BSNL VRS-2019 Compensation Held Exempt Under Section 10(10B): Key Takeaways from ITAT Ahmedabad Ruling

The Income Tax Appellate Tribunal, Ahmedabad Bench, has once again clarified the tax treatment of compensation received under the BSNL Voluntary Retirement Scheme (VRS)-2019. In the case of Jashvantbhai Ashabhai Patel Vs ITO, the Tribunal held that compensation received under the BSNL VRS-2019 qualifies as retrenchment compensation exempt under Section 10(10B) of the Income Tax Act, 1961, even where the assessee did not originally claim such exemption in the return of income.

This decision aligns with earlier rulings of coordinate benches, including those of ITAT Chandigarh and ITAT Ahmedabad, thereby reinforcing a consistent judicial view on the tax-exempt nature of BSNL VRS-2019 compensation, subject to compliance with Rule 2BA.

Background and Core Dispute

Facts in Brief

  • The assessee was a salaried employee of BSNL who opted for the BSNL VRS-2019, a scheme introduced and approved by the Government.
  • Under this scheme, the assessee received compensation of ₹12,14,116.
  • This entire amount was:
    • Fully disclosed in the return of income, and
    • Voluntarily offered to tax by the assessee.
  • BSNL, as employer, deducted tax at source on the compensation paid.
  • At the time of filing the original and revised return, no claim was made for exemption under Section 10(10B).
  • The Centralized Processing Centre (CPC), Bengaluru, processed the return under Section 143(1) without granting any exemption, since none had been claimed.
  • No rectification application under Section 154 or appeal against the Section 143(1) intimation was filed immediately.

Later, the assessee came across a decision of the ITAT Chandigarh Bench in Harish Kumar vs. ITO Ward 5(5), Chandigarh (ITA No. 42/CHD/2025, dated 30.05.2025), where compensation under BSNL VRS-2019 had been treated as exempt under Section 10(10B) subject to Rule 2BA. On this basis, the assessee sought to claim the exemption at the appellate stage.

Issue Before the Tribunal

The central controversy was:

Whether compensation received under the BSNL VRS-2019 scheme, though originally offered to tax and not claimed as exempt in the return, could subsequently be allowed exemption under Section 10(10B) by the appellate authority.

In other words, the Tribunal had to decide:

  • If BSNL VRS-2019 compensation was in the nature of retrenchment compensation covered by Section 10(10B); and
  • Whether such a claim could be entertained even though it was not claimed in the original or revised return.

Proceedings Before Lower Authorities

Order of the Assessing Officer and CPC

  1. The assessee filed the return of income for A.Y. 2021-22 including the BSNL VRS-2019 compensation amount in taxable income.
  2. No exemption under Section 10(10B) was claimed in:
    • The original return, or
    • Any revised return.
  3. CPC, Bengaluru, processed the return under Section 143(1) based strictly on the data filed, allowing no exemption.
  4. At this stage:
    • No online rectification request was made, and
    • No appeal was filed against the Section 143(1) intimation.

Effectively, the position as per CPC’s processing was that the entire compensation remained taxable.

Findings of the CIT(A)

When the assessee later raised the claim before the CIT(A), the first appellate authority rejected the appeal. The reasoning was broadly as follows: