ITAT Delhi Allows Full Leave Encashment Exemption to Bank of Baroda Retiree Under Section 10(10AA)

Background and Context

A significant ruling has emerged from the Income Tax Appellate Tribunal (ITAT), Delhi Bench, concerning the eligibility of a retired Bank of Baroda employee to claim full exemption on leave encashment received at the time of retirement. The matter pertained to Assessment Year 2020-21 and arose out of a challenge to an order passed by the CIT(A)/NFAC, Delhi, in proceedings initiated under Section 143(1) read with Section 264 of the Income Tax Act, 1961.

The core dispute revolved around whether a bank employee — specifically one employed with Bank of Baroda, a nationalised bank — could be denied the benefit of exemption under Section 10(10AA) on the ground that she was not an employee of the Central or State Government. Both the Assessing Officer and the first appellate authority had taken a restrictive view, resulting in denial of the full exemption claimed.

The Sole Substantive Ground Before the Tribunal

The assessee, Neelam Gupta, raised a single substantive ground in her appeal before the ITAT: that the lower authorities were unjustified in denying the exemption under Section 10(10AA) of the Income Tax Act, 1961, treating her as ineligible merely because her employer — Bank of Baroda — was not classified as a Central or State Government department.

The leave encashment received on retirement amounted to ₹6,97,100, which the assessee had claimed as fully exempt. However, while processing the return under Section 143(1), the CPC, Bangalore had allowed only ₹3,00,000 as exempt, disallowing the balance of ₹3,97,100. No specific reasons were communicated to the assessee for the disallowance, which she argued was also a violation of the principles of natural justice.

Earlier Proceedings and the Coordinate Bench Ruling

The ITAT Delhi placed considerable reliance on a previously decided matter — Ram Charan Gupta, Jaipur v. ITO, Ward 4(2), Jaipur, ITA No. 408/JPR/2022 dated 27.06.2023 — where the ITAT Jaipur Bench had already examined and rejected the Revenue's stance of restricting leave encashment exemption for a retired bank employee.

In that case, the facts were virtually identical: the assessee was a retired bank employee who had claimed ₹6,97,100 as exempt under Section 10(10AA), but the CPC had allowed only ₹3,00,000. The ITAT Jaipur Bench had carefully evaluated the Revenue's position and directed the Assessing Officer to allow the full claim within the revised limit as prescribed by the Central Board of Direct Taxes.

The Delhi High Court's Position in Kamal Kumar Kalia

Both the ITAT Jaipur ruling cited above and the present Delhi Bench proceedings made reference to the Delhi High Court's decision in Kamal Kumar Kalia & Ors. v. Union of India & Ors. in WP(C) 11846/2019 dated 08.11.2019.

The Delhi High Court, while hearing the writ petition, had observed: