PRAKASH DHONDIRAM GAVALI ,KOLHAPUR vs. ITO WD-1 , RATNAGIRI

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “SMC”, PUNE BEFORE SHRI DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1214/PUN/2026 िनधा�रण वष� / Assessment Year : 2021-22 Prakash Dhondiram Vs. ITO, Ward-1, Ratnagiri. Gavali, 411, Nerli Tamgaon, Main Road, Tamgaon, Kolhapur- 416234. PAN : AFVPG2619B Appellant Respondent Assessee by : Shri Jaykumar Pravin Khatavkar Revenue by : Shri Arvind Renge (Virtual) Date of hearing : 11.06.2026 Date of pronouncement : 21.07.2026 आदेश / ORDER PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 16.01.2026 passed by Ld. Addl./JCIT(A)-2, Gurugram [‘Ld. CIT(A)’] for the assessment year 2021-22. 2. The appellant has raised the following grounds of appeal :- “1. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in law and on merits in confirming the addition of Rs.4,09,297/- on account of disallowance of exemption under Section 10(10AA) of the Income Tax Act in respect of leave encashment received on retirement.

2 ITA No.1214/PUN/2026 2. On the facts and in the circumstances of the case, the Learned CIT(A) erred in law and on merits in stating that the disallowance of exemption under Section 10(10AA) on account of leave encashment on retirement in the intimation passed under Section 143(1) is not a mistake apparent from record under Section 154 of the Income Tax Act and therefore not rectifiable under section 154 of the Act. 3. The appellant craves leave to amend, modify or add to any of the above grounds of appeal and/or to take any additional ground of appeal, if necessary.” 3. Facts of the case, in brief, are that the assessee is an individual who joined as employee of the Department of Telecommunication, Central Government of India on 06.04.1984. Subsequently, on 01.10.2000, the assessee was absorbed in Bharat Sanchar Nigam Limited (BSNL, which is public sector undertaking) and on 31.05.2020 retired from BSNL. At the time of retirement, the assessee was paid leave encashment amounting in all to Rs.6,48,620/-, which was segregated by his employer BSNL in two parts as under :- (i) Leave Encashment for the period of service provided in Department of Telecommunication as Central Government Employee – Rs.4,15,117/-. (ii) Leave Encashment for the period of service provided in BSNL as employee of public sector undertaking – Rs.2,33,503/-.

3 ITA No.1214/PUN/2026 4. Accordingly, in its return of income the assessee claimed exemption u/s 10(10AA) of the IT Act with regard to above leave encashment. CPC vide order dated 22.03.2022 restricted the exemption u/s 10(10AA) of the IT Act to only Rs.3,00,000/-. Being aggrieved, the assessee filed rectification application u/s 154 of the IT Act on 12.08.2025 before CPC, however, CPC vide order dated 20.08.2025 rejected the rectification application and issued same intimation order as it issued earlier on 22.03.2022. 5. Being aggrieved with the above order dated 20.08.2025, the assessee preferred an appeal before Ld. CIT(A). Since the assessee remained absent, Ld. CIT(A) dismissed the appeal filed by the assessee by observing as under :- “4.6 It is an undisputed fact that the appellant was absorbed in BSNL w.e.f. 01.10.2000 and retired from BSNL on 31.05.2020. BSNL is a Public Sector Undertaking and not a department of the Central Government. Therefore, at the time of retirement, the appellant was a non-government employee. 4.7 In this regard, reliance is placed on the guidelines issued by BSNL vide letter No. 1001-04/2011-12/Taxation/BSNL/LE/176 dated 04.05.2012, issued after due consultations, which clearly state as under: 4.8 The full amount received by a retiring absorbed employee as cash equivalent of leave salary in respect of the period of earned leave at his credit for the Government service period, calculated as per accepted norms applicable to Government service, shall be eligible for full exemption under section 10(10AA)(i) of the Income Tax Act, 1961. 4.9 Leave encashment pertaining to the period of service rendered after absorption in BSNL (i.e., PSU service) shall be governed by section 10(10AA)(ii) and shall be eligible for exemption only up to the

4 ITA No.1214/PUN/2026 monetary limit prescribed therein (Rs. 3,00,000), and the balance amount, if any, shall be taxable. 4.10 From the above, it is clear that exemption under section 10(10AA) is to be apportioned between: Government service period (fully exempt), and PSU service period (exempt only up to the statutory limit). The Assessing Officer has followed the statutory provisions of section 10(10AA) read with the applicable guidelines and has correctly treated the appellant as a non-government employee for the period of service rendered in BSNL. The adjustment made under section 154 is in accordance with law and cannot be said to be erroneous. 4.11 The claim of full exemption merely on the basis of Form No.16 issued by the employer cannot override the clear provisions of the Act. Rectification under section 154 has rightly been carried out to correct a mistake apparent from record. In view of the facts discussed above, the action of the Assessing Officer in restricting the exemption of leave encashment in accordance with section 10(10AA) of the Income Tax Act, 1961 is found to be correct and in consonance with law. No infirmity is found in the order passed under section 154. 5. Accordingly, the appeal filed by the appellant is dismissed.” 6. It is the above order against which the assessee is in appeal before this Tribunal. 7. We have heard Ld. Counsels from both the sides and perused the material available on record including the written submission, detailed salary slip and certificate of joining service as Central Government Employee furnished by the assessee. In this regard, we find that admittedly the assessee joined service on 06.04.1984 in Department of Telecommunication as Central Government Employee and subsequently when Bharat Sanchar Nigam Limited came into existence on 01.10.2000, the assessee was transferred and absorbed in Bharat Sanchar Nigam Limited which is a public sector

5 ITA No.1214/PUN/2026 undertaking. We further find that when the assessee retired leave encashment of Rs.6,48,620/- was paid to him out of which Rs.4,15,117/- pertains for the period of service as Central Government Employee in Department of Telecommunication and Rs.2,33,503/- pertains for the period of service as public sector undertaking employee in Bharat Sanchar Nigam Limited and this bifurcation was specifically mentioned in the payslip issued by Bharat Sanchar Nigam Limited. According to the assessee, leave encashment of Rs.4,15,117/- was exempted u/s 10(10AA)(i) of the IT Act being Central Government Employee and leave encashment of Rs.2,33,503/- was exempted u/s 10(10AA)(ii) of the IT Act being employee other than the Central and State Government since less than Rs.3,00,000/-. However, we find that the CPC allowed exemption u/s 10(10AA)(ii) of the IT Act of Rs.3,00,000/- only and taxed the balance amount as taxable income in the hands of the assessee. The position remained same even after filing of rectification application u/s 154 of the IT Act before the CPC. We are surprised to see that when the matter reached before Ld. CIT(A), the appeal was dismissed even after admitting the legal position in para 4.8 & 4.9 of his order that leave encashment as Central

6 ITA No.1214/PUN/2026 Government Employee shall be exempt in full and leave encashment as public sector undertaking employee shall be exempt upto Rs.3,00,000/- only. 8. We find support from coordinate bench decision passed in the case of Tanaji Kedari Sapkal vs. ITO in ITA No.2478/PUN/2024 order dated 07.01.2025 wherein the Tribunal under identical facts allowed the appeal of the assessee by observing as under :- “6. I have heard the ld. Departmental Representative and perused the record placed before me. I have also gone through the contents of the Rectification application filed by the assessee before the lower authorities and also the proof of appointment of the assessee as Deputy General Manager with Department of Telecommunications, Maharashtra Circle vide order dated 31.10.1983. The assessee has given the bifurcation of the Leave Encashment of Rs.10,87,092/- which comprises of Rs.8,35,256/- received from Department of Telecommunications (Govt. of India) which is eligible for exemption u/s.10(10AA) of the Act and the remaining amount of Rs.2,51,836/- received from BSNL. While filing the application u/s.154 of the Act, the assessee has enclosed the letter dated 04.05.2012 regarding Leave Encashment amount, issued by Taxation section of BSNL, New Delhi. Copy also provided of the pay-slip regarding Leave Encashment period (DOT & BSNL) issued by BSNL which indicates the receipt of Leave Encashment for DOT & BSNL period separately. These facts remain uncontroverted at the end of the Revenue authorities at any stage. Section 10(10AA)(i) of the Act applies to the Central and State employees and section 10(10AA)(ii) to Non-Government employees. Leave Encashment for Central/State Govt. is fully exempt and therefore the amount of Rs.8,35,256/- received by the assessee from Department of Telecommunications (Govt. of India) deserves to be exempt from taxation u/s.10(10AA)(i) of the Act. As far as the remaining of Rs.2,51,836/- is concerned, the same being less than Rs.3.00 lakh is also exempt u/s.10(10AA)(ii) of the Act. Therefore, the impugned order denying exemption u/s.10(10AA) of the Act is reversed. Grounds of appeal raised by the assessee are allowed. 7. In the result, the appeal of the assessee is allowed.”

7 ITA No.1214/PUN/2026 9. Respectfully following the above decision of the Tribunal in the case of Tanaji Kedari Sapkal (supra), we allow the grounds of appeal raised by the assessee and accordingly, direct CPC to delete the addition of Rs.4,09,297/-. 10. In the result, the appeal filed by the assessee is allowed Order pronounced on this 21st day of July, 2026. Sd/- Sd/- (DR. DIPAK P. RIPOTE) (VINAY BHAMORE) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 21st July, 2026. Sujeet/DOC Sujeet Kumar Digitally signed by Sujeet Kumar Sharma Sharma Date: 2026.07.22 12:04:00 आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : +05'30' अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Addl./JCIT(A)-2, Gurugram. 4. The Pr. CIT/CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “SMC” ब�च, 5. पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.