PRADEEP KUMAR JAIN,JAIPUR vs. CIRCLE -1 JAIPUR, JAIPUR

This appeal by the Assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as "the learned CIT(A)"] dated 30.06.2024 arising out of the rectification order dated 01.11.2021 passed by the Assistant Director of Income Tax, Centralised Processing Centre, Bengaluru (hereinafter referred to as "the AO") under section 154 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for the assessment year 2019-20.

There is a delay of 406 days in filing this appeal before us. The impugned order was served on the assessee on 30.06.2024 and the appeal was filed on 11.10.2025. The assessee has filed an application for condonation of delay. In substance, the assessee states that the appeal before the learned CIT(A) had been entrusted to a tax consultant, Shri Rajesh Gupta, who neither informed the assessee of the outcome nor filed any further appeal; that the assessee, who is not well versed with the provisions of the Act, had acted in good faith on the advice of that consultant; and that it was only upon receiving communication of a large outstanding demand, and finding no response from the consultant, that the assessee consulted another Chartered Accountant, who advised that the remedy lies in an appeal before this Tribunal. The application relies on the judgment of the Hon'ble Supreme Court in Concord of India Insurance Co. Ltd. v. Nirmala Devi AIR 1979 SC 1666 for the proposition that a litigant who acts on the advice of a professional should not ordinarily be penalised for the professional's lapse. Having considered the application, we find that the explanation is bona fide and is not a device to cover any deliberate inaction. The lapse of a professional engaged by a lay assessee has consistently been treated as sufficient cause. Following the liberal and justice oriented approach laid down by the Hon'ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC), we are satisfied that there was sufficient cause for the delay. Accordingly, the delay is condoned and the appeal is admitted for hearing.

The grounds of appeal raised by the Assessee before us in the memorandum of appeal in Form No. 36 read as under:

Briefly stated, the facts of the case are that the assessee, an individual, retired during the previous year relevant to the year under consideration from the service of the Reserve Bank of India (i.e. an employer other than the Central Government or a State Government) and received Rs 22,47,870 as the cash equivalent of the earned leave at his credit. He filed his return of income on 08.08.2019 declaring a total income of Rs 50,38,570 after claiming the entire leave encashment as exempt under section 10(10AA) of the Act. The return was processed under section 143(1) of the Act and the claim was allowed as made. Thereafter, the AO passed the order dated 01.11.2021 under section 154 of the Act restricting the exemption to Rs 3,00,000 and adding the balance of Rs 19,47,870 to the income from salary, thereby computing the total income at Rs 69,86,440 and raising a demand of Rs 8,09,340. The reasons recorded by the AO read as under:

Before the learned CIT(A), the assessee contended that section 10(10AA)(ii) of the Act prescribes four limbs for computing the exemption, namely, the amount actually received, the earned leave not exceeding thirty days for every year of service, ten months' average salary, and the limit notified by the Central Government "having regard to the limit applicable in this behalf to the employees of that Government"; that the first three limbs yield Rs 22,47,870, being ten months' average salary of Rs 2,24,787 per month; that the notified limit of Rs 3,00,000 was fixed in 2002 by reference to the then highest pay of Rs 30,000 per month of a Central Government employee and had not been revised though the highest pay had since risen manifold; and that the limit should, therefore, be read as the amount currently receivable by the highest paid Central Government employee. The learned CIT(A) rejected the contention and upheld the order of the AO with the following reasoning:

Before us, the Assessee appeared in person and reiterated the submissions made before the learned CIT(A). It was submitted that the exemption is conferred by the statute and the notification is only the instrument by which the Central Government quantifies, from time to time, the limit "having regard to" what its own employees receive; that the Government revised the limit regularly till 2002 and then failed to do so for 21 years although the pay of its own employees was revised by the Sixth and Seventh Central Pay Commissions; that the Hon'ble Delhi High Court in Kamal Kumar Kalia v. Union of India [2020] 268 Taxman 398 (Delhi) found this grievance prima facie justified; that the Central Government has now, by Notification No. 31/2023 dated 24.05.2023, specified Rs 25,00,000 as the limit, which is nothing but ten months of the highest pay of Rs 2,50,000 per month under the Seventh Central Pay Commission; and that the amount received by the assessee is within that limit. Reliance was placed on the decisions of the co- ordinate Benches in Ram Charan Gupta v. ITO (ITA No. 408/JPR/2022, order dated 27.06.2023), Govind Chhatwani v. CIT(A) [2026] 187 taxmann.com 389 (Jaipur - Trib.), Suman Kumar Jha v. DCIT [2025] 173 taxmann.com 280 (Ahmedabad - Trib.), in which the enhanced limit was applied to assessment years prior to 2023-24.

The learned Departmental Representative (hereinafter referred to as "the learned DR") supported the orders of the authorities below and placed strong reliance on the order of the Chandigarh Bench of the Tribunal in Arvind Kumar Jolly v. ITO (ITA No. 952/Chd/2025, order dated 08.10.2025). It was submitted that section 10(10AA)(ii) of the Act draws a clear line between Government employees and others; that for the latter the exemption is subject to the limit notified by the Central Government; that the only notification in force for the year under consideration was that dated 31.05.2002 fixing the limit at Rs 3,00,000; that Notification No. 31/2023 is, by its own terms and by the Press Release dated 25.05.2023, effective from 01.04.2023 and is prospective; that the assessee, having retired before that date, cannot claim its benefit; that the Chandigarh Bench has held that Ram Charan Gupta (supra) did not examine the temporal applicability of the notification and does not lay down any binding proposition that the notification operates retrospectively. The learned DR also relied on Kamal Kumar Kalia (supra) for the proposition that employees of public sector undertakings and banks cannot claim parity with Government employees.

We have heard the rival submissions and perused the material on record, including the orders of the co-ordinate Benches cited before us, the notifications issued under section 10(10AA)(ii) of the Act from time to time and the Press Release dated 25.05.2023. The dispute lies in a narrow compass. It is not in dispute that the assessee is not an employee of the Central Government or of a State Government, that he received Rs 22,47,870 on retirement as the cash equivalent of earned leave at his credit, that this amount represents ten months' average salary computed in the manner prescribed, and that the AO has applied no limb of section 10(10AA)(ii) of the Act other than the monetary limit. The sole question, therefore, is what the monetary limit under section 10(10AA)(ii) of the Act is in relation to the assessee.

Section 10(10AA) of the Act, so far as material, reads as under:

How the Central Government has understood and exercised this power is evident from the notifications issued under section 10(10AA)(ii) of the Act, which are on record and are summarised below:

Two things follow from the above pattern.

The notification of 31.05.2002, which the Revenue treats as the governing limit for the year before us, itself applied to employees who had retired after 01.04.1998, that is, more than four years before it was issued. Retrospective operation is, therefore, not an exception in this field; it is the settled method by which the Central Government has brought the ceiling in line with the pay of its own employees after each pay revision. The premise underlying the Revenue's argument, that a notification under section 10(10AA)(ii) of the Act can operate only from the date of its issue and only for employees retiring thereafter, is contradicted by the Central Government's own practice over three decades.

The figures in the notifications are not arbitrary. The limit of Rs 3,00,000 fixed in 2002 corresponded to ten months of the then highest pay in the Central Government of Rs 30,000 per month. This is not a matter of inference. The Hon'ble Finance Minister, in paragraph 151 of the Budget Speech delivered on 01.02.2023, stated as under:

The notification of 24.05.2023 confirms this understanding. Unlike every one of its predecessors, it does not confine the enhanced limit to employees retiring after a specified date. For the ease of reference, a copy of the same is reproduced below:

In Kamal Kumar Kalia (supra), a Division Bench of the Hon'ble Delhi High Court, while rejecting the challenge to the classification made by section 10(10AA) of the Act, observed in paragraph 8 as under:

We now turn to the order of the Chandigarh Bench in Arvind Kumar Jolly (supra), on which the learned DR has placed strong reliance. The Chandigarh Bench held in paragraph 9.2 that "the subsequent notification dated 24.05.2023 enhancing the limit to Rs.25,00,000 has expressly been made applicable with effect from 01.04.2023. The assessee, having retired prior thereto, cannot claim the benefit of the subsequent notification", and in paragraph 9.5 that the Jaipur Bench in Ram Charan Gupta (supra) "had not examined the specific issue as to whether the notification could be given retrospective effect".

With great respect, we are unable to follow that order, for the following reasons. First, the order proceeds on the footing that the date of the assessee's retirement vis a vis the date of the notification is decisive. The 13 Explanatory Memorandum describes its operation as retrospective. Neither the Explanatory Memorandum nor the pattern of the earlier notifications, each of which operated retrospectively by reference to the date of retirement, was placed before the Chandigarh Bench. Secondly, the order records in paragraph 9.5 that the notification "was issued on 1 April 2023", whereas it was issued on 24.05.2023 and was deemed to have come into force from 01.04.2023, a feature which itself shows retrospective operation. Thirdly, the Budget Speech, which discloses that the enhanced figure was fixed "in line with the increase in government salaries", and the arithmetic which links Rs 25,00,000 to the pay revised with effect from 01.01.2016, were not considered. Fourthly, the order treats the relief granted in Ram Charan Gupta (supra) as "fact- based relief", whereas that order, and the orders following it, rested on the statutory touchstone in section 10(10AA)(ii) of the Act, the observations of the Hon'ble Delhi High Court in Kamal Kumar Kalia (supra) and the notification of 24.05.2023.

There is a further consideration. The view that the enhanced limit applies to leave encashment received before 01.04.2023 has been consistently taken by this Bench since 2023, in many cases including Ram Charan Gupta (supra), Govind Chhatwani (supra). The same view has been taken by the Agra, Ahmedabad, Delhi, Mumbai, Pune, Indore and Chennai Benches of the Tribunal, including in Vijay Kumar Jain v. ITO (ITA No. 175/Agr/2022, order dated 18.06.2025), Suman Kumar Jha (supra), Govardhan Deepchand Bhambhani v. ITO [2025] 177 taxmann.com 220 (Ahmedabad - Trib.), Gyanendra Panwar v. ADIT, CPC [2026] 185 taxmann.com 831 (Delhi - Trib.) and Karthikeyan v. ITO [2026] 189 taxmann.com 396 (Chennai - Trib.). The Revenue has not brought to our notice any judgment of a High Court reversing the view consistently taken by this Bench, nor has it sought the constitution of a Special Bench.

The assessees who come before this Bench are entitled to expect that an identical question will receive an identical answer. We have found no reason to doubt the correctness of the view consistently taken by this Bench; on the contrary, the material placed before us in this appeal, in particular the earlier notifications, the Explanatory Memorandum and the Budget Speech, reinforces it. Even if the matter were to be regarded as one on which two reasonable views are possible, it is settled by the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) that the view which favours the assessee is to be adopted.

We make it clear that we do not accept the assessee's further contention, urged before the learned CIT(A), that the fourth limb of section 10(10AA)(ii) of the Act is "null and void" and that the exemption is to be computed on the first three limbs alone. The monetary limit is an integral part of the provision enacted by Parliament, and no authority under the Act can disregard it. The assessee succeeds not because the limit is to be ignored but because the limit, determined in accordance with the statutory touchstone and as now specified by the Central Government, is Rs 25,00,000, and the amount received by him is within it. We also note that neither the AO nor the learned CIT(A) has found that the assessee received any leave encashment in an earlier year so as to attract the second proviso to section 10(10AA)(ii) of the Act, and no such case has been set up before us.

In the light of the above discussion, we hold that the assessee is entitled to exemption under section 10(10AA)(ii) of the Act of the entire amount of Rs 22,47,870 received by him as leave encashment on retirement. The orders of the authorities below restricting the exemption to Rs 3,00,000 are set aside, and the AO is directed to allow the exemption as claimed and to delete the addition of Rs 19,47,870 made to the income from salary. The demand raised and the interest charged shall be recomputed accordingly. The ground raised by the assessee is allowed.

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