ITAT Ahmedabad Upholds ₹25 Lakh Leave Encashment Exemption for Retired SBI Employee Under Section 10(10AA)

Case Overview

Case Name: Pankaj Bhupatrai Joshi Vs ITO (ITAT Ahmedabad)
Assessment Year: 2020-21
Order Date: 15/05/2026
Forum: Income Tax Appellate Tribunal, Ahmedabad Bench

In a significant ruling that brings relief to non-government employees receiving leave encashment upon retirement, the Ahmedabad Bench of the Income Tax Appellate Tribunal ruled in favour of a retired State Bank of India employee and permitted the full exemption of ₹10,15,928 received as leave encashment. The Tribunal held that the enhanced ceiling of ₹25 lakh as notified by the Central Board of Direct Taxes through CBDT Notification No. 31/2023 dated 24.05.2023 is applicable under Section 10(10AA)(ii) of the Income Tax Act, 1961, even for employees of non-government entities such as nationalised banks.

Background and Facts of the Case

The assessee, Mr. Pankaj Bhupatrai Joshi, an individual assessee, retired from the services of State Bank of India during Financial Year 2019-20. Upon retirement, he received a sum of ₹10,15,928 as leave encashment. While filing his original return of income on 01.10.2020 for Assessment Year 2020-21, he declared a total income of ₹15,48,940 and claimed the entire leave encashment amount of ₹10,15,928 as exempt under Section 10(10AA) of the Income Tax Act, 1961.

Action Taken by the Assessing Officer

The Centralised Processing Centre (CPC), while processing the return under Section 143(1) of the Act, passed an intimation order dated 19.10.2021 and determined the total income at ₹22,64,870. The basis for the upward revision was the restriction of the leave encashment exemption to only ₹3,00,000 on the reasoning that since the assessee was not employed with the Central Government or any State Government, the enhanced exemption could not be applied in full. The balance amount of the exemption claimed was accordingly disallowed.

First Appellate Stage — CIT(A)/NFAC

Aggrieved by the intimation, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The CIT(A) upheld the action of the CPC and confirmed the restriction of exemption to ₹3,00,000, thereby dismissing the assessee's appeal vide order dated 21.03.2023.

Proceedings Before the ITAT

Delay in Filing

The assessee filed the present appeal before the Tribunal with a delay of 975 days. A condonation of delay application was filed along with an affidavit explaining the reasons for the delay. The Tribunal found the reasons stated to be genuine and accordingly condoned the delay.

Submissions by the Assessee's Representative

The Authorised Representative (AR) for the assessee placed strong reliance on CBDT Notification No. 31/2023/F.No. 200/3/2023-ITA-I dated 24.05.2023, which enhanced the exemption limit for leave encashment under Section 10(10AA)(ii) from ₹3,00,000 to ₹25,00,000. The AR specifically drew the Tribunal's attention to the Explanatory Memorandum accompanying the notification, which expressly certified that:

"No person is being adversely affected by giving retrospective effect to this notification."

The AR argued that since the notification unambiguously specifies ₹25,00,000 as the revised ceiling applicable to employees retiring on superannuation or otherwise, and given its retrospective application, the assessee was entitled to claim the full exemption of ₹10,15,928, which falls well within the revised limit.

Revenue's Stand

The Departmental Representative (DR) appearing on behalf of the Revenue supported the findings recorded in the assessment order and the order of the CIT(A), urging the Tribunal to confirm the disallowance.