Neelam Gupta Vs Addl//JCIT (ITAT Delhi)
The appeal before the Income Tax Appellate Tribunal (ITAT), Delhi, arose from an order of the CIT(A)/NFAC, Delhi, dated 4 November 2024 for Assessment Year 2020-21 in proceedings under Section 143(1) read with Section 264 of the Income Tax Act. The sole issue in dispute was whether the assessee, a retired employee of Bank of Baroda, was entitled to exemption of the entire leave encashment amount received on retirement under Section 10(10AA) of the Act.
The assessee had claimed exemption of ₹6,97,100 towards earned leave encashment received on retirement. While processing the return under Section 143(1), the CPC allowed exemption of only ₹3,00,000 and disallowed the balance amount of ₹3,97,100. As a result, the assessee’s income was enhanced and a tax demand was raised. The assessee challenged the adjustment before the CIT(A), contending that the employer bank was regulated and controlled by the Central Government and that bank employees should be treated similarly to government employees for the purpose of leave encashment exemption. The assessee also argued that the disallowance was made without assigning specific reasons and without providing an opportunity of being heard.
The CIT(A) rejected the appeal. Reliance was placed on the Delhi High Court’s decision in Kamal Kumar Kalia v. Union of India and the Bangalore Tribunal’s decision in KPTCL Davangere v. ITO. The appellate authority held that employees of public sector undertakings and nationalised banks cannot be regarded as Central or State Government employees merely because such institutions may be treated as “State” under Article 12 of the Constitution. Accordingly, the action of restricting the exemption under Section 10(10AA) to ₹3 lakh was upheld.
