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Judgment
PER SHRI VIKAS AWASTHY, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of Additional/Joint Commissioner of Income Tax (Appeals)-1, Chennai [in short ‘the CIT(A)’] dated 06.03.2026, for Assessment Years 2022-23.
The facts of the case in brief as emanating from records are; the assessee superannuated from Central Bank of India during the period relevant to the assessment year under appeal. On superannuation the assessee received leave encashment of Rs.12,78,139/-. The assessee in his return of income claimed exemption of Rs.3,00,000/- on leave encashment under section 10(10AA) of the Income Tax Act, 1961 (herein after referred to as ‘the Act’). The return of assessee was processed under section 143(1) of the Act. The Centralized Processing Center, Bengaluru (CPC) vide intimation dated 29/7/2022 allowed exemption to the assessee under section 10(10AA) to the extent claimed i.e. ₹3,00,000/-. Thereafter, the Ministry of Finance, in pursuance to the decision of Hon'ble Delhi High Court in the case of Kamal Kumar Kalia vs. UOI reported as 111 taxmann.com 409, vide notification no.31/2023 dated 24/5/2023 enhanced the limit to ₹ 25,00,000/-. In light of the enhanced/revised limit of exemption, the assessee filed appeal before the CIT(A) against intimation under section 143(1) dated 29/7/2022, making claim of exemption u/s 10(10AA) of the Act on the balance amount of leave encashment ₹9,78,139/-, but remained unsuccessful. Hence, the present appeal by the assessee.
Ms. Neelam Dhiman, appearing on behalf of the assessee submits that since limit of exemption u/s.10(10AA) of the Act has been revied/enhanced, the assessee is eligible to claim benefit of the same as the decision of the Hon’ble High Court is prior to the date of assesses’s superannuation. The ld. Authorized Representative of assessee placed reliance on various decisions of the Tribunal to contend that in light of revised limit of exemption u/s 10(10AA) of the Act to Rs.25,00,000/- issued by the Ministry of Finance, entire leave encashment received by the assessee is eligible for exemption.
Per Contra Shri Nirmal Nangia representing the department vehemently supported the impugned order and prayed for dismissing appeal of the assessee. The ld. DR submits that the assessee was not a Government Employee, therefore, was eligible for exemption on leave encashment u/s.10(10AA)(ii) of the Act to the extent of Rs.3,00,000/- only and the same was allowed to the assessee by CPC.
Both sides heard, orders of the lower authorities examined and the decisions on which assessee has placed reliance considered. At the time of superannuation, the assessee received leave encashment of Rs.12,78,139/-. The claim of assessee u/s 10(10AA) of the Act was allowed to the extent of Rs.3,00,000/- by the CPC and the CIT(A) upheld the same. The Ministry of Finance vide notification dated 20.5.2023 revised the amount of exemption of leave encashment under section 10(10AA) of the Act to ₹25,00,000. The assessee is now seeking exemption of entire leave encashment in view of revised limit.
The Hon’ble Delhi High Court in the case of Kamal Kumar Kalia vs. UOI (supra) in a writ petition, where the petitioner who had retired from Nationalized Bank and had received leave encashment upon his retirement and had claimed exemption of the full amount received u/s.10(10AA) of the Act. The AO restricted the claim of exemption in respect of leave encashment to Rs.3,00,000/-. The petitioner challenged the disallowance of exemption and had also sought revision in the exemption limit. The Hon’ble High Court observed as under:
“8.We are however of the, prima facie, view that the grievances of the petitioner with regard to exemption limit under Clause (ii) of Section 10 (10AA) not being raised since 1998, appears to be justified. This is so because over the decades, the pay-scales admissible to government servants, and even employees of the Public Sector Undertaking and Nationalised Banks and all others have been upwardly revised, keeping in view, the financial growth in the country as well as on account of rising inflation. The last drawn salaries have increased manifold since time and notification issued under Clause (ii) of Section 10(10AA) was lastly issued, as taken note of hereinabove, on 31.05.2002. We therefore, issue notice to the respondents limited to this aspect.”
The said judgment was delivered by the Hon’ble Jurisdictional High Court on 08.11.2019. Subsequently, the Ministry of Finance vide Notification dated 24th May, 2023 revised the amount of exemption on leave encashment u/s.10(10AA) (ii) of the Act to Rs.25,00,000/-. The said notification is as under:
“S.O. 2276(E).—In exercise of the powers conferred by sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government, having regard to the maximum amount receivable by its employees as cash equivalent of leave salary in respect of the period of earned leave at their credit at the time of their retirement, whether superannuation or otherwise, hereby specifies the amount of Rs. 25,00,000 (twenty-five lakhs rupees only) as the limit in relation to employees mentioned in that sub-clause who retire, whether on superannuation or otherwise. 2. April, 2023. This notification shall be deemed to have come into force with effect from the 1st day of April 2023 [Notification No. 31/2023/F. No. 200/3/2023-ITA-I] SOURABH JAIN, Under Secy. Explanatory Memorandum: It is hereby certified that no person is being adversely affected by giving retrospective effect to this notification.”
The Pune Bench of Tribunal in the case of Sudhakar Gundappa Paldewar vs. CIT, reported as 180 taxmann.com 123 (ITAT-Pune), in a case of appellant who had received leave encashment consequent to his retirement during AY 2020-21 and had claimed exemption of the entire leave encashment received on superannuation, the AO restricted the exemption to Rs.3,00,000/-. In appeal, the Tribunal allowed the claim of assessee in terms of notification dated 24th May, 2023 (supra).
Similarly, in the case of Neelam Gupta vs. Addl. CIT in ITA No.81/Del/2025 for AY 2020-21 decided on 21.04.2025, the Coordinate Bench allowed the benefit of revised limit vide notification dated 24th May, 2023 (supra) in respect of leave encashment received by the assessee during FY 2019-20.
The Tribunal in a series of decisions have taken a similar view and has allowed benefit of revised limit of exemption u/s 10(10AA) of the Act to the similarly placed assessees who had superannuated prior to the date of notification (supra). Some of the decisions are as under:
- Ram Charan Gupta vs. ITO in ITA No.408/JPR/2022 for AY 2020-21, decided on 27/6/2023;
- Vijay Kumar Jain vs. ITO in ITA No. 175/Agr/2022 for AY 2019-20, decided on 18/06/2025;
- Ram Dev Daiya vs. ITO in ITA No. 1280/JPR/2025 for AY 2020-21, decided on 01/01/2026;
- Govind Chhatwani vs. CIT(A) in ITA No.385/JP/2023 for AY 2020-21, decided on 31/10/2023.
Thus, in facts of the case and the decisions discussed above, the AO is directed to allow exemption in respect of leave encashment u/s.10(10AA) of the Act as per the revised limit under notification dated 24th May, 2023 (supra).
In the result, appeal of the Assessee is allowed.
Order pronounced in the open court on Tuesday the 29th day of September, 2026.