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Facts
The assessee claimed exemption for Gratuity and Leave Encashment, arguing his service with MSEB (State Govt.) and MSEDCL (PSU) entitled him to proportionate benefits. The AO disallowed this, treating him as not a government employee. The CIT(A) upheld the AO's order.
Held
The Tribunal, relying on a previous decision in Mohan Shriniwas Bhise's case, held that the assessee is entitled to proportionate exemption for Gratuity and Leave Encashment based on his service tenure with MSEB and MSEDCL. The issue was remitted to the AO for verification and calculation.
Key Issues
Whether the assessee is eligible for proportionate exemption on Gratuity and Leave Encashment for service rendered with a State Government entity and a PSU, and if so, how it should be calculated.
Sections Cited
250, 143(3), 143(3A), 143(3B), 10(10), 10(10AA), 10(10)(ii), 4(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “SMC”, PUNE
Before: DR.MANISH BORAD
आदेश / ORDER
The captioned appeal at the instance of assessee pertaining to A.Y. 2018-19 is directed against the order dated 21.11.2023 of National Faceless Appeal Centre (NFAC), Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment Order dated 10.02.2021 passed u/s.143(3) r.w.s143(3A) & 143(3B) of the Act.
Registry has informed that the appeal before this Tribunal is time barred by 355 days. Assessee has filed an application for condonation of delay stating the reasons and the same read as follows :
“I was in receipt of order u/s 250 dated 21-11-2023 passed by CIT Appeals NFAC through my e-filing account. I have viewed the order some days after the date of uploading on the portal.
The income determined by the AO at Rs.40,45,090/- against the income returned at Rs.7,88,180/-. The difference between the income returned and income determined is attributable to disallowance of exempt income claimed by the assesse. I have put in continuous service of 27 years initially with MSEB and 12 years with MSCDCL. Thus I was given to understand that the former phase of service was with Govt of Maharashtra and later part with the Govt Companies.
With this understanding I have claimed certain exemptions against pensionary benefits received on account of Death cum Retirement Gratuity and leave encashment salary.
I used to file my Returns of Income along with my colleagues through a tax consultant. The claims were made by the retired employees which were eventually allowed by the Deptt. However in my case the AO disallowed the claims on selective basis as my case was selected for scrutiny.
However I was guided by tax consultants in regard to further course of action to be taken after receipt of order of the AO. The decision of CIT Appeals has dismissed my appeal vide above referred order. Subsequent to receipt of order I was advised to wait for some time as some ongoing litigations were in progress and pending as to the status of services of MSEB employees like me. I was also appraised of the fact that Hble HC Delhi expressed some sympathy stating that the grievance of the petitioner with regard to exemption limit under clause (ii) of section 10(10AA) not being raised since 1998, appears to be justified. The leave encashment salary exemption was enhanced from 3 lakhs to 25 lakhs after a span of 20 years and the same need sympathetic consideration. Hence the concerned persons retired between the existence of limit of 3 lakhs to the 1 April of 2023 from when the exemption limit was enhanced to 25 lakhs, are deprived of the inflation effect and financial growth of the country and had to pay more income tax. The ongoing litigation is in respect of Wirt Petition No 11846 of 2019. The addl affidavit is to be filed by the Respondent No.2. The last hearing took place on 28th October and the matter directed to be posted on 15-04-2025. The copy of the HC proceedings are enclosed for kind perusal.
In view of the above circumstances I was advised not to file the appeal to Tribunal but wait for the outcome of the Writ Petition.
However as advised by other Tax Professional I am filing the appeal belatedly. An affidavit for delay condonation is also being submitted separately. Thus consider the peculiar circumstances under which I have not filed the appeal to ITAT. And condone the delay and admit my appeal.”
Having heard both the sides and perusing the averments made in the condonation application, I am satisfied that due to ‘reasonable cause’ assessee failed to file the appeal within the stipulated time. I therefore condone the delay of 355 days in filing the appeal and admit the appeal for adjudication by placing reliance on the judgments of Hon’ble Supreme Court in the case of Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. reported in (1987) 2 SCC 107 and in the case of Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 (2025 INSC 382).
Though the assessee has raised grounds of appeal but the grievance is only revolving around the additions made by ld. Assessing Officer towards taxable Gratuity at Rs.15,29,260/- and taxable Leave Encashment at Rs.17,27,648/-.
Facts in brief are that the assessee is an individual and filed return for A.Y. 2018-19 on 07.07.2018 declaring income of Rs.7,88,180/-. Case selected for Complete Scrutiny after valid serving of notices u/s.143(2) and 142(1) of the Act. During the year, assessee retired from Maharashtra State Electricity Distribution Company Limited (in short ‘MSEDCL’) undertaking of Govt. of Maharashtra on 31.07.2017 and retirement benefit was received. Gratuity amount of Rs.25,29,260/- and Leave Encashment of Rs.20,27,648/- was claimed as exempt u/s.10(10) and 10(10AA) respectively, claiming himself to be a Government Employee. Ld. Assessing Officer after going through the details filed by the assessee came to the conclusion that assessee is not a Government employee and therefore not eligible for the exemption u/s.10(10) and 10(10AA) of the Act. Ld. Assessing Officer allowed the benefit of tax free Gratuity at Rs.10.00 lakh and Rs.3.00 lakh for the Leave Encashment and has made the addition of Gratuity at Rs.15,29,260/- and Leave Encashment at Rs.17,27,648/-.
Aggrieved assessee preferred appeal before ld.CIT(A) but failed to succeed. Now the assessee is in appeal before this Tribunal.
Ld. Counsel for the assessee submitted that the assessee joined the services of Maharashtra State Government by joining with Maharashtra State Electricity Board (MSEB) on 29.06.1978. His total period of service with the State Government was for 27 years from 29.06.1978 to 31.05.2005 and remaining period with MSECDL (Public Sector Undertaking) for 12 years from 01.06.2005 to the date of retirement, i.e. 31.07.2017. Placing reliance on the judgment of this Tribunal in the case of Mohan Shriniwas Bhise Vs. ITO reported in (2024) 168 taxmann.com 409 (Pune-Trib.), Ld. Counsel submitted that the assessee deserves the proportionate benefit of exemption for the period of service completed with the State Government and for the remaining period benefit of tax free Gratuity as well as tax free Leave Encashment as per the limits prescribed should be allowed. As per the details mentioned in the working of Gratuity and Leave Encashment, out of the total Gratuity of Rs.25,29,260/-, for services rendered with MSEB the proportionate exempt Gratuity works out to Rs.17,51,026/- and the remaining amount of Gratuity at Rs.7,78,294/- being less than the tax free limit of Rs.10.00 lakh also deserved to be not taxable. So far as Leave Encashment of Rs.20,27,648/- is concerned, for the services rendered with MSEB the proportionate amount works out to Rs.14,03,756/- which is claimed as exempt and for the remaining services rendered with MSEDCL the amount comes to Rs.6,23,892/- assessee deserves the benefit of deduction at Rs.3.00 lakh and the remaining amount will be sustained as addition. He further submitted that for necessary verification of all these details, the issue may be restored to the file of Ld. Jurisdictional Assessing Officer.
On the other hand, ld. Departmental Representative supported the order of ld.CIT(A).
I have heard the rival contentions and perused the record placed before me. During the year under consideration, assessee has received Gratuity and Leave Encashment as part of his retirement benefits. Assessee has rendered service for 27 years with MSEB and 12 years with MSEDCL. Assessing Officer. Ld. Assessing Officer allowed the benefit of tax free Gratuity at Rs.10.00 lakh and Rs.3.00 lakh for the remaining amount he made addition on the ground that the assessee is not a Government Employee and therefore not eligible for the exemption claimed u/s.10(1) and (1010AA) of the Act. Ld. Counsel for the assessee advanced his arguments stating that assessee deserves to get the proportionate benefit of exemption of the amounts received as Gratuity and Leave Encashment for the services rendered with MSEB as a State Government Employee and has placed the following working :
Total Amount claimed as Proportionate Threshold limit Amount to Gratuity exempt amount for be taxed received u/s.10(1)/10(10AA) the services for the services rendered rendered with with MSEDCL MSEB Gratuity Rs.25,29,260 Rs.17,51,026/- Rs.7,78,234/- Rs.10,00,000/- Nil Leave Rs.20,27,648 Rs.14,03,756/- Rs.6,23,892/- Rs.3,00,000/- Rs.3,23,892/- Encashment
In support of his arguments, Ld. Counsel for the assessee placed reliance on the decision of this Tribunal in the case of Mohan Shriniwas Bhise (supra) wherein the Tribunal dealing with very same issue has held as under :
“7. We have heard the Ld. Representatives of the parties and perused the records. We have also perused the various judicial precedents relied upon by the Ld. AR as well as Ld. DR. Considering the totality of the facts and judicial precedents cited above on the issue relating to claim of exemption for retirement gratuity and leave encashment, in our considered view, the alternate plea of the assessee is acceptable. The facts are not in dispute. The assessee was an employee of the State Government ie. Maharashtra State Electricity Board and his employment was subsequently transferred to PSU ie. Maharashtra State Electricity Transmission Co. Ltd. incorporated under the Companies Act in June, 2005. He attained superannuation on 30.11.2018. Perusal of the chart submitted by the Ld. AR (reproduced above) reveals that the assessee joined Maharashtra State Electricity Board on 02.07.1981 and he retired on 30.11.2018 from Maharashtra State Electricity Transmission Co. Ltd. Out of his total service tenure of about 37 years, his tenure with Maharashtra State Electricity Board was about 24 years and with Maharashtra State Electricity Transmission Co. Ltd. was about 13 years. Accordingly, the assessee is entitled to claim exemption for retirement gratuity and leave encashment received by him at the time of superannuation on the proportionate/prorata basis based on his employment tenure with the State Government ie. Maharashtra State Electricity Board and his employment tenure with PSU ie. Maharashtra State Electricity Transmission Co. Ltd. For his employment tenure with the State Government, he should be entitled to claim full exemption of the proportionate amount of gratuity i.e. Rs.20,36,601/- and the exemption with respect to the balance amount of Rs.11,49,579/- shall be available to him as per the prescribed limits under the provisions of section 10(10)(ii) of the Act. The assessee has contended before us that the balance amount of retirement gratuity of Rs.11,49,579/- is also eligible for full exemption as it is fully covered within the limit laid down as per section 4(3) of the Payment of Gratuity Act, 1972 (as amended). With respect to the claim of exemption for leave encashment amounting to Rs.23,99,740/-full exemption shall be available in respect of the proportionate amount of Rs.15,33,910/- and for the balance of Rs.8,65,830/- the assessee shall be entitled to claim exemption to the extent of Rs.3,00,000/- only and the remaining amount of Rs.5,65,830/- shall be taxable. This view finds support by the decision of the Co-ordinate Bench of the Pune Tribunal in the case of Adinath Vasantrao Wandhekar (supra) (Pages 127 to 132 of Paper Book-l refers). However, the present facts need verification.
Accordingly, we set aside this issue to the file of Ld. AO for verification of the details/calculation submitted by the assessee and allow the claim of exemption for retirement gratuity and leave encashment received by the assessee at the time of his superannuation on proportionate basis, as per law keeping in view his employment tenure with Maharashtra State Electricity Board and Maharashtra State Electricity Transmission Co. Ltd. The assessee shall co-operate fully before the Ld. AO and provide requisite details/explanation as may be required/called for in support of his claim. We order accordingly.”
From going through the above finding of this Tribunal, I find that the same is squarely application on the facts of the instant case. Assessee deserves to get proportionate benefit for the period of services rendered to the State Government, i.e. MSEB from 29.07.1978 to 31.05.2005. Since the details of working provided by the assessee have not been verified by the ld. Jurisdictional Assessing Officer, the issue is remitted back to the file of ld. JAO for carrying out necessary verification and examination of the details. Ld. JAO shall afford reasonable opportunity of hearing to the assessee and allow the proportionate benefit to the assessee. Effective grounds of appeal raised by the assessee are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on this 23rd day of July, 2025.