Pune ITAT Allows Retired SBI Employee Full Leave Encashment Exemption Up to ₹25 Lakhs
Sangeetha Prathap
The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has held that a retired employee of State Bank of India (SBI) was entitled to exemption on leave encashment under Section 10(10AA)(i) of the Income Tax Act, relying on the revised exemption limit of ₹25 lakhs notified by the Central Board of Direct Taxes (CBDT) on May 24, 2023. Accordingly, the Tribunal quashed the assessment order through which the Assessing Officer had restricted the exemption to ₹3 lakhs and thereby reduced the taxpayer’s eligible refund.
The Division Bench comprising R.K. Panda (Vice President) and Astha Chandra (Judicial Member) observed that the issue was covered in favour of the appellant by earlier decisions of co-ordinate benches, including Govind Chhatwani v. CIT(A) (ITA No. 385/JP/2023), where the Tribunal had held that a similarly placed retired bank employee was entitled to exemption under Section 10(10AA) as per the revised CBDT notification.
The appellant, a retired SBI employee, had claimed exemption under Section 10(10AA)(i) on the amount received as leave encashment, treating himself as a government employee for the purpose of the provision. Based on this position, he claimed a refund of ₹1,96,170 in his return for Assessment Year 2020-21. However, while processing the return under Section 143(1), the Centralized Processing Centre restricted the exemption to ₹3 lakhs and brought the balance leave encashment to tax, reducing the refund to ₹1,31,291. A subsequent rectification application under Section 154 was also rejected.
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The CIT(A)/NFAC upheld the CPC’s action, holding that employees of public sector banks cannot be treated as government employees and that the earlier notification fixing the exemption ceiling at ₹3 lakhs remained applicable for the assessment year in question. The appellate authority further reasoned that the enhancement of the limit to ₹25 lakhs vide Notification No. 31/2023 would apply only prospectively from April 1, 2023.
Before the Tribunal, the appellant relied on multiple decisions of the ITAT, including the Jaipur Bench ruling in Govind Chhatwani and the Delhi Bench decision in Neelam Gupta, where the Tribunal had held that taxpayers similarly situated were entitled to claim exemption under Section 10(10AA) up to the revised limit. He also pointed out that the CBDT had suo motu enhanced the exemption limit in recognition of the long-pending demand for revision, as earlier observed by the Delhi High Court in Kamal Kumar Kalia v. Union of India.
The Tribunal agreed with the appellant’s submissions and noted that the factual matrix was identical to that considered in Govind Chhatwani. Referring to the co-ordinate Bench ruling, the Tribunal quoted the observation that because the CBDT had already enhanced the ceiling to ₹25 lakhs, “the assessee is eligible to claim deduction within the revised limit prescribed”. The Bench also relied on the Delhi Tribunal’s decision in Neelam Gupta, which had adopted the same reasoning while permitting exemption under the enhanced limit.
Having found no contrary authority placed on record by the Revenue, the Tribunal held that the appellant was entitled to the exemption claimed under Section 10(10AA) as per the revised limit. The Bench emphasized that since the leave encashment received by the appellant fell well below ₹25 lakhs, the exemption could not be restricted to ₹3 lakhs. Finally, allowing the appeal, the Tribunal set aside the orders of the CPC and the CIT(A)/NFAC and directed that the exemption under Section 10(10AA) be granted in full, as claimed by the taxpayer. The appeal was accordingly allowed.
Appearance
Assessee by: Shri Sudhakar Gundappa Paldewar
Cause Title: Sudhakar Gundappa Paldewar V. Commissioner of Income Tax (Appeals), New Delhi
Case No: ITA No.1781/PUN/2025
Coram: R.K. Panda (Vice President), Astha Chandra (Judicial Member)
