Govardhan Deepchand Bhambhani Vs ITO (ITAT Jaipur)
Summary: The Income Tax Appellate Tribunal (ITAT), Jaipur, considered an appeal filed by a retired employee of Punjab National Bank against the appellate order dated 9 December 2023 passed by the Additional Commissioner of Income Tax (Appeals)-9, Delhi, for Assessment Year 2020-21. The assessee had filed his income tax return on 25 December 2020, declaring total income of ₹5,82,970 and claiming exemption of ₹7,65,404 received towards leave encashment under Section 10(10AA)(ii) of the Income-tax Act, 1961. However, while processing the return under Section 143(1), the Centralised Processing Centre restricted the exemption to ₹3,00,000, resulting in disallowance of ₹4,65,404. The first appellate authority upheld the restriction, observing that Notification No. 31/2023 dated 24 May 2023, enhancing the exemption ceiling to ₹25 lakh, was effective only from 1 April 2023 and therefore did not apply to the assessee, who had retired during FY 2019-20.
Before the Tribunal, the assessee contended through written submissions that the enhanced exemption limit should be extended to employees who had retired before 1 April 2023. Reliance was placed on the explanatory memorandum accompanying Notification No. 31/2023 and earlier decisions of the Jaipur Bench. The assessee referred particularly to Govind Chhatwani Vs CIT(Appeals), ITA No. 385/JP/2023, dated 31 October 2023, and Devendra Kumar Gupta Vs CIT(Appeals), M.A. No. 49/JP/2023, dated 18 February 2025. The Revenue supported the orders of the lower authorities. The Tribunal examined the coordinate Bench decisions, including Ram Charan Gupta, ITA No. 408/JP/2022, which had considered the increased exemption ceiling and referred to observations of the Delhi High Court in Kamal Kumar Kalia & Ors. Vs Union of India & Ors., concerning the prolonged non-revision of the exemption limit despite increases in salaries and inflation.
The ITAT Jaipur held that the controversy regarding the assessee’s claim under Section 10(10AA)(ii) was covered by the earlier decisions of its coordinate Benches. Following Govind Chhatwani Vs CIT(Appeals) and Devendra Kumar Gupta Vs CIT(Appeals), the Tribunal concluded that restricting the leave encashment exemption and thereby disallowing ₹4,65,404 was not sustainable in law. Accordingly, it directed deletion of the disputed disallowance and allowed the assessee’s appeal. The order was pronounced in open court on 28 July 2025. The decision follows the Jaipur Bench’s approach to claims arising before the notified effective date of the enhanced exemption ceiling; the supplied order also records the contrary view taken by the first appellate authority on the notification’s applicability.
Cases Discussed
- Govind Chhatwani Vs CIT(Appeals) — ITA No. 385/JP/2023, ITAT Jaipur, dated 31.10.2023. Relied upon for allowing the enhanced leave encashment exemption.
- Devendra Kumar Gupta Vs CIT(Appeals) — M.A. No. 49/JP/2023, ITAT Jaipur, dated 18.02.2025. Followed as a coordinate Bench decision.
- Ram Charan Gupta — ITA No. 408/JP/2022, ITAT Jaipur. Relied upon in the quoted decision concerning leave encashment exemption.
- Kamal Kumar Kalia & Ors. Vs Union of India & Ors. — W.P.(C) No. 11846/2019, Delhi High Court, order dated 08.11.2019. Considered regarding the prolonged non-revision of the exemption ceiling.
- Patna High Court judgment — CWJC No. 12326/2017, dated 26.02.2024. Cited in the first appellate order concerning the effective date of the revised exemption limit; party names are not identified in the supplied text.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
This appeal is filed by the Assessee as against appellate order dated 09.12.2023 passed by the Additional Commissioner of Income Tax (Appeals)-9, Delhi arising out of the intimation passed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2020-21.
2. Brief facts of the case is that the assessee is an individual and retired from Punjab National Bank, filed his Return of Income for the Asst. Year 2020-21 on 25-12-2020 declaring total income at Rs.5,82,970/- and making a claim of leave encashment salary of Rs.7,65,404/- u/s. 10(10AA)(ii) of the Act. The return was processed u/s. 143(1) and the claim of deduction u/s. 10(10AA)(ii) was restricted to Rs. 3 lakhs.
3. Aggrieved against the same, the assessee filed an appeal before Ld. CIT(A) who confirmed the addition by observing as follows:
“5.2 The major contention of the appellant is he should be allowed full exemption of leave encashment as government has not increased the limit under section 10(10AA) (ii) since 2002, thus his exemption has been restricted to Rs 3,00,000 by CPC. It is important to note here that the exemption limit has now been increased to 25 Lakhs with effect from 01.04.2023 vide Notification No.31/2023 dated 24.05.2023 which is reproduced hereunder:
S.O. 2276(E). In exercise of the powers conferred by sub-clause (ii) of clause (10AA) 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.”
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The concluding para of the writ petition decision (Patna High Court CWJC No.12326 of 2017 dt. 26-02-2024) is particularly relevant in this case:
32. We have taken note of the fact that subsequently the amount/limit of leave encashment has been raised to Rs. 25,00,000/- effective 01.04.2023.
We must record that it has been a belated exercise as the last revision took place in the year 2002. However, this does not benefit the petitioner as he has already retired in the year 2017.
Given the finding of the Apex court in numerous cases that the State undoubtedly enjoys greater latitude in the matter of taxing statute. It may impose a tax on a class of people whereas it may not do so in respect of the other class, the case of discrimination made out by assessee cannot be basis of any relief.
Thus, the benefit claimed by the appellant is not available under law as the notification is applicable from 01.04.2023 and appellant has already retired in FY 2019-20.
4.5 In view of the above grounds of appeal and submissions made by the appellant the grounds of appeal of the appellant are hereby dismissed.”
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 amount 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 that 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/-.
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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-clause (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 materials available on record. This issue of deduction u/s. 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 ld. 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 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.”
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.
Order pronounced in the open court on 28-07-2025
