Vinaya Vinayak Apte Vs ITO (ITAT Bangalore)
VRS Was the Exit, Not the Tax Trap: Bangalore ITAT Opens Full Exemption Door u/s 10(10B)
Summary:
Relevant Facts
In Vinaya Vinayak Apte v. ITO, the Bangalore Bench of the ITAT dealt with two appeals concerning AYs 2020–21 & 2021–22. The assessee was an employee of Bharat Sanchar Nigam Limited, an undertaking functioning under the administrative control of the Department of Telecommunications, Government of India.
To revive BSNL & MTNL, the Union Cabinet approved a restructuring plan through an Office Memorandum dated 29 October 2019. The package reduced workforce through the BSNL Voluntary Retirement Scheme, 2019 for employees aged 50 years or above, who received scheme-based ex gratia compensation.
The assessee received ₹9,13,450 during AY 2020–21 & ₹20,04,922 during AY 2021–22. Owing to incorrect professional advice, he claimed only the restricted exemption of ₹5 lakh u/s 10(10C) for AY 2020–21. For AY 2021–22, he offered the entire compensation to tax. Both returns were processed through intimations u/s 143(1) on the basis of the income originally returned.
Before the CIT(A), the assessee contended that the payments represented retrenchment compensation, making the eligible amount exempt u/s 10(10B), rather than attracting only the limited relief u/s 10(10C). Though raised for the first time in appeal, the Addl./Joint CIT(A) dismissed both appeals for delay without examining merits. The assessee approached the ITAT.
Issue Before the Tribunal
The issue was whether compensation under the BSNL VRS, 2019 constituted retrenchment compensation exempt u/s 10(10B). Procedurally, could relief be denied because it was omitted from the returns & the appeals were delayed?
Assessee’s Submissions
The assessee argued that the BSNL scheme was not an ordinary private voluntary-retirement arrangement. It formed part of a Government-approved revival & workforce-restructuring programme intended to reduce employee strength. Consequently, separation under the scheme possessed the character of retrenchment, while the ex gratia amount compensated employees for premature loss of employment & their recurring source of income.
It was submitted that the conditions prescribed in the second proviso to section 10(10B) were satisfied. The assessee’s earlier treatment u/s 10(10C), or the offer of the full amount to tax, arose only from mistaken advice & could not determine the correct statutory character of the receipt. Tax must be levied according to law, not according to an inadvertent concession in the return.
The authorised representative contended that the controversy was no longer res integra. Reliance was placed on Harish Kumar v. ITO from Chandigarh, Ahmedabad & Pune rulings, Bajirao Shankar Jagadale from Mumbai, Sekar Gnanaprakasham from Chennai & the Bangalore ruling in Renuka Narasimha Prabhu. These decisions treated compensation under BSNL VRS, 2019 as exempt u/s 10(10B).
Revenue’s Position
The order records the Departmental Representative’s appearance but no elaborate counter-submissions. The lower-order position was that the claim was omitted from the returns, raised belatedly before the CIT(A) & presented through delayed appeals. Revenue defended those orders, whereas the assessee sought adjudication based on settled coordinate-bench authority.
ITAT’s Findings & Legal Reasoning
The Tribunal carefully considered the judicial precedents cited by the assessee. It found that multiple coordinate benches, while examining materially identical circumstances, had consistently held that compensation paid by BSNL under the 2019 scheme qualified for exemption u/s 10(10B). Finding no material distinction in the assessee’s case, the Bench followed those authorities.
The decision reflects that the statutory nature of a receipt cannot be altered by mistaken classification. Claiming ₹5 lakh u/s 10(10C) in one year or offering compensation in another did not create tax liability where section 10(10B) granted exemption. A lawful claim does not disappear because the return adopted an erroneous position.
Rather than remanding the entire controversy to the CIT(A), the ITAT directly directed the AO to allow exemption u/s 10(10B) for compensation received under BSNL VRS, 2019, subject to verification of the necessary particulars. This qualification preserves Revenue’s authority to verify the amount, employment records, scheme documents & satisfaction of applicable statutory conditions, but not to reopen the legal question already settled by precedent. Both appeals were accordingly allowed.
Practical Implications
The ruling provides significant relief to former BSNL employees who claimed only ₹5 lakh u/s 10(10C) or mistakenly offered the entire VRS compensation to tax. Where facts match the BSNL VRS, 2019 & statutory conditions are fulfilled, they may pursue the broader exemption u/s 10(10B) through available rectification, appellate or other permissible remedies.
However, the order should not be read as granting an automatic refund without verification. Employees must retain the VRS option, retirement order, compensation computation, Form 16, bank evidence & Government scheme documents. The ruling also emphasises that appellate authorities should decide genuine claims on merits instead of allowing procedural delay or an incorrect return entry to perpetuate taxation contrary to law. In short, a mistaken exemption label may delay relief, but it cannot lawfully convert retrenchment compensation into taxable income.
Cases Discussed
- Harish Kumar Vs ITO Ward 5(5), Chandigarh — ITAT Chandigarh, ITA No. 42/CHD/2025, order dated 30-05-2025.
- Suman Nandlal Rava Vs ITO, Ward 1, Gandhinagar — ITAT Ahmedabad, ITA Nos. 2389 & 2393/Ahd/2025, order dated 18-02-2026.
- Hayeshkumar Tulsidas Sutaria Vs ITO, Ward 7(2)(1), Ahmedabad — ITAT Ahmedabad, ITA Nos. 2387 & 2388/Ahd/2025, order dated 17-02-2026.
- Shraddha Prahlad Arote and Others Vs ITO, Ward 2, Ahmednagar — ITAT Pune, ITA Nos. 262 & 261/PUN/2026, order dated 24-03-2026.
- Meghmala Sudhir Pathak and Others Vs ITO, Ward 2(1), Nashik — ITAT Pune, ITA Nos. 290 & 293/PUN/2026, order dated 24-03-2026.
- Rajendra Himmatrao Pati and Others Vs ITO, Ward 1(4), Jalgaon — ITAT Pune, ITA Nos. 302 & 303/PUN/2026, order dated 27-03-2026.
- Bajirao Shankar Jagadale Vs ITO, Ward 42(2)(1), Mumbai — ITAT Mumbai, ITA No. 1389/Mum/2026, order dated 10-04-2026.
- Prathibha Jagadish Unawane and Others Vs ITO, Kolhapur etc. — ITAT Pune, ITA No. 1117/PUN/2026, order dated 29-04-2026.
- Sri Sekar Gnanaprakasham v. The Deputy Commissioner of Income Tax — ITAT Chennai, ITA Nos. 1608 & 1609/CHNY/2026, order dated 21.05.2026.
- Renuka Narasimha Prabhu & Others v. ITO — ITAT Bangalore SMC Bench, ITA Nos. 992, 1005, 1284, 1285, 1320, 1342 & 1427/BANG/2026, order dated 29.05.2026.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH
The assessee has filed the present appeals against the separate impugned orders of even date 23.03.2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Additional/Joint Commissioner of Income Tax (Appeals)-4, Hyderabad, [“learned Addl./Joint CIT(A)”], for the assessment years 2020-21 and 2021-22.
2. Since the assessee has raised similar grounds in both appeals, the grounds raised in the appeal for the assessment year 2020-21 are reproduced as follows for ready reference: –
1. The Order of the learned Commissioner passed under section 250 of the Act is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant’s case.
2. The Appellant denies to be taxed on total income of Rs. 10,64,540 /- in the facts and circumstances of the case.
3. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the learned Income Tax officer (herein referred as the “Assessing Officer”), is not justified in denying the refund of Rs. 4,13,450/- received as an ex-gratia amount under the BSNL VRS 2019 scheme which is eligible for full exemption as retrenchment compensation as per the section 10(10B) of the Income Tax Act, 1961 (hereinafter referred as the ‘1961 Act) in the facts and circumstances of the Act.
4. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the learned Income Tax officer erred in verifying that the compensation received satisfies all statutory conditions of the second proviso to section 10(10B) of the 1961 Act in the fact sand circumstances of the Act.
5. The learned Commissioner of Income Tax (Appeals) has erred in confirming the taxation of ex-gratia compensation received under a Government approved restructuring programme, without appreciating that the same is a capital receipt received towards loss of employment and source of income and hence not chargeable to tax.
6. The learned Commissioner of Income Tax (Appeals) has failed to appreciate that similar ex-gratia payments received under the BSNL separation scheme have been held to be exempt under section 10(10B) by the ITAT Chandigarh Bench in the case of Harish Kumar in ITA No. 42/CHD/2025 and relief has also been granted in identical cases by various learned CIT(A)s in the facts and circumstances of the case.
7. The learned Commissioner of Income-Tax (Appeals) erred in law in passing the order without considering the sufficient cause suffered by the appellant in the facts and circumstances of the case.
8. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s. 234A, 234B of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.
3. The sole issue that arises for consideration, in both appeals, pertains to the claim of exemption under section 10(10B) of the Act in respect of the compensation received on retrenchment under the BSNL Voluntary Retirement Scheme, 2019 (“BSNL VRS, 2019”).
4. The brief facts of the case are that the assessee was an employee with BSNL, which is under the administrative control of the Department of Telecommunications, Government of India. In order to revive BSNL, the Union Cabinet, in its meeting, approved the revival plan of BSNL and MTNL vide office memorandum dated 29.10.2019 issued by the Department of Telecommunications. As part of the revival package, the Government decided to reduce the workforce through the BSNL VRS, 2019, of the employees aged 50 years and above. It was further decided that on such voluntary retirement, ex gratia compensation shall be paid. Accordingly, the assessee received ex gratia compensation of Rs. 9,13,450/- for the assessment year 2020-21 and Rs. 20,04,922/- for the assessment year 2021-22, computed in accordance with the BSNL VRS, 2019. The assessee, not being properly advised, claimed exemption of Rs. 5 Lakhs under section 10(10C) of the Act for the assessment year 2020-21, while in the assessment year 2021-22, offered the entire ex gratia compensation to tax. The assessee’s returns were processed vide intimation issued under section 143(1) of the Act, accepting the return of income. Admittedly, in the present case, the claim that the entire amount of the retrenchment compensation received from the BSNL is not taxable as per the provisions of section 10(10B) of the Act was made for the first time before the learned CIT(A). However, the learned Addl./Joint CIT(A) dismissed the appeal on account of the delay without entertaining the fresh claim made by the assessee.
5. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the issue of claiming the benefit of exemption under section 10(10B) of the Act in respect of the retrenchment compensation received from BSNL is no longer res integra and has been decided consistently in favour of the taxpayers by various benches of the Tribunal. In this regard, learned AR placed reliance upon the following decisions: –
- Order of ITAT Chandigarh ITA NO. 42/CHD/2025 dated 30-05-2025, in the case of Harish Kumar vs ITO Ward 5(5) Chandigarh.
- Order of ITAT Ahmedabad ITA Nos 2389 & 2393 /Ahd/2025 date of order 18-02-2026 Suman Nandlal Rava; vs ITO WARD 1 Gandhinagar.
- Order of ITAT Ahmedabad ITA Nos.2387 & 2388/Ahd/2025 dated 17-02-2026, Hayeshkumar Tulsidas Sutaria vs ITO WARD 7(2)(1) Ahmadabad.
- Order of ITAT Pune Nos 262 and 261/PUN/2026 dated 24-03-2026 in the case of Shraddha Prahlad Arote and OTHERS vs ITO WARD 2, Ahmednagar.
- Order of ITAT Pune Nos 290 and 293/PUN/2026 Dated 24-03-2026 in the case of Meghmala Sudhir Pathak and OTHERSvs ITO WARD 2(1), Nashik.
- Order of ITAT Pune Nos 302 and 303/PUN?2026 date of order 27-03-2026 in the case of Rajendra Himmatrao Pati and OTHERSvs ITO WARD 1(4) Jalagon.
- Order of ITAT MUMBAI ITA 1389/Mum/2026 date of order 10-04-2026 in the case of Bajirao Shankar Jagadale vs ITO WARD 42(2)(1), Mumbai.
- Order of ITAT Pune ITA 1117/PUN/2026 date of order 29-04-2026 in the case of Prathibha Jagadish Unawane and OTHERS vs ITO Kolhapur etc.
- Order of Hon’ble ITAT Chennai, in Sri Sekar Gnanaprakasham v. The Deputy Commissioner of Income TAX (ITA No. 1608&1609/CHNY/2026, order dated 21.05.2026)
- Order of Hon’ble ITAT Bangalore SMC Bench, in Renuka Narasimha Prabhu & Others v. ITO (ITA No. 992,1005,1284,1285,1320,1342&1427/BANG/2026, order dated 29.05.2026)
6. Having carefully perused the aforesaid decisions, we find that in similar circumstances the Coordinate Benches of the Tribunal held that the retrenchment compensation received from the BSNL is allowable as an exemption under section 10(10B) of the Act. Accordingly, respectfully following the judicial precedents in favour of the assessee, the AO is directed to allow exemption under section 10(10B) of the Act to the assessee in respect of compensation received under the BSNL VRS – 2019 Scheme, subject to verification of the necessary details. Accordingly, grounds raised by the assessee on this issue are allowed.
7. In the result, both appeals filed by the assessee are allowed.
Order pronounced in the open court on 31-Aug-2026.
