ITAT Ahmedabad Upholds Section 10(10B) Exemption on BSNL VRS-2019 Compensation Despite Claim Being Raised for First Time in Appeal

Background and Context

The Ahmedabad Bench of the Income Tax Appellate Tribunal recently adjudicated two connected appeals filed by an assessee — a former employee of Bharat Sanchar Nigam Limited (BSNL) — concerning the taxability of voluntary retirement compensation received under the BSNL VRS-2019 scheme. The two appeals, covering Assessment Years 2020-21 and 2021-22 respectively, involved identical legal questions and were disposed of together.

Since the facts and issues across both appeals were substantially similar, the Tribunal proceeded to examine ITA No. 2387/Ahd/2025 pertaining to AY 2020-21 as the lead matter, and directed that its findings would apply mutatis mutandis to ITA No. 2388/Ahd/2025 for AY 2021-22.

Facts of the Case

Employment and VRS Participation

The assessee was a serving employee of Bharat Sanchar Nigam Limited (BSNL), a public sector enterprise functioning under the Government of India. BSNL formally notified its Voluntary Retirement Scheme (VRS) 2019 on 04.11.2019, which was duly approved and operationalised by the employer. The assessee exercised the option to retire voluntarily under this scheme and consequently received compensation in accordance with the scheme's stipulated terms.

As submitted before the authorities, the assessee had not been receiving regular salary for a prolonged period prior to opting for VRS, and was confronted with significant financial and professional uncertainty. The decision to opt for the scheme was driven by the need for financial stability under those circumstances.

Treatment in the Return of Income

At the time of filing the income tax return, the compensation received under the BSNL VRS-2019 scheme was included in the total income and offered to tax. This occurred solely because the assessee was unaware of the exemption available under Section 10(10B) of the Income-tax Act, 1961. The employer had also deducted tax at source (TDS) on the said compensation amount.

Critically, no exemption under Section 10(10B) was claimed — either in the original return of income or in any revised return filed subsequently. The Centralised Processing Centre (CPC), Bengaluru, processed the return and issued an intimation under Section 143(1) without granting any such exemption. No rectification petition or appeal was preferred at that stage.

Discovery of Applicable Precedent

The assessee subsequently came across the ruling of 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 identical BSNL VRS-2019 scheme was held to be eligible for exemption under Section 10(10B) of the Income-tax Act, 1961, subject to compliance with Rule 2BA of the Income-tax Rules. Armed with this judicial precedent, the assessee decided to pursue the exemption claim through appellate proceedings.

Proceedings Before the CIT(A)

Arguments Advanced by the Assessee

Before the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi, the assessee raised several legal contentions: