ITAT Ahmedabad Upholds Full Exemption Under Section 10(10B) for BSNL VRS-2019 Compensation Despite Omission in Original ITR
In a significant judicial pronouncement, the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has granted substantial relief to an assessee by allowing complete tax exemption on compensation received under the BSNL Voluntary Retirement Scheme, 2019 (BSNL VRS-2019). The ruling in the case of Ashokkumar Chandulal Patel Vs ITO underscores a vital principle in tax jurisprudence: a substantive statutory exemption cannot be denied merely because the assessee failed to claim it during the filing of the original income tax return due to ignorance of the law.
The Tribunal unequivocally held that the entire compensation amount qualifies for exemption under Section 10(10B) of the Income Tax Act 1961. Furthermore, the appellate authority clarified the crucial distinction between the provisions of Section 10(10B) and Section 10(10C), resolving misinterpretations that had previously led to the denial of legitimate claims by lower tax authorities.
Factual Matrix of the Dispute
The assessee, formerly employed with Bharat Sanchar Nigam Limited (BSNL), opted for early retirement under the specially formulated BSNL VRS-2019 scheme. Consequently, the assessee received the retirement compensation in two distinct tranches spread across two different financial years.
Receipt and Initial Tax Treatment
The financial breakdown and the assessee's initial tax filings were as follows:
- **First Tranche (Assessment Year 2020-21)😗* The assessee received an initial installment amounting to ₹8,29,920 in March 2020. While filing the income tax return for this period, the assessee operated under a limited understanding of the available exemptions. Consequently, a restricted exemption of ₹5,00,000 was claimed under
Section 10(10C)of theIncome Tax Act 1961. The remaining balance of the compensation was offered to tax. - **Second Tranche (Assessment Year 2021-22)😗* During the subsequent Financial Year 2020-21, the assessee received the remaining compensation totaling ₹18,21,583. In the return filed for this year, the assessee did not claim any exemption whatsoever under
Section 10(10B)of theIncome Tax Act 1961. The entire sum of ₹18,21,583 was subjected to tax, and the return was subsequently processed by the tax department underSection 143(1)of theIncome Tax Act 1961.
In total, the assessee received an aggregate compensation of ₹26,51,503 across the two assessment years. However, due to a lack of awareness regarding the correct legal position, the original tax returns only reflected a partial exemption of ₹5,00,000 in the first year, leaving the substantial remainder exposed to taxation.
The Genesis of the Appellate Claim
Subsequent to the processing of the returns, the assessee became cognizant of various favorable rulings delivered by different benches of the Income Tax Appellate Tribunal. These coordinate bench decisions had consistently established that the entirety of the compensation disbursed under the BSNL VRS-2019 scheme was legally eligible for full exemption under Section 10(10B) of the Income Tax Act 1961.
Armed with this newfound legal understanding, the assessee approached the first appellate authority—the Ld. Addl/Joint Commissioner of Income Tax (Appeals) [CIT(A)]—seeking a revision of the assessed income. The core of the appellate claim was a request to transition from the initially claimed partial relief under Section 10(10C) to a complete exemption under Section 10(10B) for the total compensation of ₹26,51,503 received across both years.