ITAT dismisses claim of Leave Encashment exemption u/s 10(10AA)(ii) beyond Rs. 3 lakhs
In a recent judgment, ITAT Ahmedabad has dismisses claim of Leave Encashment exemption u/s 10(10AA)(ii) beyond Rs. 3 lakhs for prior to AY 2023-24
ABCAUS Case Law Citation:
5132 (2026) (04) abacus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming rejecting the claim of exemption of Leave Encashment amount u/s 10(10AA)(ii) of the Income Tax Act, 1961 (the Act) and restricting the same to Rs. 300000/-.
The appellant assesse had retired from RBI in F.Y. 2019-20 (on 31.05.2019) and received approx. Rs. 16 lacs as “Leave Encashment” benefit in terms of sec 10(10AA) of Act.
The assessee filed return of Income which was later Revised claiming whole of such amount of Leave Encashment exempt u/s 10(10AA)(ii) of Act.
However, the CPC Bengaluru vide adjustment u/s 143(1)(a) of the Act restricted the exemption of leave encashment to Rs. 3,00,000/- and disallowed/Added the rest of the amount to the returned income.
Before the Tribunal the assessee submitted that the CIT(A) NFAC had wrongly disallowed / Restricted the exemption of Leave encashment benefit to Rs. 3,00,000/ in view of CBDT notification number 31/2023 dated, 24/05/2023 even non government employees are entitled to exemption u/s 10(10AA)(ii) of the Act upto Rs. 25.00 Lakhs maximum (Retrospectively).
It was argued that in view of CBDT notification, section 10(10AA) sub section (i) & (ii) both are at par & since it is clear that as per explanatory memorandum that no person is being adversely affected by giving retrospective effect to this notification. Thus section 10(10AA)(i) & (ii) both are at par (with retrospective effect & even the private employee on retirement are entitled for such higher limit of Rs. 25,00,000/- or actual amount received whichever is less; to claim u/s 10(10AA) of Act.
The Tribunal observed that the contention of the assessee was that the Assessing Officer was not right in disallowing the exemption exceeding Rs. 3 lakhs u/s 10(10AA)(ii) of the Act considering the Gazette Notification No. 50588(E) dated 31.05.2002 issued by CBDT effective from 01.04.1998.
With respect to the reliance placed by the assessee on the Delhi High Court decision, the ITAT noted that Delhi High Court had only issued a notice to the Union of India observing as under,
“We are however of the, prima facie, view that the grievances of the petitioner with regard to exemption limit under Clause (01) 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 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 last drawn salaries have increased manifold since time and notification issued under Clause (11) 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. Issue notice, learned counsel for the respondents accepts notice.”
The ITAT further noted that on the issue, Kerala High Court had categorically held the Government should have revised the upper limit, which was fixed under the notification of 2002 as Rs. 3 lakhs taking into consideration the three pay revisions but the Government has not done so. The Court, though, had sympathy with the petitioners, but considering the limitation on powers of the Court, expressed inability to issue a writ of mandamus commanding the respondents to revise the upper limit in respect of the employees who retired before 01.04.2023 and held that this is in the realm of policy decision, which is to be taken by the Executive.
Therefore, in light of the decision of Hon’ble High Court the appeal was dismissed.
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ABCAUS Note:Â
The decision of the Ahmedabad ITAT is is sharp contradiction of a recent decision of ITAT Delhi ( 5131 (2026) (04) abacus.in ITAT) which held that the assessee was entitled to the exemption of leave encashments u/s 10(10AA) of the Act as claimed by him within the threshold limit prescribed in CBDT Notification No. 31/2023. The decision of the Kerala High Court was however not discussed by the ITAT Delhi.
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