ITAT Chennai Allows BSNL Retrenchment Ex-Gratia Exemption Despite No Revised Return

Background of the Dispute

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) in Geetha. S Vs ITO (ITAT Chennai) dealt with a recurring controversy affecting BSNL employees who accepted ex-gratia under a Government-approved retrenchment/voluntary retirement scheme. The central issue was whether an assessee can be denied a statutory exemption under Section 10(10B) and Section 10(10C) solely because the claim was not made through a revised return, even though the legal position in favour of exemption was already settled by the jurisdictional High Court.

Two appeals, ITA No. 3176/Chny/2026 and ITA No. 3181/Chny/2026, relating to Assessment Years (AY) 2020-21 and 2021-22, came up before the Tribunal. Both appeals arose from orders of the Ld. Addl. / JCIT (A), Kochi dated 31.03.2026, where relief was refused on purely technical grounds.

The Tribunal ultimately held that the assessee, a retrenched BSNL employee, was entitled to claim exemption under Section 10(10B) for both years and under Section 10(10C) for AY 2020-21, notwithstanding the absence of a revised return. The decision was anchored on judicial precedents and the long-standing CBDT Circular No. 14(XL-35) of 1955, which prohibits the department from exploiting an assessee’s ignorance of the law.

Facts of the Case

Employment and Retrenchment Scheme

The assessee was an employee of Bharat Sanchar Nigam Limited (BSNL), a Central Public Sector Undertaking. As part of BSNL’s financial and manpower restructuring, a Government-approved retrenchment/voluntary scheme was introduced. Employees opting for the scheme became entitled to ex-gratia compensation on account of retrenchment.

The assessee chose to opt for this scheme and, as a result, received an aggregate ex-gratia amount of Rs. 69,56,826/-. Out of this total, a sum of Rs. 31,47,929/- was actually received during the previous year relevant to AY 2020-21.

Return Filing and Incorrect Claim of Exemption

While filing the return of income for AY 2020-21 on 30-10-2020, the assessee, due to lack of proper understanding of the applicable provisions, did not correctly claim exemption under Section 10(10B) in respect of the retrenchment compensation. Instead, the assessee:

  • Claimed exemption under Section 10(10AA) of Rs. 9,12,580/- (likely treating a portion as leave encashment), and
  • Claimed exemption under Section 10(10C) to the extent of Rs. 5,00,000/-,
  • Paid tax on the balance portion of the ex-gratia amount.

The Centralized Processing Centre (CPC), Bengaluru processed the return under Section 143(1) on 31.08.2021 and accepted the claim as originally made by the assessee, without granting the full relief legally available under Section 10(10B) and Section 10(10C).

Only later did the assessee become aware of various favourable judicial pronouncements in similar BSNL/PSU retrenchment and VRS cases, including:

  • Harish Kumar Vs ITO (ITA No. 42/Chd./2025) (Coordinate Bench decision), and
  • The jurisdictional Madras High Court ruling in Hindustan Photo Film Workers’ Welfare Centre (CITU) Government of India, New Delhi [2017] 79 taxmann.com 298 (Mad.) dated 17.03.2017, which clarified the taxability and exemption of ex-gratia paid under such schemes.

Armed with this knowledge, the assessee filed an appeal before the Ld. Addl. / JCIT (A), Kochi under Section 250, seeking:

  • Additional exemption of Rs. 12,35,349/- under Section 10(10B), and
  • Further exemption of Rs. 5,00,000/- under Section 10(10C) (for AY 2020-21),

contending that these amounts were legitimately exempt under the Income Tax Act 1961 in the light of binding judicial precedents.

The assessee also asserted that all relevant facts and supporting evidence were available and could be furnished to the appellate authority.

Decision of the First Appellate Authority

The Ld. Addl. / JCIT (A), Kochi rejected the fresh exemption claims solely on the ground that the assessee had not filed a revised return to incorporate the correct claim.