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Facts
The assessee, an individual who retired from service, claimed an exemption of Rs. 10,54,799 for leave encashment received. The Assessing Officer (AO) restricted this exemption to Rs. 3,00,000, a decision upheld by the CIT(A). The assessee challenged this, citing a revised limit of Rs. 25,00,000 notified on 24.05.2023.
Held
The Tribunal held that the revised limit for leave encashment exemption of Rs. 25,00,000, effective from 24.05.2023, is applicable. Since the assessee's claim of Rs. 6,97,100 (corrected from 10,54,799 in the facts) falls within this revised limit, the AO is directed to allow the claim.
Key Issues
Whether the revised higher limit for leave encashment exemption, notified retrospectively, applies to the assessment year 2019-20, and if the assessee is eligible for the full amount claimed within this revised limit.
Sections Cited
10(10AA), 154, 143(1), 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No.1024/JPR/2025
fu/kZkj.k o"kZ@Assessment Years : 2019-20 Nanu Lal Meena cuke The ITO, 64, Janakpuri Colony Sanganer, Vs. Ward-1(3), Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACLPM3045Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rohan Sogani, C.A. (through VC) jktLo dh vksj ls@ Revenue by : Shri Gautam Singh Choudhari, Addl. CIT a lquokbZ dh rkjh[k@ Date of Hearing : 09/10/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 14/10/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM Appellant-assessee, who claims to have got superannuated has challenged order dated 02.05.2025, passed by Learned CIT(A), whereby his appeal filed there, while challenging order dated 01.11.2021, passed u/s 154 of the Income Tax Act (hereinafter referred to as “the Act”), has been dismissed.
2. The impugned order is dated 02.05.2025. Present appeal came to be presented on 14.07.2025 raising therein the following grounds of appeal:-
Nanu Lal Meena, Jaipur. “1. In the facts and circumstances of the case and in law, Id. CIT(A)/National Faceless Appeal Centre ("NFAC") has erred in confirming the action of Id. AO(CPC) in restricting the exemption u/s 10(10AA) of the IT Act, 1961 to the extent of Rs. 3,00,000. The action of the Id. CIT(A)/NFAC is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by allowing the entire amount of exemption of Rs. 10,54,799 claimed by the assessee in his return of income.
2. The assessee craves his right to add, amend or alter any of the grounds on or before the hearing.”
The brief fact of the case are that the appellant is an individual who retired from service during the relevant year. The assessee filed his return of income u/s 139(1) on 23.07.2019 declaring total income of Rs 10,54,799. The assessee claimed exemption of Rs 10,54,799 u/s 10(10AA)(ii) of the Income Tax Act, 1961, being the amount of leave encashment received upon retirement. The return of income was processed by Id. AO(CPC) under section 143(1) and Id. AO(CPC) restricted the leave encashment exemption to Rs. 3,00,000 disallowing the balance and raising a demand against the appellant. The Appellant filed an application u/s 154 against the said intimation contending that the full amount of leave encashment to be exempt. Ld. AO(CPC) did not accept the same and issued Intimation u/s 154 wherein leave encashment exemption was restricted to Rs. 3,00,000.
Aggrieved, the Appellant has now filed the present appeal before the Hon'ble ITAT, Jaipur Bench. The Ld. CIT(A) has not Nanu Lal Meena, Jaipur. considered the plea of the assessee that notification no. 31/2023/F No. 200/3/2023-ITA-1 dated 24.05.2023 was effective from April, 2023 and therefore, the claim of the assessee for the assessment year 2019-20 was not accepted.
Aggrieved from the above order of the ld. CIT(A) the assessee referred the present appeal on the grounds as already apropos to the grounds so raised the Ld. AR for the assessee filed following written submission:- “GROUND NO 1 RESTRICTION OF LEAVE ENCASHMENT EXEMPTION TO RS 3,00,000 1. ASSESSING OFFICER AND NATIONAL FACELESS APPEAL CENTRE Ld. AO (CPC) restricted the exemption of leave encashment to Rs 3,00,000 as against Rs 10,54,799 claimed by the assessee in his return of income. Ld. CIT(A)/NFAC held that the case of the assessee pertained to AY 2019-20 and, therefore, notification with respect to enhanced limit has no relevance for the assessee.
SUBMISSIONS 2.1 Section 10(10AA) of the Income-tax Act, 1961 provides for exemption of amounts received as leave encashment at the time of retirement (or otherwise) The provision draws a crucial distinction between government and non-government employees, as follows: Section 10(10AA)(i): any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement (whether on superannuation or otherwise) is exempt [from tax] Section 10(10AA)(ii): any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Govemment, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement whether superannuation or otherwise, subject to such limit as the Central Government may, by notification in the Official Nanu Lal Meena, Jaipur. Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government on 2.2. Using the authority under section 10(10AA)(ii), the Central Government had prescribed the maximum exempt amount for non-government employees which was fixed for Rs 3,00,000 vide Notification No. 123/2002 dated 31.05.2002 2.3. The limit of Rs 3 lakh was enhanced to Rs 25,00,000 by CBDT vide Notification No. 31/2023 dated 24.05.2023 2.4. The Appellant submits that his claim for exemption of Rs. 10,54,799 should be allowed in full, given that it falls well within the revised cap of Rs. 25 lakh Reliance is placed on judicial pronouncements of jurisdictional ITAT, wherein benefit of revised limit of Rs 25,00,000 has been provided to the Devi Dutt Agarwal vs. ITO AY 2020-21 [CLC 1-6] In view of the above, there is a firm view has already been taken by the coordinate bench respectfully considering the decision of Kamal Kumar Kalia & Ors. Vs. Union of India, for sake of consistency and view of the Hon'ble Delhi High Court (supra), The grounds raised
by the assessee are allowed and the AO is directed to accept the claim of the assessee as claimed in his revised return amounting to Rs. 12,13,200/-u/s. 10(10AA) of the Act. Dinesh Kumar Mittal vs. ITO AY 2021
22. [CLC 7-18] On being consistent with that finding we direct the Id. AO to allow the claim to the extent of the revised limit as per the circular as referred herein above. Based on that observation ground no. 1 to 3 are allowed Sujata Gupta vs. ITO AY 2022
23. [CLC 19-22] In view of the notification dated 24.05.2023, which is a piece of evidence in the form of beneficial instructions meant for non government employees, the assessment order and the impugned order, passed by Leamed CIT(A) deserve to be set aside Ram Charan Gupta AY 2020
21. [CLC 23-29] 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. 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 Govind Chhatwani AY 2020 21. [CLC 30-36] On being consistent to the said finding, we held that the assessee is entitled to get the deduction as claimed in the retum of income uws 10(10AA) of the Act as the limit has been increased from 3 lac to 25 lacs Nanu Lal Meena, Jaipur. 2.5 Ld. CIT(A)/NFAC has erred in stating that the notification has no relevance in the appellant's case. Therefore, relief may please be granted to the assessee. In view of the above, benefit of enhanced limit of Rs 25,00,000 may please be granted to the assessee.”
The Ld. AR of the assessee in addition to the written submission also relied on the following case laws:-
1. 1. Copy of the order of Hon’ble ITAT, jaipur Bench in the case of Devi Dutt Agarwal vs. ITO [ITA No. 1375/JPR/2024], page 1-6.
2. Copy of the order of Hon’ble ITAT, Jaipur Bench, in the case of Dinesh Kumar Mittal vs. ITO [ITA No. 1570/JPR/2024], page 7-18.
3. Copy of the order of Hon’ble ITAT, Jaipur Bench, in the case of Sujata Gupta vs. ITO [ITA No. 915/JPR/2025], page 19-22.
4. Copy of the order of Hon’ble ITAT, Jaipur Bench, in the case of Ram Charan Gupta vs. ITO [ITA No. 408/JPR/2022], page 23-29.
5. Copy of the order of Hon’ble ITAT, Jaipur Bench, in the case of Govind Chhatwani vs. ITO [ITA No. 385/JPR/2023], page 30-36..
The ld. AR of the assessee vehemently argued that the effect of the circular being clarificatory its applies to retrospectively as held by Hon’ble Delhi High Court in case of Kamal Kumar Kalia & Ors. as referred by Bench in and therefore, the appropriate relief be granted to the assessee.
Per contra, Ld. DR relied upon the order of Ld. CIT(A). 9. 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. 10,54,791/- as leave encashment which was claimed in the return Nanu Lal Meena, Jaipur. 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 encashment allowable up to Rs. 3,00,000/- only whereas we note from the submission of the assessee that the assessee has relied upon 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.
Nanu Lal Meena, Jaipur. 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.
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. 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 to 25 lacs. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 14/10/2025.