Case Law Details
Nehaben Vimalkumar Shah Vs ITO (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, allowed two appeals filed by the assessee for AYs 2020-21 and 2021-22 against orders dated 18.02.2026 passed by the CIT(A). The assessee, an employee of Bharat Sanchar Nigam Limited (BSNL), had opted for the BSNL Voluntary Retirement Scheme (VRS)-2019, receiving VRS compensation of ₹18,46,414 and leave encashment of ₹13,96,370 in AY 2020-21. In the return of income, the assessee initially offered these amounts to tax while claiming partial exemption and later sought full exemption under Sections 10(10B) and 10(10AA). The CPC did not grant the enhanced claim, and the CIT(A) rejected the appeal, holding that Section 10(10B) applied only to a “workman” or compensation covered by the statutory conditions, observing that the assessee was an Assistant General Manager performing managerial functions.
Before the Tribunal, the assessee submitted that the compensation was received under the Government-approved BSNL VRS-2019 as part of the BSNL revival package and relied on earlier Tribunal decisions granting exemption under Section 10(10B). The Revenue supported the orders of the lower authorities and contended that the assessee was not a “workman” and was therefore not eligible for the exemption.
The Tribunal observed that it was undisputed that the compensation had been received under BSNL VRS-2019 and found that the facts were identical to those considered in its earlier decision in Jayeshkumar Tulsidas Sutaria v. ITO. Following that decision, it held that the assessee was entitled to claim exemption under Section 10(10B) in respect of the BSNL VRS-2019 compensation, subject to verification of the eligibility conditions. It further held that the compensation of ₹18,46,414 could not be brought to tax and that the assessee would be entitled to the consequential refund of tax deducted or paid thereon.
With respect to leave encashment, the Tribunal directed the Assessing Officer to verify the claim and allow exemption in accordance with the statutory limit prescribed under Section 10(10AA) and the CBDT Notification dated 24.05.2023. Since the facts for AY 2021-22 were identical, the Tribunal directed that the same findings would apply mutatis mutandis. Both appeals were accordingly allowed.
Cases Discussed
- Jayeshkumar Tulsidas Sutaria vs. ITO (ITAT Ahmedabad), ITA Nos. 2387 & 2388/Ahd/2025 dated 17.02.2026
- Harish Kumar vs. ITO (ITAT Chandigarh), ITA No. 42/CHD/2025 dated 30.05.2025
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These two appeals have been filed by the assessee against the separate orders, both dated 18.02.2026, passed by the Ld. Addl/Jt. Commissioner of Income Tax (Appeals)-2, Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short), for Assessment Years 2020-21 & 2021-22.
2. Since the issues involved in both the appeals are identical in nature, they are being disposed of by this consolidated order for the sake of convenience.
3. The assessee has raised multiple grounds of appeal for both the assessment years. Since, except for the variation in the amounts involved, the grounds are identical in substance and wording, the grounds of appeal for AY 2020-21 are reproduced below for the sake of convenience:-
ITA No. 789/Ahd/2026 (AY 2020-21)
“1. This Appeal before Income Tax Appellate Tribunal is filed to quash and set aside the Order passed u/s 250 by CIT(A) in Appeal No. ADDL/JCIT(A)-2 DELHI/10026/2019-20 vide DIN & Order No. ITBA/APL/S/250/2025-26/1086184330(1) Dated:18/02/2026 and may be pleased to grant the full tax exemption for the Amount received Rs.18,46,414/- instead of Rs.5,00,000/- claimed in the ITR filed during A.Y.2020-2021 by an assessee as this amount is Retrenchment Compensation Received From Central Government Under the Scheme Approved By Central Government is fully exempted from Income Tax Under Section 10(10B) of Income Tax Act, 1961.
2. The compensation amount receipts in the hands of assessee as an employee of BSNL pursuant to severance package, titled as BSNL Voluntary Retirement Scheme-2019 announced by the Department of Telecommunications(DoT), Central Government of India under total budgetary allocation approved by the Government is a special privilege/protection package granted to the employees of the BSNL and therefore, the Second Proviso of the Section 10(10B) of the Income Tax Act, 1961 are attracted and accordingly, the same shall not fall within the definition of income, while computing the total income of an assessee and income tax not to be deducted from the severance package paid as an employee of DOT and BSNL Combined Service.
3. In the present case the compensation received by an Assessee is towards loss of employment for the reason of employer so it would amount to Capital Receipt and hence, no Income Tax is payable.
4. The identical case of BSNL Employee is decided in favour of Assessee by Order of ITAT, Division Bench, SMC, Chandigarh, ITA No.42 CHD 2025, AY 2021-2022, DATED 30-05-2025 and ITAT, SMC Bench, Ahmedabad, ITA Nos. 2387 and 2388 AHD 2025, A.Y. 2020-2021 and A.Y. 2021-2022, DATED 17/02/2026.
5. That Ld.CIT(A) has misdirected himself in law, facts and circumstances of the case, that Ld. CIT(A) has dismissed the Appeal on account of non-applicability of Section 10(10B) to Applicant and the amount received as capital receipt does not fall into non taxable category.
6. That Ld. CIT(A) has misdirected himself in law, facts and circumstances of the case, the Ld. CIT(A) has rejected the Appeal without considering the request of the Assessee who has asked to give him an opportunity to submit Oral Evidences through VIDEO CONFERENCE (VC) facility as per Income Tax Provisions. Ld. CIT(A) has given an opportunity to submit oral evidences to Income Tax Department through VIDEO CONFERENCE (VC) facility to Assessee within very short time intimation before 5 days only which Assessee could not attend as he was in very bad health. Ld.CIT(A) has crred to provide scond opportunity. So the Adverse Order of CIT(A) without conducting opportunity to submit oral evidences to Income Tax Department through VIDEO CONFERENCE is null and void.
7. That Ld. CIT(A) has misdirected himself in law, facts and circumstances of the case that Ld.CIT(A) has not educated the prayer of the assessee that the amount received Rs. 13,96,370/-is fully exempted u/s.10(10AA) of the Income Tax Act, 1961 instead of Rs.5,04,801/- claimed in the ITR filed in respect of leave encashment received by an Applicant. This is as per Revised Limit of Leave Encashment Rs.25,00,000/- as per CBDT, Notification No.31/2023/F.No.200/3/2023-ITA-1, Dated: 24/05/2023.”
4. The brief facts of the case, as per AY 2020-21, are as follows:-
4.1 In this case, the assessee was employed with Bharat Sanchar Nigam Limited (BSNL), a Government of India undertaking. The assessee opted for scheme of Voluntary Retirement under “BSNL Voluntary Retirement Scheme – 2019” notified on 04.11.2019 and received retirement compensation of Rs.18,46,414/-. The assessee also received leave encashment amounting to Rs.13,96,370/- at the time of retirement. In the return of income filed for the relevant assessment year, the assessee offered the aforesaid receipts to tax and claimed partial exemption. Subsequently, the assessee raised a claim for full exemption under section 10(10B) in respect of VRS compensation and under section 10(10AA) in respect of leave encashment. The CPC, Bengaluru, while processing return under section 143(1) of the Act, did not grant full exemption as claimed subsequently.
- Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who dismissed the appeal holding that exemption u/s 10(10B) is available only in respect of compensation received by a “workman” at the time of retrenchment or under a scheme specifically approved by the Central Government for extending special protection to workmen. The Ld. CIT(A) also held that the assessee was working as Assistant General Manager in BSNL and wasengaged in managerial functions. Accordingly, the assessee was held not to fall within the definition of “workman” under section 2(s) of the Industrial Disputes Act, 1947. The CIT(A) further observed that BSNL VRS-2019 scheme, though part of a Government-approved revival package, does not automatically satisfy the conditions of exemption under section 10(10B) unless statutory conditions are fulfilled. On leave encashment, The Ld. CIT(A) held that exemption was correctly restricted in accordance with statutory provisions and CBDT notification limits.
6. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
7. Before us, the Ld. AR submitted that the assessee received compensation under BSNL VRS-2019, which is a scheme approved by the Government of India as part of BSNL revival package. The Ld. AR contended that such compensation is in the nature of retrenchment compensation and is fully exempt under section 10(10B) of the Act. The Ld. AR also submitted that the assessee was unaware of the correct legal position at the time of filing return and, therefore, wrongly offered the amount to tax. Reliance was placed on the decision of the ITAT, Chandigarh Bench in Harish Kumar vs. ITO (ITA No. 42/CHD/2025 dated 30.05.2025). The assessee also relied heavily on the decision of the Ahmedabad Bench of the Tribunal in Jayeshkumar Tulsidas Sutaria vs. ITO in ITA Nos. 2387 & 2388/Ahd/2025 dated 17.02.2026, wherein on identical facts relating to BSNL VRS-2019, the Tribunal has allowed exemption under section 10(10B) and granted consequential relief.
8. The Ld. DR, on the other hand, supported the orders of lower authorities and submitted that the assessee was in managerial cadre and not a “workman”, hence not eligible for exemption under section 10(10B) of the Act.
9. We have heard rival submissions and perused material available on record. It is undisputed fact that the assessee received compensation under BSNL VRS-2019 upon voluntary retirement from BSNL. The assessee’s case is that the scheme is part of Government-approved restructuring and the compensation is in the nature of retrenchment compensation. The Ahmedabad Bench of the Tribunal in Jayeshkumar Tulsidas Sutaria vs. ITO (supra), on identical facts arising from BSNL VRS-2019, has held as under:-
“6. The Ld. Counsel for the assessee submitted that due to lack of awareness of the legal provisions at the time of filing the return of income, the assessee inadvertently offered the compensation received under BSNL VRS-2019 to tax. Subsequently, based on the decision of the Hon’ble ITAT Chandigarh Bench in Harish Kumar vs. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025 dated 30.05.2025), wherein compensation under the same BSNL VRS-2019 scheme was held to be exempt under section 10(10B), the assessee now seeks exemption of such compensation. We find that the assessee filed the claim before the Ld. CIT(A) and since the income of the assessee is not taxable, the assessee is eligible for the refund of the TDS.”
9.1 We find that the factual matrix in the present case is identical to the case decided by the Tribunal (supra). Therefore, respectfully following the decision of the Tribunal in the case of Jayeshkumar Tulsidas Sutaria (supra) and considering the settled legal position, we hold that the assessee is entitled to claim exemption in respect of compensation received under BSNL VRS-2019 under section 10(10B) of the Act, subject to verification of eligibility conditions. Accordingly, the compensation of Rs.18,46,414/- cannot be brought to tax. The assessee shall also be entitled to consequential refund of tax deducted/paid thereon.
9.2 As regards leave encashment, in view of the facts on record and CBDT Notification dated 24.05.2023, the same is also to be considered in accordance with the statutory limit prescribed under section 10(10AA) of the Act. The Assessing Officer is directed to verify and allow exemption accordingly.
ITA No. 790/Ahd/2026 (AY 2021-22)
10. Since the facts and issues involved in this assessment year are similar and identical to that of AY 2020-21, the above directions shall apply mutatis mutandis to that year as well.
11. In the result, both the appeals filed by the assessee are allowed.
The order pronounced in the open Court on 03.07.2026
Author Bio
