ITAT Ahmedabad Grants Section 10(10B) Exemption on BSNL VRS Payout Despite Omission in Original ITR

In a significant judicial determination providing relief to retired public sector employees, the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has ruled in favor of an assessee seeking tax exemption on compensation received under a Voluntary Retirement Scheme (VRS). The ruling in the case of Rameshbhai Chhotabhai Vankar Vs ITO underscores the principle that substantive justice and the correct assessment of tax liability must take precedence over procedural technicalities, such as the failure to claim an exemption in the original income tax return or delays in filing an appeal due to bona fide ignorance of the law.

The Tribunal conclusively held that the compensation received by the assessee under the BSNL Voluntary Retirement Scheme, 2019, is fully exempt from taxation under Section 10(10B) of the Income Tax Act 1961. The decision is particularly notable as it permitted the admission of a fresh claim at the appellate stage and condoned a substantial delay, reinforcing the duty of appellate authorities to assess only legitimate tax.

Factual Matrix of the Dispute

The assessee, Rameshbhai Chhotabhai Vankar, was formerly employed as a salaried individual with Bharat Sanchar Nigam Limited (BSNL), a Government of India enterprise. During the Assessment Year (A.Y.) 2021-22, the assessee opted for the BSNL Voluntary Retirement Scheme, 2019, which was introduced by the government to restructure the organization's workforce. Upon the acceptance of his VRS application, the assessee received a compensation amount totaling ₹21,90,631.

At the time of filing the income tax return for the relevant assessment year, the assessee, acting under a mistaken understanding of the prevailing tax laws, believed the VRS compensation to be fully taxable. Consequently, the entire sum of ₹21,90,631 was offered to tax in the original return. Furthermore, the employer, BSNL, had already deducted tax at source (TDS) on this disbursement.

The assessee did not claim any exemption under Section 10(10B) of the Income Tax Act 1961 in the original return, nor was a revised return filed within the stipulated statutory timeframe. The Centralized Processing Centre (CPC), Bengaluru, subsequently processed the return under Section 143(1) of the Act, accepting the returned income without granting any exemption for the VRS compensation.

The Catalyst for Appeal

The assessee's realization regarding the non-taxability of the VRS compensation occurred much later. It was triggered by the dissemination of the judicial pronouncement by the ITAT Chandigarh Bench in the case of Harish Kumar v. ITO (ITA No. 42/CHD/2025, dated 30.05.2025). In that specific ruling, the Tribunal had categorically held that compensation received under the identical BSNL VRS-2019 scheme qualified for full exemption under Section 10(10B), read with the conditions outlined in Rule 2BA.