Case Law Details
Bharat Harisingh Shengar Vs ITO (ITAT Pune)
Leave Encashment Exemption Cannot Be Denied Merely Because Form 16 Omits It: ITAT Remands Only for Verification of Quantum
The Pune ITAT held that exemption under section 10(10AA) for leave encashment received on retirement cannot be denied merely because the employer did not disclose the exempt amount in Form 16. The assessee, a retired employee of Maharashtra State Power Generation Company Ltd., had claimed exemption of ₹8,49,501 towards leave encashment. The Assessing Officer rejected the claim solely on the basis that the exemption was not reflected in Form 16, and the CIT(A) affirmed the disallowance despite the assessee producing supporting documents such as the retirement order, leave encashment slip and bank statement.
The Tribunal admitted the additional evidence, observing that these documents went to the root of the controversy and were necessary for determining the assessee’s statutory entitlement. Relying on the Delhi ITAT decision in Shyam Sunder Sahni v. ACIT, the Tribunal reiterated that leave encashment received on retirement is eligible for exemption under section 10(10AA), subject to verification of the amount received. Accordingly, it restored the matter to the Assessing Officer only for the limited purpose of verifying the quantum of leave encashment, directing that the exemption be allowed if the receipt is established from the retirement records and supporting documents. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT PUNE
This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi [Ld.CIT(A)], passed u/s. 250 of the Income Tax Act, 1961 (the Act’) for AY 2020-21 on 09.12.2025, emanating from the Assessment Order u/s 147 r.w.s. 144 r.w.s. 144B of the Act, dated 27.01.2025.
2. There was a delay of 20 days in filing of the appeal before this Tribunal. The assessee filed an affidavit explaining the reasons for delay. We have perused the affidavit and convinced that there was sufficient cause for delay. Substantial justice is more important than procedural delay. No assessee is going to gain by filing the appeal belatedly. Accordingly, delay condoned.
3. The assessee has raised the following grounds of appeal :
“1. On facts and in law, the learned Assessing Officer and CIT(A), NFAC, erred in disallowing exemption under Section 10(10AA) of f8,49,501 received by the appellant on retirement, despite the production of primary evidence including retirement order, leave encashment slip, and bank statement.
2. On facts and in law, exemption under Section 10(10AA) is statutory and cannot be denied merely because the employer failed to reflect the same in Form 16. The authorities below erred in treating Form 16 as conclusive, contrary to settled judicial principles.
3. On facts and in law, the learned CIT(A) erred in ignoring binding judicial precedents, including:
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- Devi Dutt Agarwal v. ITO (ITAT Jaipur, AY 2020-21), wherein exemption under Section 10(10AA) was allowed despite NFAC denial.
- SBI Retired Employee Case (ITAT Delhi, 2025), wherein exemption was allowed even though Form 16 did not reflect it.
- Pudhureddiyur Raju Kalaimani v. ITO (ITAT Chennai, AY 201718), wherein resignation was treated as retirement and exemption under Section 10(10AA) was allowed.
- Kamal Kumar Kalia v. UOI (Delhi High Court, 2020), clarifying that exemption applies to PSU employees, with only quantum subject to statutory limits.
4. On facts and in law, the authorities failed to apply CBDTNotification No. 31/2023 dated 24.05.2023, which raised the exemption limit to 25 lakh, and has been applied beneficially by various benches of the ITAT in recent cases.
5. On facts and in law, the authorities failed to consider that exemption under Section 10(10AA) is a vested statutory right, and denial thereof amounts to unjust enrichment of the Revenue at the cost of the appellant’s lawful retirement benefits.
6. The appellant craves leave to add, alter, amend, or withdraw any of the above grounds at the time of hearing.”
Findings and analysis:
4. The brief facts as emanating from the statement of facts of the assessee are as under :
“1. The appellant retired from Maharashtra State Power Generation Company Ltd. on 31.01.2020, after long and continuous service.
2. On retirement, the appellant received leave encashment of Rs.8,49,501, duly evidenced by the retirement order, leave encashment slip/ payslip, and bank statement reflecting credit of the said amount.
3. In response to notice issued under Section 148, the appellant filed a return of income declaring total income of Rs.4,67,720, after claiming exemption under Section 10(10AA) (leave encashment) and Section 10(10) (gratuity).
4. The Assessing Officer disallowed exemption under Section 10(10AA) solely on the ground that the employer did not reflect the exemption in Form 16, and consequently assessed the total income at Rs. 13,17,221.
5. The learned CIT(A), NFAC, upheld the disallowance, disregarding the documentary evidence furnished by the appellant, including the retirement order, leave encashment slip, and bank statement.
6. Exemption under Section 10(10AA) is statutory in nature and depends upon the character of the receipt, not upon employer’s reporting in Form 16. The appellant, therefore, now prefers this appeal before the Hon’ble 17’AT.”
5. In this case, the assessee had claimed exemption u/s 10(10AA) of the Act on account of leave encashment. However, the Assessing Officer (AO) denied the assessee’s claim of leave encashment as the amount of leave encashment was not clear from Form No. 16 issued by the assessee’s employer, Maharashtra State Power Generation Company Ltd.
6. Aggrieved by the assessment order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the addition. During the proceedings before this Tribunal, the Ld. AR filed paper book with additional evidences. The Ld. AR requested for admission of the additional evidences. The Ld. AR filed following documents as additional evidences :
1. Retirement Order dated 31.01.2020.
2. Leave Encashment Slip/Payslip.
3. Bank Statement.
4. Copy of Form 16 Case Law Compilation.
5. Income Tax Return.
7. The Ld. AR submitted that these documents goes to prove that the assessee had received leave encashment of Rs.8,49,501/- and the assessee is entitled for exemption u/s 10(10AA) of the Act on account of leave encashment received on retirement.
8. In this case, admittedly, the assessee had filed additional evidences which were not filed before the AO and the Ld. CIT(A). Since, these documents goes to the root of the issue, we admit the additional evidences filed by the assessee. The Ld. AR also relied on the decision in the case of Shyam Sunder Sahni Vs. ACIT in ITA No. 129/Del/2025, vide order dated 21.04.2025. In the said case, Mr. Shyam Sunder Sahni was working with Canara Bank. He claimed exemption u/s 10(10AA) of the Act of leave encashment received on retirement. The ITAT, Delhi Benches allowed the assessee’s claim and directed thee AO to allow exemption u/s 10(10AA) of the Act on leave encashment received from Canara Bank. Thus, the Coordinate Bench of the ITAT, Delhi has already held that the assessee was a Bank employee on retirement the amount received on account of leave encashment was eligible for exemption u/s 10(10AA) of the Act.
9. However, in the case of the assessee, the assessee has filed additional evidences and we have admitted the additional evidences as discussed in earlier paragraphs, in the interest of justice, we set aside the issue to the file of the AO for limited purpose of verifying the quantum of leave encashment received by the assessee as per retirement order, leave encashment slip and other documents relied by the assessee. The assessee will be entitled for exemption u/s 10(10AA) of the Act on the amount received as leave encashment on retirement. In these facts, for limited purpose we set aside the order to the AO. The AO shall provide opportunity of hearing to the assessee. Accordingly, the grounds raised by the assessee are allowed for statistical purpose.
10. In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open Court on 16th July, 2026
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