Leave encashment exemption ceiling applied retrospectively, so disallowance below the revised limit was deleted.

A retrospective notification enhancing the leave encashment exemption ceiling under section 10(10AA) was applied to the assessee's claim, and the Tribunal treated the revised limit as governing the relevant assessment year. Following its coordinate bench decisions, the ITAT held that the enhanced exemption applies to eligible leave encashment received by non-government employees as well, so a disallowance made below that ceiling could not stand. As the claim fell within the revised limit, the deduction was allowed and the disallowance was deleted.

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Issues: Whether the disallowance of deduction in respect of leave encashment under section 10(10AA) of the Income-tax Act, 1961 was sustainable in view of Notification No. 31/2023-F.No. 200/3/2023-ITA-I dated 24.05.2023 enhancing the exemption limit to Rs. 25,00,000.

Analysis: The revised notification was applied as retrospective from 01.04.2023 and was treated as governing the assessee's claim for assessment year 2020-21. The Tribunal followed its earlier coordinate bench decisions holding that the enhanced limit under section 10(10AA) covers the leave encashment received by non-government employees as well, and that the restricted disallowance made by the lower authorities could not be sustained. As the claim amount was below the revised ceiling, the assessee was held entitled to the deduction claimed.

Conclusion: The disallowance was deleted and the deduction claimed under section 10(10AA) was allowed in favour of the assessee.

Ratio Decidendi: Where a retrospective notification enhances the statutory ceiling for leave encashment exemption, the revised limit applies to eligible claims and a disallowance contrary to that enhanced ceiling cannot be sustained.

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