Introduction
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, delivered a significant common order in the case of Anilkumar Mathur v. Income Tax Officer, Ward 3(3)(5) (ITA Nos. 617 & 618/AHD/2026) for Assessment Years 2020-21 and 2021-22. The decision addresses the interplay between procedural limitations and substantive justice, specifically concerning the failure of an assessee to claim a legitimate exemption in the original return of income. The Tribunal was tasked with determining whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in dismissing the assessee’s appeal as time-barred, and whether the assessee was entitled to exemptions under Section 10(10B) and Section 10(10AA) of the Income Tax Act, 1961 (the Act) for compensation and leave encashment received under the Bharat Sanchar Nigam Limited Voluntary Retirement Scheme – 2019 (BSNL VRS-2019).
Facts of the Case
The assessee, an individual, received compensation under the BSNL VRS-2019 during the relevant previous years. For AY 2020-21, the assessee received a compensation of INR 16,90,834, claiming an exemption of INR 5,00,000, leaving a taxable amount of INR 11,90,834. For AY 2021-22, the compensation received was INR 54,02,026. The employer had deducted tax at source (TDS) on these amounts. Due to a lack of awareness regarding the legal provisions, the assessee did not claim the exemption under Section 10(10B) of the Act in the original return of income, which was processed under Section 143(1) of the Act.
Subsequently, relying on the decision of the Chandigarh Bench of the Tribunal in Harish Kumar vs. ITO (ITA No. 42/CHD/2025), which held that compensation under the BSNL VRS-2019 is exempt under Section 10(10B), the assessee filed an appeal before the CIT(A) raising an additional claim for the exemption and seeking a refund of the TDS. The CIT(A) dismissed the appeals, declining to condone the delay in filing and refusing to entertain the new claim. Aggrieved, the assessee appealed to the ITAT.
Reasoning and Analysis
The ITAT’s reasoning is multifaceted, addressing procedural delays, the scope of appellate powers, and the substantive merits of the exemptions claimed.
Condonation of Delay and Appellate Powers
The primary hurdle for the assessee was the dismissal of the appeal by the CIT(A) on the grounds of limitation. The ITAT, however, found this approach to be overly technical. The Tribunal relied heavily on the Supreme Court’s landmark judgment in Collector, Land Acquisition, Anantnag and Ors. vs. Katiji and Ors. (1987) 167 ITR 471 (SC), which established that substantial justice must prevail over technical considerations and that a delay should be condoned when the explanation is bona fide. The assessee’s explanation—ignorance of the availability of the exemption under Section 10(10B) and the fact that TDS had been deducted by the employer—was accepted as a reasonable cause under Section 249(3) of the Act.
Furthermore, the Tribunal addressed the Revenue’s reliance on Goetze (India) Ltd. v. CIT (284 ITR 323) to argue that new claims cannot be raised. The ITAT clarified that this judgment is misplaced in the context of appellate proceedings. It held that the CIT(A) has the plenary power to entertain a fresh claim raised by an assessee for the first time in appeal. This power is reinforced by CBDT Circular No. 14 of 1955, which directs tax officers not to take advantage of an assessee’s ignorance and to assist them in claiming legitimate reliefs and refunds.
Merits of the Section 10(10B) Exemption
On the substantive issue of the VRS compensation, the Tribunal noted that the issue was no longer res integra. It relied on its own coordinate bench decisions in Jayeshkumar Tulsidas Sutaria vs. ITO (ITA Nos. 2387 & 2388/AHD/2025), Kirtida Rajeshkumar Shah vs. ITO (ITA Nos. 151/AHD/2026), and Chhaganlal Bhimabhai vs. ITO (ITA Nos. 2547 & 2548/AHD/2025). These decisions involved identically placed employees of BSNL and held that compensation received under the BSNL VRS-2019 is exempt under Section 10(10B) of the Act.
The Tribunal observed that the Revenue failed to distinguish these precedents on facts or in law. Consequently, it accepted the assessee’s claim, holding that the compensation of INR 11,90,834 for AY 2020-21 was exempt. The Assessing Officer (AO) was directed to recompute the taxable income and grant the refund due. The Tribunal also applied this reasoning mutatis mutandis to AY 2021-22, holding the compensation of INR 54,02,026 as exempt.
Additional Ground: Section 10(10AA) Exemption
The assessee raised an additional ground concerning leave encashment, claiming an exemption of INR 5,03,036 under Section 10(10AA) of the Act, over and above the INR 3,00,000 claimed in the return. The assessee argued that he continues to be governed by the CCS (Pension) Rules, 1972.
The Tribunal found support in the Kerala High Court’s judgment in Sanchar Nigam Pensioners’ Welfare Association vs. Union of India (WP(C) No. 16360 of 2023). The High Court held that Department of Telecom (DoT) employees absorbed in BSNL, whose pension continues to be governed under Rule 37A of the CCS (Pension) Rules, constitute a special category. They are to be treated at par with Central Government employees for the purpose of exemption under Section 10(10AA)(i) of the Act.
Based on this, the ITAT directed the AO to grant the benefit of the exemption under Section 10(10AA) after verifying that the assessee was indeed a DoT employee absorbed by BSNL. The assessee was directed to submit the relevant documents and a revised computation. The Tribunal allowed this ground for statistical purposes. It also noted that the alternative contention regarding CBDT Notification No. 31 of 2023 did not require consideration in light of these directions.
Conclusion
The ITAT Ahmedabad’s order in Anilkumar Mathur is a robust affirmation of the principles of natural justice and substantive justice. By condoning the delay and directing the CIT(A) to entertain the claim, the Tribunal reinforced the mandate of CBDT Circular No. 14 of 1955. The decision provides clarity on the tax treatment of BSNL VRS-2019 compensation, confirming its exemption under Section 10(10B). Furthermore, by applying the Kerala High Court’s ruling in Sanchar Nigam Pensioners’ Welfare Association, the Tribunal extended the benefit of Section 10(10AA) to absorbed DoT employees, ensuring parity with Central Government employees. The appeals were partly allowed, with the AO directed to verify the claims and grant consequential refunds.