Leave Encashment Disallowance Set Aside as Revised ₹25 Lakh Limit Was Recognized

Om Prakash Khandelwal Vs ITO (ITAT Jaipur)

The appeal before the Income Tax Appellate Tribunal (ITAT), Jaipur, concerned a retired employee who had received ₹15,16,271 as leave encashment during the relevant assessment year. While processing the return under Section 143(1) of the Income Tax Act, the Central Processing Centre (CPC), Bengaluru, issued an intimation on 31 January 2023 allowing exemption under Section 10(10AA) only to the extent of ₹3,00,000 and disallowing exemption on the balance amount of ₹12,16,271. Aggrieved by the restriction, the assessee filed an appeal before the CIT(A). However, by order dated 25 March 2025, the CIT(A) dismissed the appeal and upheld the CPC’s action.

The assessee thereafter approached the Tribunal. There was a delay of three days in filing the appeal, which was condoned as the Revenue raised no objection and the Tribunal found the explanation satisfactory.

On merits, the assessee contended that the leave encashment amount of ₹15,16,271 was eligible for exemption under Section 10(10AA) and relied on CBDT Notification No. 31/2023 dated 24 May 2023. It was submitted that the notification enhanced the exemption limit for non-government employees to ₹25 lakh and should be applied while considering the assessee’s claim. The assessee argued that the CIT(A) erred in not granting the benefit of the notification.

During the hearing, the Departmental Representative did not dispute the issuance of Notification No. 31/2023 or the enhancement of the leave encashment exemption limit to ₹25 lakh.

The Tribunal observed that the notification dated 24 May 2023 constituted beneficial instructions intended for non-government employees. In view of the notification, the Tribunal held that the assessment order and the order of the CIT(A) could not be sustained. Accordingly, both orders were set aside, the appeal was allowed, and the Assessing Officer was directed to give effect to the Tribunal’s decision.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

Appellant-assessee is a retired employee. During the year under consideration, he received a sum of Rs. 15,16,271/-, towards leave encashment.

CPC, Bangaluru issued intimation u/s 143(1) of the Act, on 31.01.2023, allowing exemption only to the extent of Rs. 3,00,000/-, u/s 10(10AA)(2) of the Act. Since the assessee felt aggrieved by disallowing exemption as regards the balance amount of Rs. 12,16,271/-, he challenged the intimation before learned CIT(A).

Vide impugned order dated 25.03.2025, Learned CIT(A) dismissed the appeal filed by the assessee and upheld the intimation dated 31.01.2023.

That is how, present appeal before the Appellate Tribunal.

2. It may be mentioned here that there is delay of only 3 days in the filing of the appeal. There is no objection from the department to the condonation of said small delay for the reasons given in the application. Accordingly, the delay in filing of the application is condoned.

On merits

4. The only submission put forth by Ld. AR for the appellant is that an amount of Rs. 15,16,271/- was received by the appellant by way of leave encashment benefit in terms of section 10(10)AA of the Act, and that notification dated 24.05.2023 was issued by CBDT whereby the benefit was extended to non government employees by raising the limit to Rs. 25 lakhs and that too with retrospective effect. Therefore, Ld. AR has contended that by not applying the said notification dated 24.05.2023, Learned CIT(A) erred in confirming the assessment order, and argued that the appeal deserves to be allowed.

5. In the course of arguments, Ld. DR for the department has not disputed issuance of notification no. 31/2023/F.No.200/2023-ITA-I dated 24.05.2023 and that the above said limit as regards leave encashment was raised to Rs. 25 lakhs.

5. In view of the notification dated 24.05.2023, which is a piece of evidence in the form of beneficial instructions meant for non government employees, the assessment order and the impugned order, passed by Learned CIT(A) deserve to be set aside.

Result

6. As a result, this appeal is allowed. Assessing Officer to give effect to this decision.

File be consigned to the record room after the needful is done by the office.

Order pronounced in the open court on 06/08/2025.