of the Act applicable for the impugned year would be Rs.25 lacs. The Ld. Counsel for the assessee submitted the list of the said decisions vide submission dated 25-11-2025 as under:-

Latest decisions

– Balasubramanian Venkatachalaperumal v.DCIT (Chennai Tribunal) – ITA 96/Chny/2026 dated 04.05.2026 for the A.Y. 2020-21

– Vattikundala Prsabhakara Rao v.ITO (Chennai Tribunal) – ITA 3852/Chny/2025 dated 12.06.2026 for the A.Y.2020-21

– Anil Kumar Shukla v.CIT(A)/CPC (Indore Tribunal) – ITA 76/Ind/2026 dated 24.04.2026 for the A.Y.2020-21

Earlier Coordinate Bench decisions:

24. Ld. DR fairly agreed that the issue was covered in favour of the assessee as pointed out by the Ld. Counsel before me. He was unable to bring to my notice any contrary decision of the ITAT in this regard, nor was he able to bring to my notice any decision of a higher judicial authority holding to the contrary. In 14 ITA No. 1280/JPR/2025 Ram Dev Daiya view of the above I hold that the disallowance of exemption claimed by the assessee of leave encashment received under Section 10(10AA) of the Act amounting to Rs.13,12,806/- be deleted.”

29. Similarly in the case of Govardhan Deepchand Bhambhani v.ITO (Ahmedabad Tribunal) – ITA No.289/Ahd/2025 dated 28.07.2025 for A.Y.2020-21, the Tribunal has held as under:

“4. Aggrieved against the appellate order, the assessee is in appeal before us raising the following Grounds of Appeal:

1. That assessee retired from service of Punjab National Bank during the year and received leave encashment of Rs.765404/-claimed exemption of such leave encashment of Rs.765404 u/sec. 10 (10AA) of Income Tax Act, 1961. Thus the Ld CIT(A) has wrongly disallowed the same.

2. That in view of CBDT notification number 31/2023 dated 24/05/2023 even non-government employees are entitled u/sec. 10(10AA)(ii) of Income Tax Act, 1961 exemption upto Rs.25.00 Lakhs maximum (Retrospectively).

3. Any other matter with prior permission of the chair.

5. None appeared on behalf of the assessee whereas the assessee filed written submission as follows:

(1) Assessee retired from services of M/s Punjab National Bank in F.Y. 2019-20.

(2) Received Rs.7,65,404/- as “Leave Encashment” benefit in terms of sec 10(10AA) of Act.

(3)Return of Income was filed on 25.12.20 claiming whole of such amount of Leave Encashment of Rs.7,65,404/-u/sec 10(10AA) of Act.

(4) While processing the return u/sec 143(1)(a) of Act dated 08.12.2021 the amount of such leave encashment of Rs.7,65,404/- was restricted to Rs. 3,00,000/- U/sec 10(10AA) & has Disallowed/Added A sum of Rs.4,65,404 (Rs. 7,65,404/- Amount Actual Received – Rs.3,00,000/-Maximum Amount Allowed u/sec 10(10AA) considering not in category of Central State Govt. Employee U/sec 10(10AA) (i) of Act.

(5) No care for Board notification No. 31/2023/ F. No. 200/-/2023-ITA-1 dated 24.05.2023

(Effective retrospectively) made where limit for Non-Govt. Employees (others than Central/State) have been raised to Ras.25,00,000/- (Maximum) u/sec 10(10AA) (ii) of Act: The CIT(A) considering at this notification is not with retrospective effect but w.e.f 01.04.2023 &n since Appellate has already retired in F.Y. 2019-20, hence the claim of assessee for Rs.7,65,404/- u/sec. 10(10AA) is tenable and has restricted to Rs.3,00,000/-.

………………

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-cıause (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 This issue of deduction u/s. materials available on record. 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 Id. 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.

9. 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 Id. 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.

9. In the result, the appeal filed by the Assessee is hereby allowed.”

30. In view of the foregoing discussion, we hold that the assessee is entitled to the benefit of enhanced exemption limit of upto Rs.25,00,000/- u/s.10(10AA)(ii) of the Act in respect of leave encashment received on retirement. Since the amount received by the assessee is within the said limit, the entire sum of Rs.11,27,576/- is eligible for exemption. Accordingly, the action of the CPC in restricting the exemption to Rs.3,00,000/- and the confirmation thereof by the ld.CIT(A) are set aside. The AO is directed to allow the exemption as claimed by the assessee.

31. In the result, appeal filed by the assessee is allowed.

Order pronounced in the open court on 05th August, 2026 at Chennai.