BSNL VRS Compensation Fully Exempt Under Section 10(10B): Bangalore ITAT Rules in Favour of Assessee, Condones 1,400-Day Delay
Case Reference
Pradeep Hegde Vs ITO (ITAT Bangalore)
Assessment Years: 2020-21 and 2021-22
Order Pronounced: 22nd June, 2026
Background and Facts of the Case
The Bangalore Bench of the Income Tax Appellate Tribunal delivered a significant ruling in favour of a former Bharat Sanchar Nigam Limited (BSNL) employee, holding that the ex-gratia compensation received under the BSNL Voluntary Retirement Scheme, 2019 qualifies for full exemption under Section 10(10B) of the Income-tax Act, 1961, as retrenchment compensation — and not merely the restricted exemption available under Section 10(10C).
In addition to ruling on the substantive tax question, the Tribunal condoned an extraordinary procedural delay of over 1,400 days in filing the appeals, reiterating the well-established principle that substantial justice must take precedence over technical procedural requirements.
The Assessee's Background
The assessee, Mr. Pradeep Hegde, had originally joined the Department of Telecommunications in 1983. He was subsequently absorbed into BSNL upon its formation. On 1 January 2020, he retired from BSNL under the Voluntary Retirement Scheme that had been approved by the Union Cabinet through the Office Memorandum dated 29 October 2019. Post-retirement, he began receiving pension from the Government of India under the applicable pension rules.
Assessment Year 2020-21: Facts and Proceedings
For Assessment Year 2020-21, the assessee filed his return of income on 25 December 2020, based on Form 16 issued by his employer, declaring total income of ₹11,80,500. During the relevant year, he had received ex-gratia of ₹10,29,053 under the BSNL VRS.
However, the employer restricted the exemption under Section 10(10C) to only ₹5,00,000, instead of allowing the full amount as exempt under the second proviso to Section 10(10C). When the return was processed by the CPC on 28 August 2021, no full exemption was granted, resulting in a disallowance of ₹5,29,053.
The assessee preferred an appeal before the CIT(A) seeking deletion of this disallowance. However, since the appeal was filed only on 9 December 2025 — against the due date of 27 September 2021 — a delay of 1,438 days had accrued. The assessee explained that the delay arose because litigation was pending before various benches on the question of whether BSNL employees ought to be treated as Central Government employees.
The CIT(A) rejected the explanation as insufficient and refused to condone the delay.
Assessment Year 2021-22: Facts and Proceedings
For Assessment Year 2021-22, the assessee filed his return of income on 20 October 2021, declaring total income of ₹22,22,716. During this year, he received ex-gratia of ₹22,58,602 under the BSNL VRS. Since the employer did not explicitly indicate that the entire ex-gratia amount was exempt, the assessee inadvertently included it in his taxable income. The return was processed on 31 January 2022.
The assessee subsequently appealed before the CIT(A), contending that the full ex-gratia amount was exempt under Section 10(10C) read with the second proviso, given his original service in the Department of Telecommunications. This appeal was delayed by 1,427 days.
The CIT(A) again declined to condone the delay, upheld the Assessing Officer's position, and dismissed the appeal as non-maintainable.