Chhaju Lal Gupta Vs Circle -01 (ITAT Jaipur)
Summary: The Income Tax Appellate Tribunal, Jaipur, allowed Chhaju Lal Gupta’s appeal concerning exemption of leave encashment received on retirement from the State Bank of India for AY 2020-21. The assessee had filed his return on 30 August 2020 declaring income of ₹8,35,170 and claiming exemption of ₹9,53,763 under Section 10(10AA). While issuing the intimation under Section 143(1) dated 8 December 2021, CPC restricted the exemption to ₹3 lakh, added ₹6,53,763 and determined total income at ₹14,88,930. The CIT(A), NFAC, upheld the adjustment by order dated 17 February 2023, holding that an SBI retiree was not an employee of the Central or State Government.
The appeal before the Tribunal was delayed by 992 days. An affidavit dated 16 January 2026 from the assessee’s authorised representative stated that he had neither informed the assessee nor filed the appeal within time. Applying the substantial-justice principle in Collector, Land Acquisition v. Mst. Katiji, the Tribunal found sufficient cause and no indication of deliberate or mala fide delay. It condoned the delay subject to payment of ₹10,000 to the Prime Minister’s National Relief Fund, with proof to be furnished before the Assessing Officer.
On merits, the assessee argued that the ₹3 lakh ceiling prescribed in 2002 had remained unchanged despite successive revisions of Central Government pay and that the subsequently notified ₹25 lakh limit should apply. The Revenue maintained that the assessee was admittedly a non-government employee and that the enhanced limit operated only from 1 April 2023. Following Kamal Kumar Kalia v. Union of India, the Tribunal rejected the claim to unrestricted exemption available to government employees. It distinguished Narender Singh Yadev v. ACIT, where the employer had been established as a government institution through a Gazette Notification. The Tribunal also declined to examine the provision’s constitutional validity or direct CBDT to notify a particular ceiling.
The Tribunal nevertheless accepted the narrower claim for exemption within the enhanced monetary limit. It noted that Notification No. S.O. 2276(E), dated 24 May 2023, expressly stated that it was deemed effective from 1 April 2023. However, the Tribunal regarded the revision as remedial and as the belated discharge of a continuing statutory obligation to prescribe the ceiling having regard to the entitlement of Central Government employees. It followed coordinate Bench decisions in Ram Charan Gupta, Govind Chhatwani, Dashrath Kumar Sen, Satish Chandra Tyagi and Karthikeyan, noting that no contrary jurisdictional High Court judgment had been brought to its attention.
Since the entire receipt of ₹9,53,763 fell within ₹25 lakh and no other statutory limit under Section 10(10AA)(ii) had been applied against the assessee, the Tribunal directed the Assessing Officer to allow the full exemption and delete the addition of ₹6,53,763. The appeal was allowed subject to payment of the costs imposed while condoning the delay. The order was pronounced on 31 August 2026.
Cases Discussed
- Karthikeyan Vs ITO — [2026] 189 taxmann.com 396 (ITAT Chennai). Followed as supporting exemption for a retired bank employee within the enhanced ₹25 lakh ceiling.
- Satish Chandra Tyagi v. CIT (Appeals) — [2026] 184 taxmann.com 677; ITA No. 8770/Del/2025 (ITAT Delhi). Followed for the application of the enhanced leave encashment ceiling to a retired bank employee’s claim.
- Dashrath Kumar Sen v. ACIT — [2025] 172 taxmann.com 772; AY 2020-21 (ITAT Jaipur). Followed as a closely comparable decision involving the same assessment year and leave encashment of ₹9,60,409.
- Govind Chhatwani v. CIT (Appeals) — [2026] 187 taxmann.com 389; order dated 31 October 2023 (ITAT Jaipur). Followed for allowing the claimed exemption following the increase in the ceiling from ₹3 lakh to ₹25 lakh.
- Narender Singh Yadev v. ACIT — [2023] 152 taxmann.com 187 (ITAT Jaipur). Distinguished because full exemption there rested on a Gazette Notification establishing that the employer was a government institution.
- Ram Charan Gupta v. ITO — ITA No. 408/JP/2022 (ITAT Jaipur). Followed for directing allowance of a retired bank employee’s claim within the revised monetary limit.
- Kamal Kumar Kalia & Ors. v. Union of India & Ors. — [2020] 268 Taxman 398; W.P.(C) No. 11846/2019; decision dated 8 November 2019 (Delhi High Court). Applied to reject parity with government employees; its prima facie observation concerning the stagnant exemption ceiling was also considered.
- Collector, Land Acquisition, Anantnag v. Mst. Katiji & Ors. — [1987] 167 ITR 471 (SC); Civil Appeal No. 460 of 1987; decision dated 19 February 1987 (Supreme Court). Relied upon while condoning the delay attributable to counsel, subject to costs.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
1. This appeal by the Assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the learned CIT(A)”] dated 17.02.2023 for the assessment year 2020-21, arising out of the intimation dated 08.12.2021 issued under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the Assistant Director of Income Tax, Centralized Processing Centre, Bengaluru (hereinafter referred to as “the AO”).
2. There is a delay of 992 days in filing this appeal before us. The assessee has filed a condonation application supported by an affidavit dated 16.01.2026 of Shri Rajesh Gupta, Advocate, his Authorised Representative for the year under consideration, stating that he did not inform the assessee and did not file the appeal in time. The lapse is thus that of the counsel. In Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC), the Hon’ble Supreme Court held that where substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. Nothing on record shows that the delay here was deliberate or mala fide. We are satisfied that there was sufficient cause. The delay is condoned subject to payment of cost of Rs 10,000 by the assessee to the Prime Minister’s National Relief Fund, proof whereof shall be filed before the AO, and the appeal is admitted for hearing.
3. The grounds of appeal raised by the Assessee before us in the memorandum of appeal in Form No. 36 read as under:
“Ground 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.
2. Any such payment (as given in para (1) above) received by an employee other 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”
4. Briefly stated, the facts of the case are that the assessee, who superannuated from the service of the State Bank of India, filed his return of income on 30.08.2020 declaring a total income of Rs 8,35,170, claiming exemption of Rs 9,53,763 under section 10(10AA) of the Act in respect of the cash equivalent of leave salary received on retirement. While processing the return under section 143(1) of the Act vide intimation dated 08.12.2021, the exemption was restricted to Rs 3,00,000 on the ground that it “cannot be more than Rs. 3,00,000/-, if employer category is other than “Central and State Government””, and the balance of Rs 6,53,763 was added, the total income being determined at Rs 14,88,930. The learned CIT(A) upheld the adjustment, holding in paragraph 7 of the impugned order that the assessee is eligible for the exemption to the extent of Rs 3,00,000 only. On the nature of the employer he recorded in paragraph 6 as under:
“6. Return of Income filed for the A.Y. 2019-20 & A.Y. 2020-21 has been carefully perused. From the ITR filed for A.Y. 2019-20, it is seen that the appellant has mentioned ‘Public Sector Undertaking’ against ‘Nature of employment’ and also mentioned ‘State Bank of India’ against ‘Details of Tax Deducted at Source from Salary’. From the ITR filed for A.Y. 2020-21, the appellant has mentioned as ‘Pensioner’ against ‘Nature of employment’. From the above it is clear that the appellant is retired from ‘State Bank of India’. Hence appellant is not employee of Central Government or State Government.”
5. The assessee submitted that the limit of Rs 3,00,000 specified by Notification No. S.O. 588(E) dated 31.05.2002 was fixed having regard to the entitlement of Central Government employees as it then stood, that no notification was issued for over two decades thereafter although their pay was revised more than once, and that the limit of Rs 25,00,000 since specified by Notification No. S.O. 2276(E) dated 24.05.2023 ought to be given effect to. He relied upon the decisions of the Coordinate Benches noticed hereafter. The learned Departmental Representative (hereinafter referred to as “the learned DR”) supported the orders of the authorities below and submitted that the assessee is admittedly not a Government employee and that the enhanced limit operates only from 01.04.2023.
6. We have heard the rival contentions and perused the material available on record. The facts are not in dispute. The assessee retired from the service of the State Bank of India, a nationalised bank, and received Rs 9,53,763 as the cash equivalent of leave salary. Sub-clause (i) of clause (10AA) of section 10 of the Act exempts such a payment received by a Central or State Government employee without any ceiling. Sub-clause (ii), which governs every other employee, confines the exemption to the least of four amounts, namely, the amount actually received, the entitlement at thirty days of earned leave for every year of service, ten months’ average salary, and the limit specified by the Central Government by notification. Only the fourth of these, fixed at Rs 3,00,000 by Notification No. S.O. 588(E) dated 31.05.2002, has been applied against the assessee.
7. The principal plank of the assessee’s case is that no distinction can validly be drawn between Government employees and others. The nature of the employer is not in dispute, the finding in paragraph 6 of the impugned order not having been assailed before us. The classification drawn by clause (10AA) of section 10 of the Act has been upheld by the Hon’ble Delhi High Court in Kamal Kumar Kalia v. Union of India [2020] 268 Taxman 398 (Delhi), which held that employees of public sector undertakings and nationalised banks cannot claim to be at par with Government employees.
8. A Coordinate Bench in Narender Singh Yadev v. ACIT [2023] 152 taxmann.com 187 (Jaipur – Trib.) granted full exemption only upon finding, on the strength of a Gazette Notification, that the employer there was a Government institution, distinguishing Kamal Kumar Kalia (supra) on that footing. No such case is made out here. Respectfully following the above judgments, we hold that the assessee is governed by sub-clause (ii) and not by sub-clause (i), and cannot claim the unrestricted exemption available to a Government employee. Nor can the Tribunal examine the vires of the provision or direct the Central Board of Direct Taxes to notify a limit of a particular amount. The contentions resting on these propositions are rejected.
9. What survives is the narrower question whether the exemption stands confined to Rs 3,00,000 notwithstanding the limit of Rs 25,00,000 since specified under the same sub-clause. On this aspect the Hon’ble Delhi High Court in Kamal Kumar Kalia (supra), while rejecting the plea of parity, recorded a prima facie view in favour of the very grievance now urged before us, as extracted by the Coordinate Bench in Ram Charan Gupta v. ITO (ITA No. 408/JP/2022):
“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.”
10. That grievance was redressed by Notification No. S.O. 2276(E) dated 24.05.2023, which reads as under:
“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.”
11. The power under sub-clause (ii) is not untrammelled, for it is to be exercised having regard to the limit applicable to the employees of the Central Government, and its exercise is a continuing obligation. The revision of 2023 was thus not the grant of a fresh exemption but the belated discharge of that obligation, the limit having remained at Rs 3,00,000 since 2002 through successive revisions of Central Government pay. A notification of that character is remedial, and to withhold its benefit from an employee who retired shortly before it was issued would perpetuate the very disparity it was meant to remove.
12. This is the view consistently taken by the Coordinate Benches. In Ram Charan Gupta (supra), a retired bank employee, the Bench directed the AO to allow the claim within the revised limit, and that decision has been followed in Govind Chhatwani v. CIT (Appeals) [2026] 187 taxmann.com 389 (Jaipur – Trib.), where it was concluded in paragraph 7 as under:
“On being consistent to the said finding, we hold 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.”
13. Closer still is Dashrath Kumar Sen v. ACIT [2025] 172 taxmann.com 772 (Jaipur – Trib.), which concerned the very assessment year before us and leave encashment of Rs 9,60,409. The same view has been taken in the case of retired bank employees by the Delhi Bench in Satish Chandra Tyagi v. CIT (Appeals) [2026] 184 taxmann.com 677 (Delhi – Trib.), and by the Chennai Bench in Karthikeyan Vs ITO [2026] 189 taxmann.com 396 (Chennai – Trib.)
14. We were not made aware of any judgment of the jurisdictional High Court to the contrary, and therefore, we are required to follow the above referred orders.
15. Accordingly, we hold that the exemption under sub-clause (ii) of clause (10AA) of section 10 of the Act cannot, in the case of the assessee, be confined to Rs 3,00,000. The amount of Rs 9,53,763 received by him is well within the limit of Rs 25,00,000, and no other limit prescribed by the sub-clause has been applied against him. The AO is directed to allow the exemption of Rs 9,53,763 under section 10(10AA) of the Act and to delete the addition of Rs 6,53,763. The grounds of appeal are allowed to the extent indicated above.
16. In the result, the appeal filed by the Assessee is allowed, subject to the payment of cost as directed in paragraph 2 above.
Order pronounced in the open court on 31.08.2026.
