2023 (10) TMI 1506 - AT - Income Tax

Assessee Wins Appeal: Entitled to Full Leave Encashment Exemption Under Section 10(10AA)(i); Overrules CIT(A) Disallowance.

Shri Mangla Ram Nimbark Versus The ITO Ward-2 (1), Ajmer

The Tribunal allowed the appeal, determining that the assessee was entitled to a full exemption under Section 10(10AA)(i) of the Income Tax Act for the ... Exemption u/s 10(10AA)(i) - case of employees of DOT who have been w.e.f.01-10-20222 absorbed in BSNL and thus is a Government employees and is entitled for full exemption - HELD THAT:- Since the leave encashment as claimed by the assessee u/s 10(10AA)(i) of the Act which is below the limit of Rs.25.00 lacs as specified vide Notification No. 31/2023 issued by the CBDT, Ministry of Finance, New Delhi, therefore, the assessee is eligible to claim deduction of said amount and thus the AO is directed to allow the claim of the assessee u/s 10(10AA)(i) of the Act within the revised limit as prescribed in the notification . Hence, in terms of these observations, the appeal of the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment was whether the assessee was entitled to a full exemption under Section 10(10AA)(i) of the Income Tax Act for the leave encashment amount of Rs. 6,87,030/-. The question arose due to the disallowance of Rs. 3,87,030/- by the CIT(A), which the assessee contested. The core legal question was whether the assessee, having been absorbed from the Department of Telecom (DOT) into Bharat Sanchar Nigam Ltd. (BSNL), qualified as a government employee eligible for the exemption.ISSUE-WISE DETAILED ANALYSIS1. Entitlement to Exemption under Section 10(10AA)(i)Relevant Legal Framework and PrecedentsSection 10(10AA) of the Income Tax Act provides for an exemption on leave encashment received by an employee at the time of retirement. The exemption limit was revised by the Central Board of Direct Taxes (CBDT) via Notification No. 31/2023, increasing the limit to Rs. 25,00,000. The case of Shri Ram Charan Gupta vs. ITO was referenced, where a similar issue was resolved in favor of the assessee based on the revised limits.Court's Interpretation and ReasoningThe Tribunal considered the revised exemption limits under Section 10(10AA) and the precedent set in the case of Shri Ram Charan Gupta. The Tribunal noted that the limit for leave encashment exemption had been increased to Rs. 25,00,000, and since the amount claimed by the assessee was below this limit, the assessee was eligible for the exemption.Key Evidence and FindingsThe Tribunal relied on the notification issued by the CBDT, which revised the exemption limit, and the precedent case of Shri Ram Charan Gupta, where a similar claim was allowed. The Tribunal found that the assessee's claim was consistent with the revised legal framework.Application of Law to FactsThe Tribunal applied the revised exemption limit to the facts of the case, determining that the leave encashment amount of Rs. 6,87,030/- claimed by the assessee was within the permissible limit. The Tribunal concluded that the assessee was entitled to the exemption under Section 10(10AA)(i).Treatment of Competing ArgumentsThe Revenue's objection to the adjournment application and reliance on the CIT(A)'s order were noted, but the Tribunal focused on the merits of the case based on the available record. The Tribunal prioritized the updated legal framework over the previous disallowance by the CIT(A).ConclusionsThe Tribunal concluded that the assessee was eligible for the exemption under Section 10(10AA)(i) based on the revised limit set by the CBDT. The appeal was allowed, directing the Assessing Officer to permit the claimed deduction.SIGNIFICANT HOLDINGSThe Tribunal held that the assessee's leave encashment claim of Rs. 6,87,030/- was within the revised exemption limit of Rs. 25,00,000 as specified by the CBDT. The core principle established was that the revised exemption limits apply to cases where the leave encashment amount is below the set threshold, allowing for the exemption under Section 10(10AA).Final Determinations on Each IssueThe Tribunal directed the Assessing Officer to allow the assessee's claim for exemption under Section 10(10AA)(i) within the revised limit, thereby allowing the appeal. The Tribunal's decision was based on the updated legal framework and relevant precedents, ensuring consistency with the revised exemption limits.