Sh. Parvinder Singh Monga vs Income Tax Officer

“3.

Succinctly, the f act as culled out f rom the records is th at the assessee who has re tired is a bank employee and has claimed an amount of Rs. 6,97,100/ - being leave encashmen t received as exempt u/s 10(10AA) of the Act. However, the AO, CPC while processing the return of income has allowed exemption of only Rs. 3,00,000/ - as ag ains t 100% exemption claimed by the assessee. Hence, this appeal.

4.

Aggrieved from the order of the AO, CPC assessee preferred appeal before the ld. CIT(A). A propose to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

"5.2.2

I h ave considered the f ac ts of the case as also the submissions of the appellan t. The appellan t is a retiree from Bank and not any government org anization. Here, reliance is placed on the decision of Hon'ble Delhi High Court in the case of Kamal Kumar K alia v/s Union of India (2020) 268 Taxman 398/313 CTR 779 (Delhi) (HC) dated 08.11.2019, where the issue under consideration was whether the appellan t being employee of Public sector under taking (PSU) Ram Charan Gupta vs. ITO and Nationalized b anks can be treated as government e mployee from the purposes of exemption u/s 10(10AA) of the I.T. Act. In the said case, the Hon'ble High Court held as under: -"The petitioner, who were the employees of the Public Sector undertaking and Nationalized banks, filed writ contending th at they were discriminated ag ains t Central Government and State Government. The Central Government and State Government employees are g ranted complete exemption in respect of the c ash equivalen t of the leave salary for the period of earned leave standing to their credit at the time of their retiremen t. Dismissing the petition the Cour t held that merely because Public Sector Undertaking an d Nationalized Banks are considered as S tate under article 12 of the Constitu tion of India for the purpose of enter tainment of proceedings under Article 226 of the Constitu tion and for enforcement of fundamen tal righ t under the Constitu tion, it does not follow that the employees of such Public Sector Undertaking, Nationalized Banks or other institu tions which are classified as 'State' Assume the status of Cen tr al government and State Governmen t employees. Accordingly the petition is rejected."

5.2.3

Further, in th e case of KPTCL Davangere V/s ITO (2018), the Hon'ble ITAT, Bang alore vide its order in ITA No. 170 ITD 587 (Bang.) (Trib.) has held that assessee being a statu tory corporation its employees could not be reg arded as State or Central Gov ernment employees and therefore exemption under S. 10(10AA)(i) was not avail able and assesse was liable to deduc t tax at source. 5.2.4 In view of the above, the ac tion of the AO of restric ting the exemption u/s 10(10AA) to Rs. 3,00,000/ - is found to be in order. This grounds of appeal are therefore, dismissed."

5.

Feeling dissatisfied with the order of the ld. CIT(A) the assessee has preferred this appeal before this tribunal on the grounds as raised by the assessee as reiterated here in above para 2. To support the various grounds so raised by the assessee, the ld. AR appearing on behalf of the assessee has placed their written submission which is extrac ted in below;

"1.

Under the f ac ts and circums tances of the case learned CIT (Appeal) was not justif ied while conf irming the order passed by AO u/s 143(1) Assessing to tal income Rs 1188620.00 Confirming Demand of Rs. 118280 Our submission Initially return was processed u/s 143(1) (vide documen t iden tif ication no. cpc/2021/A3/186338352 dt.02/12/2021) allowing the claim of Rs.300000.00 u/s 10(10AA) -E arned Leave Encashmen t on Retirement. meaning thereby that there was enhancemen t in the income amounting by Rs.397100.00 and assessing to tal income at Rs 1188620.00 This was made without providing any opportunity of being heard as it appears that this ad dition was made by treating the employee as non -government employee al thoug h no specific reasons has been informed to appellant In f act, this org aniz ation is regulated by Bylaws made by cen tral Government, thus by no means of stretch of imag ination this org anization can be tre ated as non - central government. Therefore, AO was no t justif ied to disallow the claim up to the extent Rs 397100.00 without assigning any specific reasons and raising the demand of RS 118820.00 U/S 143(1).

2.

Under the f acts and circumstances CIT (Appeal) was not justif ied while restric ting the cl aim Amounting To Rs 300000 u/s 10(10AA) and rejecting the amounting to Rs. 397100.00 out of Rs 697100.00 which is earned leave encashment on retiremen t m ade by AO.

Our submission: -it is to explain that he is govt. employee therefore he claimed full amount of leave encashmen t u/s 10(10AA) Rs 697100.00 in his return copy of computation is enclosed and marked as annexure B however while processing u/s 143(1) it appears th at claim amoun ting to Rs 397100.00 out of Rs 697100.00 has been disallowed which is leave encashment u/s 10(10AA) from the order of CPC Banglore without assigning any cogent reasons in f ac t the appellan t is bank employee and nowhere in the sec tion it has been mentioned that it is allowable only up to Rs 3.00 lacs in the case bank employee definition of other employee and g ovt. has not been in described in section 10(10AA) therefore it can be safely conclude th at appellan t is govt. employee and he is entitle for full exemption of for the sake of argumen t bank employee cannot be put on different footing for purpose of tre atmen t of govt. employee. This is also clear from the fac t th at bank are nationalized and their management and adminis tration is controlled by central govt. even CMD is appointed by govt. therefore there is no reasons to not to treat as govt. employee and resultan tly appellan t is the govt. employee and he can not be denied the benefit of exemption u/s 10(10AA) it is also to clarify that in the definition of non govt. employee bank employee are not specif ied therefore he is govt. employee and is eligible for remaining balance of leave encashment Ram Charan Gupta vs. ITO amoun ting to RS 397100.00 meaning thereby that he is entitled for deduction of RS 10(10AA).

3.

Under the f acts and circumstances of the case C IT (Appeal) was not jus tif ied while confirming the order of AO treating the employer as non -government inste ad of government org anization Our submission: it is to submit th at al thoug h no reason has been men tioned in intimation send u/s 143(1) for disallowance of Rs 397100.00 out of Rs 697100.00 u/s 10(10AA) however it appears that bank has not been treated as govt. employee and dis allowance has been effected which is no t a correc t proposition as per principal of natural justice it becomes mand atory on the part of assessing officer to provide the opportunity of being heard however f ac tually employer of the appellant is govt. therefore he is entitle for deduction of Rs 697000.00.

4.

Kindly stay the demand. As disallowance has been made on incorrec t presumption therefore demand is liable to be quashed.

5.

Assessee craves to add al ter any of the grounds of appeal before or at the time of hearing. This ground of appeal is general in nature therefore no submission are being submit."

6.

In addition to the above detailed written submission the ld. AR of the assessee also submitted that in the recen t budget speech Hon'ble Finance Minister indicated that for increase in the limit and the related notif ication is issued. The ld. AR thus based on the said notif ication submitted th at the relief be gran ted to the assessee.

7.

The ld. DR is heard who has relied on the findings of the lower authorities and lef t the decision on bench to gran t the relief to the assessee as per notif ication dated 24.05.2023.

8.

We have heard the rival con tentions and perused the material placd on record. The bench noted that the assessee relying the decision of Hon'ble Delhi High Court has issued a notice to the Union of India in the case of Kamal Kumar Kalia & Ors. Vs. Union of India & Ors in WP(C) 11846/2019 dated 08.11.2019 wherein the court has g iven following directions: -

"8.

We are however of the, prima facie, view that the grievances of the petitioner with reg ard to exemption limit under Clause (ii) of Section 10 (10AA) not being raised since 1998, appears to be justif ied. This is so because over the decades, the pay -scales admissible to government servants, and even employees of the Public Sector Undertaking and Nationalized 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 las t drawn salaries have increased manifold since time and notif ication 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.

9.

Issue notice, learned counsel for the respondents accepts notice. Respondents should file counter affidavits be filed within six weeks. Rejoinder there to, if any, be f iled before the next date."

8.1

Recently the Central Board of Direc t Taxes Suo -motu revised the limit for deduction u/s 10(10AA) of the Act and the revised limit now stood at Rs. 25,00,000 as specified vide notif ication no. 31/2023 issued by the ministry of finance. Since the leave encashment amount as claimed by the assessee is amount to Rs. 6,97,100/ - which is below the revised limit of leave en cashment exempt prescribed by the Board, the assessee is elig ible to claim of deduction of said Rs. 6,97,100/-. Based on these observations the ld. AO is direc ted to allow the claim of the assessee u/s. 10(10AA) of the ac t within the revised limit as prescribed. In terms of these observations the appeal of the assessee is allowed.”