ITAT allows Full Leave Encashment Exemption Up to ₹25 Lakhs to Retired SBI Employee [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the appeal of a retired State Bank of India employee, holding that leave encashment exemption under Section 10(10AA) applies beyond the ₹3 lakh cap earlier imposed.

The assessee, Shri Sudhakar Gundappa Paldewar, a retired employee of State Bank of India, filed his return of income for AY 2020–21 claiming exemption on leave encashment under Section 10(10AA)(i), which applies to government employees. He treated himself as a government employee for this purpose and sought a refund of ₹1,96,170.

The Centralised Processing Centre (CPC), however, restricted the exemption to ₹3,00,000 under Section 10(10AA)(ii), applicable to non-government employees, and taxed the balance, reducing the refund to ₹1,31,291. A rectification application under Section 154 was also rejected, prompting the assessee to appeal before the CIT(A).

The CIT(A) upheld the CPC’s action, reasoning that PSU and nationalised bank employees cannot be equated with government employees. The appellate authority noted that the exemption limit of ₹3 lakh was fixed by a notification dated 31.05.2002, based on the then prevailing pay of the Cabinet Secretary, and had not been revised until 2023.

While acknowledging that the CBDT Notification No. 31/2023 dated 24.05.2023 enhanced the limit to ₹25 lakh, the CIT(A) held that the amendment was prospective from 01.04.2023 and could not benefit the assessee for AY 2020–21.

Reliance was placed on the Delhi High Court’s ruling in Kamal Kumar Kalia v. Union of India, which had rejected similar claims by PSU retirees.

Appearing in person, the assessee argued that the issue was already covered in favour of taxpayers by coordinate benches of the Tribunal. He cited the Jaipur ITAT decision in Govind Chhatwani v. CIT(A), (2023) and the Delhi ITAT decision in Neelam Gupta v. ITO (2025), both of which had allowed similar claims.

He contended that the CBDT notification, though belated, reflected the government’s recognition of the need to revise the exemption limit, and therefore should apply to his case.

Tribunal’s Findings

The two-member Bench comprising R.K. Panda (Vice President) and Astha Chandra (Judicial Member) condoned the 238-day delay in filing the appeal, citing sufficient cause and Supreme Court precedents.

On merits, the Tribunal noted that the facts were undisputed: the assessee had received leave encashment and claimed exemption under Section 10(10AA)(i). The CPC and CIT(A) restricted the exemption to ₹3 lakh, but coordinate benches had already held that the revised limit of ₹25 lakh should be applied, even for earlier years, given the long delay in updating the notification since 2002.

The Tribunal reproduced detailed reasoning from ITAT in Ram Charan Gupta v. ITO, which had relied on the Delhi High Court’s observations that the exemption limit had remained static for decades despite rising salaries and inflation. The Tribunal emphasised that since the assessee’s claim (₹6,97,100 in cited cases, and ₹5,45,848 in the present case) was well below the revised ₹25 lakh limit, the exemption should be allowed in full. The Tribunal also noted that no contrary authority had been cited by the Revenue.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates