BSNL VRS-2019 Compensation Qualifies for Section 10(10B) Exemption: Ahmedabad ITAT Rejects CIT(A)'s Rectification Order
Overview of the Ruling
The Ahmedabad Bench of the Income Tax Appellate Tribunal, in Pravinkumar Ramjibhai Patel Vs ITO (ITAT Ahmedabad), I.T.A. No. 2312/Ahd/2026, pronounced on 25.08.2026, resolved a significant question concerning the taxability of compensation received under the BSNL VRS-2019 scheme. The Tribunal ruled in favour of the assessee for Assessment Year 2021-22, holding that such compensation qualifies as retrenchment compensation and is fully exempt under Section 10(10B) of the Income-tax Act, 1961.
The dispute arose from an order dated 20.05.2026 passed by the CIT(A), NFAC, Delhi, under Section 154 read with Section 250 of the Income-tax Act, 1961. That order effectively reversed an earlier appellate relief granted to the assessee through suo motu rectification proceedings — an approach the Tribunal found legally untenable.
Background and Facts of the Case
Who Was the Assessee?
The assessee, Pravinkumar Ramjibhai Patel, was a salaried employee of Bharat Sanchar Nigam Limited (BSNL), a Government of India enterprise. When BSNL notified its Voluntary Retirement Scheme (VRS) 2019 on 04.11.2019 — a government-approved scheme aimed at enabling the separation of senior and older employees who found it difficult to adapt to rapidly evolving technology — the assessee opted for it. BSNL duly accepted his application, and the assessee received a compensation amount of Rs. 41,09,229/- under the scheme.
How Was the Compensation Treated Initially?
Despite the compensation being potentially exempt from tax, the assessee offered the entire amount of Rs. 41,09,229/- to tax in his return of income. This occurred solely due to a lack of awareness regarding the exemption available under Section 10(10B) of the Income-tax Act, 1961. The employer had also deducted tax at source (TDS) on this amount. No exemption was claimed either in the original return or in any revised return filed for Assessment Year 2021-22.
The Centralized Processing Centre (CPC), Bengaluru subsequently issued an intimation under Section 143(1) without granting any exemption. At that stage, neither a rectification application nor an appeal was pursued by the assessee.
What Changed?
The assessee later came to know of the decision rendered by the ITAT Chandigarh Bench in Harish Kumar Vs. ITO Ward 5(5), Chandigarh, ITA No. 42/CHD/2025, dated 30.05.2025, wherein compensation received under the same BSNL VRS-2019 scheme was held to be fully exempt under Section 10(10B), subject to compliance with Rule 2BA of the Income-tax Rules. Armed with this knowledge, the assessee approached the CIT(A) and raised the exemption claim for the first time at the appellate stage.
Procedural Journey: From CIT(A) to ITAT
First Appellate Proceedings and Initial Relief
The assessee filed an appeal before the CIT(A) against the intimation issued by CPC under Section 143(1). The CIT(A), however, dismissed this appeal on the ground that it was barred by limitation and declined to entertain the fresh exemption claim raised for the first time at the appellate level.
Suo Motu Rectification Under Section 154 Read with Section 250
The matter took a further procedural turn when the CIT(A), NFAC, Delhi, initiated suo motu rectification proceedings on 30.01.2026 and passed an order dated 20.05.2026 under Section 154 read with Section 250. Through this rectification order, the earlier appellate order dated 31.12.2025 — which had allowed the exemption under Section 10(10B) — was sought to be reversed.
The CIT(A)'s rectification was premised on the view that the assessee did not qualify as a "workman" within the meaning of the Industrial Disputes Act, 1947, and therefore was not entitled to the exemption under Section 10(10B).