ITAT Jaipur Grants Full ₹9.04 Lakh Leave Encashment Exemption to Pre-2023 Retiree Under Enhanced ₹25 Lakh Limit

In a notable judicial determination, the Income Tax Appellate Tribunal (ITAT), Jaipur Bench, has provided substantial relief to a retired employee by allowing a complete tax exemption on leave encashment receipts. The ruling in the matter of Renu Moongia Vs ITO underscores the tribunal's willingness to apply the enhanced ₹25,00,000 exemption ceiling—introduced via a 2023 notification—to an assessee who superannuated prior to the issuance of the said notification.

Furthermore, the tribunal demonstrated a pragmatic approach toward procedural lapses by condoning an extensive delay of 1,277 days in filing the appeal, attributing the lapse to the professional negligence of the assessee's tax consultant rather than any deliberate fault of the assessee.

Factual Matrix of the Dispute

The assessee in this case had dedicated over thirty years of service to the Life Insurance Corporation of India (LIC). She officially superannuated from her position on 30 June 2020. As part of her final settlement and retiral benefits, she received a leave encashment amount totaling ₹9,04,669.

When filing her income tax return for the Assessment Year (AY) 2021-22, the assessee claimed the entire leave encashment amount of ₹9,04,669 as fully exempt from tax under Section 10(10AA) of the Income Tax Act 1961.

The CPC Intimation and Initial Disallowance

During the processing of the return under Section 143(1) of the Income Tax Act 1961, the Centralized Processing Centre (CPC) curtailed this exemption. The CPC determined that the maximum allowable deduction under Section 10(10AA)(ii) at that specific time was capped at ₹3,00,000. Consequently, the CPC allowed the exemption only up to ₹3,00,000 and disallowed the remaining balance of ₹6,04,669, adding it to the taxable income of the assessee.

Aggrieved by this restriction, the assessee escalated the matter by filing an appeal before the National Faceless Appeal Centre (NFAC) / Commissioner of Income Tax (Appeals) [CIT(A)]. However, the first appellate authority upheld the CPC's processing and dismissed the appeal via an order dated 02.08.2022, maintaining that the statutory limit of ₹3,00,000 was correctly applied.

Procedural Hurdle: Condonation of a 1,277-Day Delay

Before the ITAT could delve into the substantive legal merits of the exemption claim, it had to address a significant procedural anomaly. The assessee's appeal before the tribunal was filed with a massive delay of 1,277 days.