In a significant relief for retired Bharat Sanchar Nigam Limited (BSNL) employees, the Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that technical delays in filing appeals cannot deprive taxpayers of statutory tax exemptions.
The bench of Balakrishnan S. (Accountant Member) and Soundararajan K. (Judicial Member) condoned substantial delays in filing appeals and allowed exemption on retrenchment compensation under Section 10(10B) and full leave encashment under Section 10(10AA) of the Income Tax Act.
The appeals arose after the National Faceless Appeal Centre (NFAC) and various Commissioners (Appeals) had dismissed several appeals primarily on the ground of limitation, while in one case an appeal was rejected on maintainability after dismissal of a rectification application under Section 154.
The taxpayers challenged these orders before the ITAT, contending that they became aware of their entitlement to exemption only after judicial precedents were delivered in favour of BSNL employees.
The assessees were former BSNL employees who retired under the BSNL Voluntary Retirement Scheme (VRS), 2019.
The Tribunal observed that although the scheme was described as a voluntary retirement scheme, its true nature was that of a retrenchment scheme intended to reduce the workforce due to financial losses suffered by BSNL. Employees received ex-gratia compensation in four instalments, spread over Assessment Years 2020-21 and 2021-22.
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Since BSNL had deducted tax at source (TDS) on these payments, the employees treated the compensation as taxable income and disclosed it in their income tax returns. Subsequently, after judicial pronouncements clarified that such compensation qualified for exemption under Section 10(10B), the employees sought relief.
The Tribunal accepted that the delay in filing appeals occurred because the taxpayers became aware of their legal entitlement only after the Chandigarh Bench of the ITAT ruled in Harish Kumar v. ITO, holding that retrenchment compensation received under the BSNL VRS qualified for exemption under Section 10(10B).
After learning about the decision, the employees approached the appellate authorities along with applications seeking condonation of delay.
However, several Commissioners (Appeals) rejected the appeals solely on limitation without examining the merits.
The Tribunal noted that numerous coordinate benches across the country had already granted identical relief to similarly placed BSNL employees.
It further observed that several Commissioners (Appeals) had themselves condoned delays ranging from 900 to 2,000 days in identical BSNL cases. Coordinate Benches of the ITAT had condoned delays in 144 similar appeals involving BSNL employees. Refusing to condone delay in identical circumstances would result in unequal treatment of similarly situated taxpayers.
The Bench therefore held that the Commissioners (Appeals) ought to have condoned the delay instead of dismissing the appeals on technical grounds.
Accordingly, the Tribunal itself condoned the delay and decided the matters on merits instead of remanding them back.
The Tribunal reiterated that retrenchment compensation received under the BSNL VRS has consistently been held eligible for exemption under Section 10(10B) by several benches of the ITAT.
It also observed that once the issue has repeatedly been decided in favour of taxpayers and the Revenue has accepted those decisions, the same view should be consistently followed in subsequent cases.
Consequently, all eligible BSNL employees before the Tribunal were granted exemption on the retrenchment compensation received under the VRS.
Apart from retrenchment compensation, some appeals involved the issue of leave encashment.
The taxpayers had originally been allowed exemption only up to the then statutory ceiling of ₹3 lakh.
The Tribunal referred to the Kerala High Court judgment in Sanchar Nigam Pensioners Welfare Association v. Union of India, which held that retired BSNL employees under the 2019 VRS are to be treated as Central Government employees for the purpose of leave encashment exemption.
It also relied upon earlier decisions of the Jaipur and Indore Benches which held that the enhanced exemption limit of ₹25 lakh, introduced through Gazette Notification No. 31/2023 dated May 24, 2023, is a beneficial provision and should be applied during appellate proceedings.
Accordingly, the Tribunal allowed the benefit of the entire leave encashment exemption under Section 10(10AA).
One of the appeals involved rejection of a rectification application under Section 154.
The Assessing Officer had held that the issue was beyond the scope of rectification, and the Commissioner (Appeals) affirmed that view.
The Tribunal disagreed, observing that once judicial precedents had clearly settled the issue in favour of taxpayers, the rectification application was maintainable and the exemption under Section 10(10B) ought to have been granted.
Accordingly, that appeal was also allowed.
Allowing all thirteen appeals, the Bangalore Bench held that procedural delays should not override substantive statutory rights where taxpayers are otherwise entitled to exemption under the Income Tax Act.
The Tribunal condoned the delays in filing appeals, allowed exemption on retrenchment compensation under Section 10(10B), allowed full exemption on leave encashment under Section 10(10AA) and allowed the appeal arising from rejection of the rectification application under Section 154.
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