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Facts
The assessee, a retired employee of Bank of Baroda, claimed exemption for leave encashment of Rs. 9,88,767 for AY 2020-21. The Assessing Officer (CPC) restricted this exemption to Rs. 3,00,000, citing an outdated notification. The assessee's appeal before the CIT(A) was also dismissed.
Held
The Tribunal noted that the CBDT had subsequently revised the exemption limit for leave encashment to Rs. 25,00,000 vide Notification No. 31/2023, which was deemed to have come into force from April 1, 2023. Relying on several judicial pronouncements, including a Delhi High Court judgment, the Tribunal held that this revised limit should be applied retrospectively.
Key Issues
Whether the enhanced exemption limit for leave encashment, notified in 2023, is applicable retrospectively to AY 2020-21, especially when the assessee is from a nationalized bank and parity principles are invoked.
Sections Cited
Section 10(10AA)(ii) of the Income Tax Act, 1961
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI PAWAN SINGH, JM & SHRI ARUN KHODPIA, AM
O R D E R
Per Arun Khodpia, AM:
The present appeal is instituted at the instance of assessee, challenging the order of Addl./JCIT(A)-Kolkata (for short “Ld. CIT(A)”) dated 29.02.2024, for the Assessment Year (AY) 2020-21, which in turn arises from the intimation issued under section 143(1) of the Income Tax Act, 1961 (the Act) by Central Processing Centre (CPC) (for short “Ld. AO”), Bangalore on 20.09.2021. The grounds of appeal raised by the assessee are as under:
Khadija Sainul Abeeb Nalakath “1. The learned CIT(A) erred in law and on facts in upholding the restriction of exemption under section 10(10AA)(ii) to Rs. 3,00,000 instead of granting full exemption of Rs. 9,88,767 received by the appellant on retirement from the Bank of Baroda, a Public Sector Bank owned and controlled by the Government of India.
2. The learned CIT(A) failed to appreciate that the restriction of Rs. 3,00,000 was notified by CBDT vide Notification No. 5.0. 588(E) dated 31.05.2002, when the Cabinet Secretary's salary was 30,000 per month and his 10 months' entitlement was Rs. 3,00,000. The CBDT failed to issue further notifications corresponding to subsequent pay revisions, resulting in an outdated exemption limit.
The Hon'ble ITAT Ahmedabad "A" Bench in Govardhan Deepchand Bhambhani v. ITO (ITA No. 289/Ahd/2025, order dated 28.07.2025) has held that the enhanced limit of 25 lakh notified by CBDT vide Notification No. 31/2023 dated 24.05.2023 is applicable to earlier years as well, as it merely rectifies an administrative delay.
The Hon'ble ITAT Jaipur Bench in Govind Chhatwani v. CIT(A), Delhi (ITA No. 385/JP/2023, order dated 31.10.2023) has similarly held that the 25 lakh limit under the same notification should be applied to retirees of earlier periods, since no person is adversely affected by its retrospective application.
The Hon'ble ITAT Delhi Bench "SMC" New Delhi in Neelam Gupta v.
21.04.2025, has held that the enhanced limit of 25 lakh notified by CBDT vide Notification No. 31/2023 dated 24.05.2023 is applicable to earlier years as well, as it merely rectifies an administrative delay.
The Hon'ble Delhi High Court in Kamal Kumar Kalia & Ors. v. Union of India & Ors. (2020) 268 Taxman 398 acknowledged that the exemption limit under section 10(10AA)(ii) must reflect the current entitlements of government employees, and that the CBDT had not revised the same despite salary revisions.
7. The appellant, being a retired employee of a Nationalised Bank, stands on equal footing with Government employees for the purposes of retirement benefits governed by parity principles, and the arbitrary maintenance of Rs. 3 lakh ceiling for over two decades violates Article 14 of the Constitution.
8. The CBDT's omission to issue timely notifications cannot prejudice the assessee, and the revised limit of Rs. 25 lakh notified in 2023 should be deemed clarificatory and applicable to the appellant's assessment year as well.
Khadija Sainul Abeeb Nalakath 9. The learned CIT(A) erred in ignoring the clear legislative intent and the consistent judicial Interpretation allowing full exemption of leave encashment up to Rs. 25 lakh for earlier years.
The appellant craves leave to add, alter, amend or withdraw any ground of appeal at the time of hearing.
Prayer for Relief The appellant respectfully prays that the Hon'ble Tribunal may be pleased to:
1. Set aside the order of the CIT(A)-4, Kolkata dated 29.02.2024; 2. Direct the Assessing Officer to allow full exemption of Rs. 9,88,767 u/s 10(10AA); and
3. Grant such further relief as deemed fit in the interests of justice.”
The sole controversy in the present matter arises, while the claimed of assessee for exemption under section 10(10AA)(ii) for Rs. 9,88,767/- for amount of leave encasement received at the time of retirement from Bank of Baroda was denied by the revenue over and above Rs. 3,00,000/-.
3. Since the claim of assessee was restricted to Rs. 3,00,000/- by CPC, Bangalore vide the subjected intimation under section 143(1) of the Act, the assessee got aggrieved by such action to tax the remaining amount of Leave encashment Rs. 6,88,767/-.
4. An appeal is preferred before the ld. CIT(A) with a delay of 474 days which was condoned and appeal was admitted. Further the contentions of assessee are discussed by the ld. CIT(A) at length in his order and finally had decided that the Central Government has enhanced the amount of exemption Khadija Sainul Abeeb Nalakath under Clause-(ii) in case of Non-Government employees from Rs. 3,00,000/- to 25,00,000/- vide CBDT’s Notification No. 31/2023, which shall be deemed to have come into force w.e.f. 01.04.2023. The ld. CIT(A) after mentioning such information had rejected the claim of assessee stating that the amendment brought in for enhancing the limit of exemption, would have effect from 01.04.2023 and the same cannot be given effect retrospectively.
5. To challenge the aforesaid finding of ld. CIT(A), the assessee preferred an appeal before us, stating that the issue is squarely covered by various judgments / decisions by Hon’ble Delhi High Court as well as the Benches of ITAT at various locations. The case laws relied upon by the assessee are listed as under:
Khadija Sainul Abeeb Nalakath 6. Based on aforesaid submissions, it was the prayer that the deduction of higher claim of exemption under section 10(10A) for more than Rs. 3,00,000/- is to be allowed on retrospective basis, reliance placed on the judgment of Hon’ble Delhi High Court in the case of Kamal Kumar Kalia & Ors V/s. Union of India in WP(C) 11846/2019 dated 08.11.2019, wherein the Court has held as under:
“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. 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.
9. 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 Ld. AO is directed to allow the claim Khadija Sainul Abeeb Nalakath 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 lac to 25 lacs.
Referring to aforesaid decision, which is addressing the identical issue as in the present matter and followed by the ITAT (in cases referred to supra), thus, in present matter, the assessee was a retired employee from a Nationalized Bank, who had received an amount more than Rs. 3,00,000/- towards leave encasement at the time of retirement would be entitled for the claim at revised limits of leave encashment, as prescribed by the CBDT vide its Circular No. 31/2023. Copy of CBDT Circular No. 31/2023 is also submitted before us, the same is extracted as under:
In terms of aforesaid submissions, it is appealed that the assessee’s claim of leave encasement of Rs. 9,88,767/- may be allowed in full and the 9
Per contra, ld. SR. DR vehemently supported the orders of revenue authorities.
We have considered the rival submissions and perused the material available on record and the Jurisprudence referred to and relied upon by the assessee. Admittedly the facts of present case are identical to various judgments/decisions placed on record by the assessee, whereas the revenue had not contradicted the same with any decisions to dislodge such findings favouring the assessee, thus, considering the facts and legal Jurisprudence applicable in the present matter, we find substance in the prayer of the assessee. The Ld. AO is, therefore, directed to allowed the claim of assessee for leave encasement under section 10(10A) of the Act for the AY 2020-21.
In result, the appeal of assessee is allowed, in terms of our aforesaid observations.
Order pronounced in the open court on 12-01-2026.