ITAT Ahmedabad on BSNL VRS-2019 & Leave Encashment: Scope of Section 10(10B) and Section 10(10AA)

Background of the Appeals

The Ahmedabad Bench of the Income Tax Appellate Tribunal in Usmangani Ahemadbhai Manva Vs ITO (ITAT Ahmedabad) dealt with two connected appeals for Assessment Year 2020-21 and Assessment Year 2021-22 bearing ITA Nos. 2525 & 2526/Ahd/2026. Both appeals arose from orders dated 19-06-2026 passed by the CIT(A) under Section 250 of the Income Tax Act 1961.

The dispute related to two distinct retirement-related receipts of the assessee, a former BSNL employee:

• Compensation received under BSNL Voluntary Retirement Scheme – 2019 (BSNL VRS-2019) and exemption claimed under Section 10(10B); and
• Exemption for leave encashment under Section 10(10AA) for Assessment Year 2020-21.

The Tribunal decided both appeals together because the principal controversy on Section 10(10B) was common for both years.

Facts Relating to BSNL VRS-2019 Compensation

Nature and Quantum of Receipts

The assessee, an individual, opted for BSNL VRS-2019 and received compensation as under:

• For Assessment Year 2020-21:

  • Total VRS compensation: ₹17,00,453
  • Exemption originally claimed: ₹5,00,000
  • Balance ₹12,00,453 was offered to tax without claiming exemption under Section 10(10B).

• For Assessment Year 2021-22:

  • VRS compensation offered to tax: ₹37,32,303
  • No exemption claim under Section 10(10B) was made in the return.

Both returns were processed under Section 143(1).

The assessee submitted that due to limited awareness of the legal position and the fact that BSNL had deducted tax at source on the VRS amount, he did not claim full exemption under Section 10(10B) at the time of filing returns.

Additional Claim Before CIT(A)

Subsequently, relying on the decision of the Chandigarh Bench in Harish Kumar v. ITO, ITA No. 42/CHD/2025, order dated 30.05.2025, where compensation under BSNL VRS-2019 was treated as exempt under Section 10(10B), the assessee:

• Filed appeals before the CIT(A) for both years; and
• Raised additional grounds seeking full exemption of VRS compensation under Section 10(10B).

The assessee asserted that the entire compensation under BSNL VRS-2019 was in the nature of retrenchment compensation and fully eligible for exemption under Section 10(10B) for both Assessment Year 2020-21 and Assessment Year 2021-22.

CIT(A)’s Approach on Section 10(10B) Claim

Cadre-Based Restriction Introduced by CIT(A)

While disposing of the appeals, the CIT(A) did not give an unconditional direction to allow the exemption. Instead, he framed a conditional approach and instructed the Assessing Officer (AO) to:

• Verify whether the amount claimed as exempt was indeed received under BSNL VRS-2019; and
• Examine whether the assessee occupied a non-executive position at the time of retirement.

The CIT(A) held that:

• If both conditions were satisfied (BSNL VRS-2019 compensation + non-executive cadre), the AO could allow exemption under Section 10(10B).
• However, if the assessee had retired from the executive cadre and did not qualify as a “workman” under the Industrial Disputes Act, the exemption under Section 10(10B) would not be admissible.

The assessee challenged this reasoning before the Tribunal, specifically contesting the cadre-based disqualification and seeking categorical directions for full relief under Section 10(10B).

Tribunal’s Ruling on BSNL VRS-2019 Compensation

Reliance on Earlier BSNL VRS-2019 Decisions

The Tribunal noted that an identical question regarding BSNL VRS-2019 compensation had already been examined by various Benches, including the Ahmedabad Bench itself. In particular, it relied on:

• Jayeshkumar Tulsidas Sutaria Vs ITO, ITA Nos. 2387 & 2388/Ahd/2025 (AYs 2020-21 & 2021-22) – where compensation under BSNL VRS-2019 was held exempt under Section 10(10B);
• Kirtida Rajeshkumar Shah Vs ITO, ITA No. 151/Ahd/2026 (AY 2020-21)` – following the same view;
• Chhaganlal Bhimabhai Vs ITO, ITA Nos. 2547 & 2548/Ahd/2025 (AYs 2020-21 & 2021-22) – reiterating the same position;
• **Pravinkumar Ramjibhai Patel Vs ITO, ITA No.