BALAKRAM HIRANAND LOHANA ,MUMBAI vs. ITO 42(2)(1), MUMBAI

Date of Hearing 03.09.2025 Date of Pronouncement 30.10.2025 आदेश / ORDER PER SANDEEP GOSAIN, JM:

The present appeal has been filed by the assessee challenging the impugned order dt. 15.02.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2020-21. The assessee has raised the grounds of appeal:

Grounds of Appeal:

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2. In the facts and circumstances of the case and law, the Learned Commissioner of Income Tax (Appeals) has erred in upholding the action of the Centralized Processing Centre (CPC); which had erred in denying exemption under the provisions of clause (10AA) of section 10 for an amount of Rs. 9,38,919/- by making adjustments which falls outside the ambit of the provisions of section 143(1).

3. In the facts and circumstances of the case and law, the Learned Commissioner of Income Tax (Appeals) has erred in upholding the action of the Centralized Processing Centre (CPC); which had erred in denying exemption under the provisions of clause (10AA) of section 10 for an amount of Rs. 9,38,919/- disregarding the legal & factual matrix of the case

4. In the facts and circumstances of the case and law, the Learned Commissioner of Income Tax (Appeals) has erred in upholding the action of the Centralized Processing Centre (CPC); which had erred in denying exemption under the provisions of clause (10AA) of section 10 for an amount of Rs. 9,38,919/- without granting any opportunity of being heard to the Appellant.

5. The appellant craves leave to add, alter, delete or modify all or any of the above grounds of appeal. All the above grounds are without prejudice to each other.

Prior to amendment made vide Direct tax law (Amendment) Act, 1987- Part IV In section 10(10AA); the statute itself provided monetary limit for exemption in case of non-government employee [which was Rs. 30,000/-).

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This limit applicable to non-Government employees was time and again required to be raised as a result of the higher amount of exemption in the case of Central Government employees as a result of the recommendations of the Fourth Pay Commission.

Thus in order to avoid frequent changes in the statue w.r.t. monetary limits; it was provided that that the limit would be specified by the Central Government by way of a notification in the Official Gazette having regard to the limit applicable to the Central Government employees.

The relevant Assessment Year under consideration is AY 2020- 21 where the Appellant claimed exemption of Rs. 9,38,919/- u/s. 10(10AA) by taking the benefit of the enhanced monetary limit as provided vide Notification No.31 of 2023. The reason for seeking exemption pursuant to notification no. 31/2023 is that, the Central Government failed to notify the monetary limit from 2002 till the end of the relevant Assessment Year. There was no notification in place which was "having regard to the limit applicable to the Central Government employees" as required under clause (ii) of section 10(10AA).

The monetary limit was directly raised to Rs. 25,00,000/- in the year 2023 from Rs. 3,00,000/- which was effected in the year 2002. The Appellant sates that the Central Government ought to have issued notification as and when the salary of government employees were raised based on recommendation of pay commission. Even, the Hon'ble High Court of Delhi in the case of Kamal Kumar Kalia vs. UOI [2019] 111 taxmann.com 409 (Delhi); wherein it is stated as under: "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. This is so because over the decades, the pay-scales admissible to government servants, and even employees of the Public Sector 5 Balakram Hiranand Lohana, Mumbai.

Undertaking and Nationalised Banks and all others have been upwardly revised, keeping in view, the financial Moreover, the Appellant also wish to place on record an order passed u/s. 250 in the case of Kalish Chand Jain (Appeal No.: NFAC/2018- 19/10033574) where the CIT(A) has allowed the exemption beyond Rs. 3,00,000/- placing reliance on the decision in the case of Ram Charan Gupta vs. ITO (supra).

The Appellant pleads that he should not be treated differently when under same legal matrix; the exemption is allowed to another assessee.

Alternatively and without prejudice to the above contentions; it is also pleaded that the allowability of exemption u/s. 10(10AA) (ii) beyond Rs. 3,00,000/- is undisputed a subject mater of dispute and diverse views. Even, the CIT(A)s' have taken divergent views under same legal matrix. In such a case; making adjustment under section 143(1) is impermissible. Provisions of section 143(1) have restricted scope and matter which is subject matter of diverse views and which requires legal consideration would not fall within the purview of section 143(1)(a). It has been held in several judicial precedents that when the adjustment under section 143(1) is subject matter of dispute then no prima-facie adjustment can be made. Reliance is placed on the following:

(a) Commissioner of Income-tax vs. GVK Industries Ltd. [2023] 147 taxmann.com 281 (Telangana) [23-11-2022] ( b) CIT v. Manubhai M. Patel [2008] 296 ITR 143 (Guj.)

(c) Calcutta High Court in Modern Fibotex India Ltd. v. Dy. CIT [1995] 212 ITR 496

(d) Kluber Lubrication India (P.) Ltd. taxmann.com 161 (Bangalore (Bangalore - Trib.)[26-07-2024] VS. DCIT [2024] 166 Trib.)/[2024] 208 ITD 470 6 Balakram Hiranand Lohana, Mumbai.

Even otherwise, when there are conflicting views/decisions; the one in favour of the assessee should be followed as held by Hon'ble Surpeme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. 6. On the other hand, Ld. DR relied upon the orders passed by the revenue authorities.

7. We have given our thoughtful consideration and perused the materials available on record. This issue of deduction u/s. 10(10AA)(ii) is no more res-integra based on the decisions passed by Co-ordinate Bench of this Tribunal in the case of Govind Chhatwani Vs. CIT(Appeals) in dated 31-10- 2023 wherein it is held as follows:

"7. We have heard the rival contentions and perused the material placed on record. The bench noted that the apple of discord in this case that the assessee has received a sum of Rs. 17,68,479/- as leave encashment which was claimed in the return of income filed as exempt u/s 10(10AA) of the Act. The CPC and Id. CIT(A) contended that in the light of this specific notification being not issued the leave 3,00,000/- only whereas we note from the submission of the assessee that ncashment allowable up to Rs. the assessee has relied upon 7 Balakram Hiranand Lohana, Mumbai. the notification No. 31/2023/F.No. 200/3/2023-ITA-1 dated 24th May, 2023 and submitted that the revised limit of Rs. 25,00,000/- increased on account of leave salary is applicable and to be considered in the light of fact that government has issued this notification belatedly. The assessee has already claimed the leave salary as exemption the benefit should be given to the assessee. The similar issue has been decided by the bench in the case of Ram Charan Gupta in wherein the bench has already held as under:-

"8. We have heard the rival contentions and perused the material placed on record. The bench noted that the assessee relying the decision of Hon'ble Delhi High Court has issued a notice to the Union of India in the case of Kamal Kumar Kalia & Ors. Vs. Union of India & Ors in WP(C) 11846/2019 dated 08.11.2019 wherein the court has given following directions :-

"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. This is so because over the decades, the pay-scales admissible to government servants, and even employees of the Public Sector Undertaking and Nationalised Banks and all others have been upwardly revised, keeping in view, the financial growth in the country as well as on account of rising inflation. The last drawn salaries have increased manifold since time and notification issued under Clause (ii) of Section 10(10AA) was lastly issued, as taken note of hereinabove, on 31.05.2002. We therefore, issue notice to the respondents limited to this aspect.

9. Issue notice, learned counsel for the respondents accepts notice. Respondents should file counter affidavits be filed within six weeks. Rejoinder thereto, if any, be filed before the next date.

" 8.1 Recently the Central Board of Direct Taxes Suomotu revised the limit for deduction u/s 10(10AA) of the Act and the revised limit now stood at Rs. 25,00,000 as specified vide notification no. 8 Balakram Hiranand Lohana, Mumbai.

31/2023 issued by the ministry of finance. Since the leave encashment amount as claimed by the assessee is amount to Rs. 6,97,100/- which is below the revised limit of leave encashment exempt prescribed by the Board, the assessee is eligible to claim of deduction of said Rs. 6,97,100/-. Based on these observations the Id. AO is directed to allow the claim of the assessee u/s. 10(10AA) of the act within the revised limit as prescribed. In terms of these observations the appeal of the assessee is allowed."

On being consistent to the said finding, we held 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.

8. Further this decision is followed in the case of Devendra Kumar Gupta Vs. CIT(Appeals) in M.A. No. 49/JP/2023 dated 18-02-2025. Thus respectfully following the above decisions, the restricting the deduction u/s. 10(10AA) of Rs. 4,65,404/- made by the lower authorities are not sustainable in law. Therefore the same is liable to be deleted.

9. In the result, the appeal filed by the Assessee is hereby allowed.

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