Shri Dinesh Kumar Tyagi Vs CIT (Appeals)/ National Faceless Appeal Centre (ITAT Delhi Bench)
Section 10(10Aa): ₹3 Lakh Ceiling Retires Before The Banker Does-₹25 Lakh Limit Applied To Ay 2020-21
Retired banker receives ₹13.93 lakh leave encashment
The assessee retired as a General Manager of Andhra Bank & received ₹13,92,645 towards leave encashment at the time of retirement.
In the assessment completed u/s 143(3) r/w section 144B, the AO restricted the exemption u/s 10(10AA) to ₹3 lakh. The restriction was confirmed by the CIT(A), NFAC.
The assessee contended before the ITAT that the enhanced exemption ceiling of ₹25 lakh notified by CBDT Notification No. 31/2023 dated 24.05.2023 should be applied to his case.
Since his leave-encashment receipt of ₹13.93 lakh was below the revised ceiling, he claimed exemption of the entire amount.
Bank employee is not automatically a Government employee
The historical dispute arose because section 10(10AA) provides complete exemption to Central & State Government employees, while employees falling in the other category are entitled to exemption subject to the notified monetary ceiling.
Employees of nationalised banks have frequently argued that their institutions are Government-controlled & therefore they should receive the same treatment as Government employees.
However, in Kamal Kumar Kalia v. Union of India [2020] 268 Taxman 398 (Delhi), the Delhi High Court held that merely because a nationalised bank or public-sector undertaking qualifies as “State” under Article 12 of the Constitution, its employees do not thereby acquire the status of Central or State Government employees for section 10(10AA).
Thus, the assessee’s entitlement did not arise from treating him as a Government employee. It arose from applying the enhanced notified ceiling applicable to non-Government employees.
A ceiling frozen since 2002 invited judicial concern
In Kamal Kumar Kalia, the Delhi High Court also observed that the grievance regarding the stagnant exemption ceiling appeared prima facie justified.
The limit had remained unchanged for several years even though salaries, pay scales & inflation had increased substantially. The Court therefore issued notice to the Government on the limited question of revising the monetary ceiling.
The Central Government subsequently issued Notification No. 31/2023, enhancing the maximum exemption for leave encashment u/s 10(10AA)(ii) from ₹3 lakh to ₹25 lakh.
Coordinate Benches apply the enhanced limit
The assessee relied upon several Tribunal decisions from Delhi, Chandigarh, Pune & Jaipur applying the enhanced limit in comparable cases.
Particular reliance was placed on Satish Chandra Tyagi v. CIT, ITA No. 8770/Del/2025, where the Delhi ITAT followed Neelam Gupta v. ITO, ITA No. 81/Del/2025.
In Neelam Gupta, the Tribunal had in turn considered Ram Charan Gupta v. ITO, ITA No. 408/JP/2022, involving a retired bank employee whose exemption had been restricted to ₹3 lakh.
The Tribunal held that once the Government had revised the ceiling to ₹25 lakh, leave encashment falling within that limit deserved exemption u/s 10(10AA).
The present Bench found the facts materially identical & saw no contrary decision or material placed by the Revenue warranting a different view.
Consistency carries the exemption
The ITAT adopted the reasoning of the Coordinate Bench in Satish Chandra Tyagi mutatis mutandis.
The assessee’s leave encashment of ₹13,92,645 was substantially below the revised statutory ceiling of ₹25 lakh. Therefore, the entire amount claimed by him fell within the monetary limit prescribed by Notification No. 31/2023.
The Tribunal emphasised consistency with the line of Coordinate Bench decisions which had already considered the same legal controversy in the cases of retired bank employees.
Decision
The ITAT held that the assessee was entitled to exemption of leave encashment u/s 10(10AA) within the ₹25 lakh limit prescribed by CBDT Notification No. 31/2023 dated 24.05.2023.
Since the actual receipt of ₹13,92,645 was below that ceiling, the assessee’s claim was allowed in full.
The restriction of exemption to ₹3 lakh was reversed & the assessee’s appeal was allowed.
The decision does not declare a nationalised-bank employee to be a Government employee. Its ratio is that the enhanced ₹25 lakh ceiling under Notification No. 31/2023 was available to the assessee for AY 2020-21, following the consistent view taken by the Coordinate Benches.
Cases Discussed
- Satish Chandra Tyagi Vs. CIT — ITA No. 8770/Del/2025.
- Neelam Gupta Vs. ITO — ITA No. 81/Del/2025.
- Ram Charan Gupta Vs. ITO — ITA No. 408/JP/2022.
- Kamal Kumar Kalia & Ors. Vs. Union of India & Ors. — Delhi High Court, W.P.(C) 11846/2019.
- KPTCL Davangere Vs. ITO (2018) — ITA No. 170 ITD 587 (Bang.) (Trib.).
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT DELHI
The instant appeal filed by the assessee is directed against the order dated 30.07.2025 passed by the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the Assessment Order dated 12.09.2022 passed by the Assessment Unit, Income-tax Department under Section 143(3)r.w. Section 144B of the Act for Assessment Year 2020-21.
2. The Assessee, a retired General Manager of Andhra Bank received Rs. 13,92,645/- towards leave encashment at retirement.
The Assessing Officer restricted the exemption to Rs. 3,00,000/- relying on the CBDT Notification being S.O. 588 (E) dated 31.05.2022 which was further upheld by the Ld. CIT(A). Hence, the instant appeal before us.
3. It is the case of the Assessee that Notification being No. 31/2023 dated 24.05.2023 enhancing the exemption limit to Rs. 25,00,000/- is applicable to the instant case and on this aspect he has relied upon many many judgment passed by the different Benches of the ITAT. On the other hand, the Ld. DR relied upon the orders passed by the authorities below.
4. Heard the parties, perused the records. In this regard, we have considered the judgment passed by the Co-ordinate Bench in the case of Satish Chandra Tyagi Vs. CIT in ITA No. 8770/Del/2025, wherein on the identical facts and circumstances of the matter relying upon the CBDT Notification No. 31/2023 exemption of leave encashment under Section 10(10AA) of the Act as claimed by the Assessee was granted with the following observation:
“4. We have taken judicial notice of the orders of Co-ordinate Bench of the different Benches of the Tribunal vis Chandigarh, Pune (ITA No.1781/Pune/2025), Jaipur (ITA No.385/Jp/2023) as well as those pronounced by this Tribunal. Thus, we have noted that this Tribunal in the case of Neelam Gupta in ITA No.81/Del/2025 on identical facts allowed the appeal of the assessee observing as under:-
“….3. It transpires during the course of hearing that assessee’s sole substantive ground raised in the instant appeal challenges both the learned lower authorities action denying section 10(10AA) leave encashment exemption thereby holding that she is not entitled for the same since employed with Bank of Baroda and not a Central or State Government Department.
4. It is next noticed that recently the tribunal in Ram Charan Gupta, Jaipur vs. ITO, Ward 4(2), Jaipur, in ITA No.408/JPR/2022 dated 27.6.2023 has already rejected the Revenue’s very stand as under:-
3. Succinctly, the fact as culled out from the records is that the assessee who has retired is a bank employee and has claimed an amount of Rs. 6,97,100/- being leave encashment received as exempt u/s 10(10AA) of the Act. However, the AO, CPC while processing the return of income has allowed exemption of only Rs. 3,00,000/- as against 100% exemption claimed by the assessee. Hence, this appeal.
4. Aggrieved from the order of the AO, CPC assessee preferred appeal before the Id. CIT(A). A propose to the grounds so raised the relevant finding of the Id. CIT(A) is reiterated here in below:
“5.2.2 I have considered the facts of the case as also the submissions of the appellant. The appellant is a retiree from Bank and not any government organization. Here, reliance is placed on the decision of Hon’ble Delhi High Court in the case of Kamal Kumar Kalia v/s Union of India (2020) 268 Taxman 398/313 CTR 779 (Delhi) (HC) dated 08.11.2019, where the issue under consideration was whether the appellant being employee of Public sector undertaking (PSU) Ram Charan Gupta vs. ITO and Nationalised banks can be treated as government employee from the purposes of exemption u/s 10(10AA) of the 1.T. Act. In the said case, the Hon’ble High Court held as under:-
“The petitioner, who were the employees of the Public Sector undertaking and Nationalised banks, filed writ contending that they were discriminated against Central Government and State Government. The Central Government and State Government employees are granted complete exemption in respect of the cash equivalent of the leave salary for the period of earned leave standing to their credit at the time of their retirement. Dismissing the petition the Court held that merely because Public Sector Undertaking and Nationalised Banks are considered as State under article 12 of the Constitution of india for the purpose of entertainment of proceedings under Article 226 of the Constitution and for enforcement of fundamental right under the Constitution, it does not follow that the employees of such Public Sector Undertaking, Nationalised Banks or other institutions which are classified as ‘State Assume the status of Central government and State Government employees. Accordingly the petition is rejected.”
5.2.3 Further, in the case of KPTCL Davangere V/s ITO (2018), the Hon’ble ITAT, Bangalore vide its order in ITA No. 170 ITD 587 (Bang.) (Trib.) has held that assessee being a statutory corporation its employees could not be regarded as State or Central Government employees and therefore exemption under S. 10(10AA) (i) was not available and assesse was liable to deduct tax at source.
5.2.4 In view of the above, the action of the AO of restricting the exemption u/s 10(10AA) to Rs. 3,00,000/- is found to be in order. This grounds of appeal are therefore, dismissed.” 5. Feeling dissatisfied with the order of the Id. CIT(A) the assessee has preferred this appeal before this tribunal on the grounds as raised by the assessee as reiterated here in above para 2. To support the various grounds so raised by the assessee, the ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below:
“1. Under the facts and circumstances of the case learned CIT (Appeal) was not justified while confirming the order passed by AO u/s 143(1) Assessing total income Rs 1188620.00 Confirming Demand of Rs.118280 Our submission Initially return was processed u/s 143(1) (vide document identification поcpc/2021/A3/186338352 dt.02/12/2021) allowing the claim of Rs.300000.00 u/s 10(10AA)- Earned Leave Encashment on Retirement. meaning thereby that there was enhancement in the income amounting 1188620.00 Thix Rs by Rs.397700.00 and assessing total income at made without providing any opportunity of being heard as it appears that this addition was made by treating the employee as non-government employee although no specific reasons has been informed to appellant. In fact, this organization is regulated by Bylaws made by central Government, thus by no means of stretch of imagination this organization can be treated as non- central government. Therefore, AO was not justified to disallow the claim upto the extent Rs.397100.00 without assigning any specific reasons and raising the demand of RS 118820.00 U/S 143(1)
2. Under the facts and circumstances CIT (Appeal) was not justified while restricting the claim Amounting To Rs 300000 ws 10(10AA) and rejecting the amounting to Rs. 397100.00 out of Rs 697100.00 which is earned leave encashment on retirement made by AO. ITA No.8770/Del/2025 Page 5 of 7 Our submission:-it is to explain that he is govt employee therefore he claimed full amount of leave encashment u/s 10(10AA) Rs 697100.00 in his return copy of computation is enclosed and marked as annexure B however while processing u/s 143(1) it appears that claim amounting to Rs 397100.00 out of Rs 697100.00 has been disallowed which is leave encashment u/s 10(10AA) from the order of cpcBanglore without assigning any cogent reasons in fact the appellant is bank employee and nowhere in the section it has been mentioned that it is allowable only up to Rs 3.00 lacs in the case bank employee definition of other employee and govt has not been in described in section 10(10AA) therefore it can be safely conclude that appellant is govt employee and he is entitle for full exemption of for the sake of argument bank employee cannot be put on different footing for purpose of treatment of govt employee. This is also clear from the fact that bank are nationalized and their management and administration is controlled by central govt even CMD is appointed by govt therefore there is no reasons to not to treat as govt employee and resultantly appellant is the govt employee and he cannot be denied the benefit of exemption w/s 10(10AA) it is also to clarify that in the definition of non govt employee bank employee are not specified therefore he is govt employee and is eligible for remaining balance of leave encashment Ram Charan Gupta vs. ITO amounting to RS.397100.00 meaning thereby that he is entitled for deduction of RS 10(10AA).
3. Under the facts and circumstances of the case CIT (Appeal) was not justified while confirming the order of AO treating the employer as non- government instead of government organization Our submission: it is to submit that although no reason has been mentioned 143(1) for in intimation send u/s disallowance of Rs 397100.00 out of Rs 697100.00 u/s 10(10AA) however it appears that bank has not been treated as govt employee and disallowance has been effected which is not a correct proposition as per principal of natural justice it becomes mandatory on the part of assessing officer to provide the opportunity of being heard however factually employer of the appellant is govt therefore he is entitle for deduction of Rs 697000.00.
4. Kindly stay the demand. As disallowance has been made on incorrect presumption therefore demand is liable to be quashed
5. Assessee craves to add alter any of the grounds of appeal before or at the time of hearing. This ground of appeal is general in nature therefore no submission are being submit.”
6. In addition to the above detailed written submission the Id. AR of the assessee also submitted that in the recent budget speech Hon’ble Finance Minister indicated that for increase in the limit and the related notification is issued. The Id. AR thus based on the said nonficationsubmined that the relief be printed in the The Ld. DR is heard who has relied on the findings of the lower authorities and left the decision on bench to grant the relief to the assessee as per notification dated 24.03.2023.
7. 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 be the case of Kamal Kumar Kalla & Ors Vs. Union of India Ors in WP(C) 11846/2019 dated 08.11.2010 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 (01) 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 Nationalized 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 (11) 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 w/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.”
5. I adopt the above extracted detailed reasoning mutatis mutandis to accept the assessee’s instant sole ground in very terms. Ordered accordingly.” 9. In the light of the above factual matrix of the case and respectfully following the decision(s) (supra) of the Co-ordinate Bench(es) of the Tribunal and in the absence of any contrary decision/material brought on record by the Revenue to enable us to take a different view, we hold that the assessee is entitled to the exemption of leave encashment u/s 10(10AA) of the Act as claimed by him in his return of income for AY 2020-21. The grounds raised by the assessee are accordingly allowed….”
5. Accordingly, as the facts of the present appeal are identical to those in the judicial precedents discussed hereinabove and therefore in respectful compliance as well as for the purposes of consistency, we hold that the assessee is entitled to the exemption of leave encashments u/s 10(10AA) of the Act as claimed by him within the threshold limit prescribed in CBDT Notification No.31/2023. The grounds of appeal raised by the assessee is therefore allowed.”
5. Having regard to the identical facts and circumstances of the matter, respectfully relying upon the order passed by the Co-ordinate Bench, we hold that the Assessee is entitled to the exemption of leave encashment under Section 10(10AA) of the Act within the threshold limit as prescribed in the CBDT Notification 31/2023 dated 24.05.2023. Thus, the appeal preferred by the Assessee is allowed.
Order pronounced in the open court on 08/09/2026.
