Leave encashment exemption affirmed where administrative notification increased the limit, enabling full exemption claim to succeed.

Exemption for leave encashment is applicable where the claimed amounts fall within the revised administrative limit; the ITAT applied the leave-encashment exemption provision together with the increased threshold set by the authority's notification and held that the assessing authority must allow the claim to the extent it falls within the revised limit, resulting in allowance of the assessees' full claimed exemption on retirement.

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Issues: Whether the assessees are entitled to exemption for leave encashment claimed on retirement under section 10(10AA) of the Income-tax Act, 1961, having regard to the Central Board of Direct Taxes' revised exemption limit specified by Notification No. 31/2023.

Analysis: The appeals raise a single substantive question: entitlement to deduction of the claimed leave encashment under the provision governing cash equivalent of earned leave on retirement. The statutory framework comprises the exemption provision for leave encashment and the administrative limit as revised by the tax authority. Relevant judicial precedents interpreting the scope of beneficiaries were considered with attention to whether employees of banks qualify as government employees for the purpose of the exemption. The administrative revision by the tax authority via Notification No. 31/2023 increased the exemption threshold to an amount that exceeds the leave encashment claimed by the assessees. The combined effect of the governing exemption provision and the subsequent administrative notification was applied to the facts to determine eligibility for the full claimed exemption.

Conclusion: The assessees are entitled to claim the full amount of leave encashment as exempt under the applicable exemption provision, since the claimed amounts fall within the revised exemption limit specified by Notification No. 31/2023. The appeals are allowed in favour of the assessees.

Ratio Decidendi: Where an assessee's claimed leave encashment amount falls within the exemption limit as revised by a valid notification issued by the tax authority, the exemption under the leave-encashment provision applies notwithstanding prior processing that restricted exemption, and the assessing authority must allow the claim within the revised limit.

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