Assessee allowed leave encashment exemption under Section 10(10AA)(ii) with revised Rs. 25 lakh limit

The ITAT Jaipur allowed the assessee's appeal regarding the claim under section 10(10AA)(ii) for leave encashment exemption. The tribunal held that the revised limit for claiming leave encashment exemption, increased to Rs. 25,00,000/- as per the notification dated 24th May 2023, applies. Consequently, the assessee was entitled to claim a deduction of Rs. 12,09,600/-. The AO was directed to allow the claim within the revised limit prescribed by the notification.

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ISSUES:

Whether an adjournment application filed by the assessee was improperly rejected without hearing, thereby violating the right to be heard under principles of natural justice.Whether the claim for exemption of leave encashment received at retirement under section 10(10AA)(ii) of the Act can be allowed beyond the previously applicable limit of Rs. 3,00,000/- in light of a subsequent government notification increasing the exemption limit.Whether the retrospective effect of the government notification dated 24/05/2023 impacts the admissibility of the exemption claimed by the assessee for leave encashment received prior to the notification.

RULINGS / HOLDINGS:

The Court held that the adjournment application filed by the assessee was not discussed or rejected with reasons, resulting in violation of the "principle of natural justice" and the right of the assessee to be heard; accordingly, the order dated 17.05.2023 was recalled to provide an opportunity to be heard on merits.The Court ruled that the exemption claim under section 10(10AA)(ii) is to be allowed up to the revised limit of Rs. 25,00,000/- as specified in "notification No. 31/2023/F. No. 200/3/2023-ITA-1 dated 24th May, 2023," and the assessee's claim of Rs. 12,09,600/- falls within this revised limit and must be allowed by the Assessing Officer.The Court recognized the retrospective effect of the notification and directed that the exemption be granted accordingly, consistent with prior Tribunal decisions on the issue.

RATIONALE:

The Court applied the statutory framework under section 10(10AA)(ii) of the Income Tax Act concerning exemption of leave encashment received on retirement, as amended by the government notification dated 24/05/2023, which increased the exemption limit to Rs. 25,00,000/- with retrospective effect.The Court emphasized adherence to the "principle of natural justice," holding that an opportunity to be heard must be provided before dismissing an appeal, especially where an adjournment application is pending and undisputed.The Court relied on consistency with prior Tribunal rulings on similar issues and accepted the retrospective applicability of the notification, thereby allowing the exemption claim within the revised limits.

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