ITAT Ahmedabad Allows BSNL VRS-2019 Exemption u/s 10(10B) at Appellate Stage

Background and Context

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has delivered an important ruling in the case of Jayeshkumar Tulsidas Sutaria Vs ITO (ITAT Ahmedabad) dealing with:

  • Exemption of compensation received under BSNL VRS-2019,
  • The scope of appellate powers to entertain fresh legal claims not made in the original return of income,
  • The incorrect approach of the CIT(A) in rejecting such a claim as “not maintainable” merely because no revised return was filed.

The matter concerns two assessment years – 2020-21 and 2021-22 – involving the same assessee, and the Tribunal has applied its reasoning mutatis mutandis to both appeals.

Facts of the Case

Employment and VRS Compensation

  1. The assessee was an employee of Bharat Sanchar Nigam Limited (BSNL), a Government of India undertaking.
  2. BSNL introduced “BSNL VRS-2019” vide notification dated 04.11.2019, which was duly approved and implemented.
  3. The assessee opted for this voluntary retirement scheme due to financial and professional uncertainty, including delayed receipt of regular salary.
  4. Pursuant to the option exercised, he received compensation under BSNL VRS-2019 as per the terms of the scheme.
  5. This VRS compensation was offered to tax in the return of income, as the assessee was not aware of the available exemption under Section 10(10B) of the Income Tax Act 1961.
  6. TDS was also deducted by BSNL on the said VRS amount.
  7. No exemption under Section 10(10B) was claimed in:
    • The original return, or
    • Any revised return (as no revised return was filed).

Processing of Return and Later Discovery

  • The return was processed by CPC, Bengaluru, and intimation u/s 143(1) was issued without allowing any exemption for VRS compensation.
  • Initially, the assessee did not seek rectification nor file an appeal.
  • Subsequently, upon coming across the 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 received under BSNL VRS-2019 was held eligible for exemption under Section 10(10B) (subject to Rule 2BA), the assessee realized that his own compensation was wrongly offered to tax.

Appeal Before CIT(A) / NFAC

The assessee, after becoming aware of the legal position, filed an appeal before the CIT(A) / NFAC, Delhi and sought:

  • Exemption of BSNL VRS-2019 compensation under Section 10(10B),
  • Treatment of such compensation as non-taxable, and
  • Refund of TDS deducted.

However, the CIT(A) dismissed the appeal on purely technical grounds and declined to adjudicate the issue on merits.

Findings of CIT(A) / NFAC

The CIT(A) recorded the broad facts (employment with BSNL, opting for BSNL VRS-2019, offering the compensation to tax, and non-claim of exemption in the return) and then concluded as follows:

  1. The grievance regarding exemption under Section 10(10B) did not arise from the intimation u/s 143(1).
  2. According to the CIT(A), it was not a case where the assessee claimed exemption in the return and the Assessing Officer denied it.
  3. The assessee, having failed to claim the relief in the original return, should have:
    • Filed a revised return within time, or
    • If the time limit had expired, approached the PCIT for condonation of delay and then filed a revised return.