PUDHUREDDIYUR RAJU KALAIMANI,HOSUR vs. ITO, WARD-1,, HOSUR

The core grievance of the assessee is that the Ld.CIT(A) erred in confirming the denial of exemption u/s.10(10AA) of the Act in respect of leave encashment of Rs.3,00,000/- received on resignation from employment.

Brief facts of the case are that the assessee is an individual, and resident filed his return of income for the A.Y.2017-18 on 03.08.2017, declaring total income of Rs.38,91,460/- from income from salary. The net salary income of Rs.42,57,204/- was arrived after reducing Rs.3.00 Lakhs on account of leave encashment claimed as exempt income. The said salary income was received from M/s.TE Connectivity India Pvt Ltd of Rs.35,92,631/- (after eligible deduction of Rs.3,27,348/- including Rs.3.00 Lakh of leave encashment) and Rs.6,66,773/- from L and W Construction Pvt ltd. The return of income was :-3-: ITA. No:1740/Chny/2025 processed u/s.143(1) of the Act on 21.03.2019 wherein the discrepancy was noted between the salary income declared in the return and the gross amount of Rs.45,45,519/- reflected in Form 26AS (after TDS). Accordingly, the salary income was adjusted to Rs.45,45,519/- leading to total income of Rs.41,79,770/- after deductions under Chapter VI-A, and a demand of Rs.1,16,570/- was raised along with interest u/s.234B and C totalling to Rs.42,335/-.

The assessee filed a rectification application u/s.154 on 11.01.2021 claiming exemption u/s.10(10AA) for leave encashment of Rs.3,00,000/- which was rejected by the Assessing Officer vide order dated 20.06.2023 on the ground that there is no mistake apparent from the records.

Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A). The Ld.CIT(A) has dismissed the appeal filed of the assessee and confirmed the order of Assessing Officer by passing an order dated 05.03.2025.

Aggrieved by the impugned order of the Ld.CIT(A), the assessee is in appeal before us.

The ld.AR submitted that the assessee has received the leave encashment from M/s.TE Connectivity India Pvt ltd after resigning from the job of Rs.3.00 Lakhs and claimed as exempt u/s.10(10AA), which is reflected in the Form 16 issued by the employer. However, the Form 26AS shows the entire gross salary and hence the CPC, Bengaluru has denied the exemption while processing the return of income u/s.143(1) and brought to tax the leave encashment. The Ld.AR submitted that the application filed by the assessee for rectification u/s.154 of the Act was also rejected by the CPC. The ld.AR argued that the amount received on account of leave encashment from the employer at the time of resignation is exempt u/s.10(10AA) of the Act and hence the action of the ld.CIT(A) in dismissing the appeal of the assessee is erroneous. Further,

Per contra, the Ld. DR submitted written submissions and contended that the assessee had merely resigned from one job and joined another employment during the same financial year. It was argued that resignation cannot be equated with retirement and, therefore, the leave encashment received by the assessee is not eligible for exemption u/s.10(10AA) of the Act.

The Ld. DR supported the orders of the lower authorities and prayed for dismissal of the appeal.

We have heard the rival submissions perused the material available on record and gone through orders of the authorities below along with the case laws relied on. Admittedly the assessee has resigned from his employment and received the leave encashment from his ex employer during the impugned A.Y. and also joined for new employment and earned salary income. The assessee has filed his return of income for the Assessment Year 2017-18 on 03.08.2017 declaring a total income of Rs.38,91,460/- under the head “Income from Salary”. The assessee declared gross salary of Rs.42,57,204/- after claiming exemption of Rs.3,00,000/- towards leave encashment u/s.10(10AA) of the Act. The salary income comprised of: • Rs.35,92,631/- from M/s. TE Connectivity India Pvt. Ltd. (after deductions of Rs.3,27,348/- including Rs.3,00,000/- of leave encashment), and • Rs.6,66,773/- from L & W Construction Pvt. Ltd.

The return was processed under Section 143(1) of the Act on 21.03.2019. While processing, CPC noticed a discrepancy between the salary income

Section 10(10AA) of the Act provides exemption in respect of leave encashment received by an employee “at the time of his retirement whether on superannuation or otherwise.” The expression “or otherwise” has been the subject matter of judicial interpretation. The Hon’ble Madras High Court in CIT v. R.J. Shahney (159 ITR 160) held that the expression “retirement whether on superannuation or otherwise” is of wide amplitude and includes cessation of employment on resignation. It was categorically held that leave encashment received by an employee on resignation is eligible for exemption u/s.10(10AA) of the Act, subject to statutory limits.

Similarly, the Hon’ble Bombay High Court in CIT v. D.P. Malhotra (229 ITR 394) held that resignation amounts to retirement for the purpose of Section 10(10AA) of the Act and exemption cannot be denied merely because the employee resigned and subsequently took up another employment. In the present case, it is an undisputed fact that: • The assessee resigned from M/s. TE Connectivity India Pvt. Ltd. Leave encashment of ₹3,00,000/- was received at the time of cessation • of employment; • The claim of exemption is supported by Form 16 issued by the employer.

The contention of the Revenue that joining another employment in the same year disentitles the assessee from exemption is devoid of merit. The statute does not impose any condition that the employee should not take up subsequent employment. What is relevant is the receipt of leave encashment at the time of cessation of employment.

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