The Income Tax Appellate Tribunal, Agra (SMC) Bench held that ex-gratia compensation received under the BSNL Voluntary Retirement Scheme, 2019 is fully exempt under section 10(10B) of the Income Tax Act, 1961, even when the exemption claim is raised for the first time in appellate proceedings. The Tribunal relied on coordinate bench decisions treating the scheme as a retrenchment compensation and held that appellate authorities are not barred from admitting fresh claims absent a revised return.
Background & Facts
The Dispute
The assessee, Preeti Dubey, a former employee of Bharat Sanchar Nigam Limited (BSNL), received ex-gratia compensation under the BSNL Voluntary Retirement Scheme (VRS) 2019. She initially claimed a partial exemption of Rs.5,00,000 under section 10(10C) and inadvertently offered the balance to tax. After learning of the Harish Kumar judgment (ITA No. 42/CHD/2025) which held such compensation fully exempt under section 10(10B), she sought exemption under that provision before the CIT(A), Coimbatore. The CIT(A) rejected the claim, prompting the present appeals.
Key Facts
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The BSNL VRS 2019 was implemented pursuant to Central Government Notification dated 29.10.2019.
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During the relevant financial years the assessee received ex-gratia compensation of Rs.9,93,938/- for AY 2020-21 and Rs.21,81,583/- for AY 2021-22.
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In her original return of income she claimed exemption of Rs.5,00,000 under section 10(10C) and did not claim any exemption under section 10(10B).
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The Hon'ble ITAT Chandigarh in Harish Kumar vs ITO (ITA No. 42/CHD/2025), order dated 30 May 2025, held that compensation under the BSNL VRS 2019 scheme is fully exempt under section 10(10B) of the Act.
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The assessee filed her appeal before the CIT(A) Coimbatore claiming exemption under section 10(10B) for the first time during appellate proceedings.
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The ld. CIT(A) passed impugned orders dated 20.03.2026 (AY 2020-21) and 25.03.2026 (AY 2021-22) dismissing the appeal.
Procedural History
The appeals progressed as follows:
- 27/11/2025: CIT(A) Coimbatore condoned delay and allowed appeal of Bhuvneshwar Pandit Tambat (Order under section 250 Act).
- 28/11/2025: CIT(A) Coimbatore condoned delay and allowed appeal of Shripathi Rao Padubidri Govinda (Order under section 250 Act).
- 12/12/2025: CIT(A) Coimbatore condoned delay and allowed appeals of Ajay Pandurang Patil, Ghanshyam Vitthal Dhond, Ravindra Sahadu Patil, Umrao Kerba Kore (Orders under section 250 Act).
- 22/12/2025: CIT(A) Coimbatore condoned delay and allowed appeals of Youraj Raghunathrao Pawar, Valmik Vedu Patil (Orders under section 250 Act).
- 29/12/2025: CIT(A) Coimbatore condoned delay and allowed appeals of Sunil Ramlingappa Gulave, Mary Cruz Janet Francis (Orders under section 250 Act).
- 31/12/2025: CIT(A) Coimbatore condoned delay and allowed appeal of Rajendra Babulal Takle (Order under section 250 Act).
- 06/01/2026: CIT(A) Coimbatore condoned delay and allowed appeal of Devendra Vishwarao Sonawane (Order under section 250 Act).
- 05/03/2026: CIT(A) Coimbatore condoned delay and allowed appeal of Niva Baruah (Order under section 250 Act).
- 22.07.2026: Date of hearing before the ITAT Agra.
- 06.10.2026: Date of pronouncement of the present order.
Relief Sought
The assessee sought:
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Quashing of the impugned orders dated 20.03.2026 and 25.03.2026.
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Direction to the Assessing Officer to allow exemption under section 10(10B) on the ex-gratia compensation received.
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Computation of tax liability and grant of refund (if any) after placing revised computation of income before the Jurisdictional Assessing Officer.
The Legal Issue
The central questions were: (1) Whether compensation received under the BSNL Voluntary Retirement Scheme, 2019 qualifies for exemption under section 10(10B) of the Income Tax Act, 1961; and (2) Whether an exemption claim under section 10(10B) raised for the first time in appellate proceedings can be entertained without a revised return.
Arguments Presented
For the Appellant/Petitioner
The assessee contended that the BSNL VRS 2019 scheme, in substance, amounted to retrenchment compensation as the employer could not pay salary prior to the scheme, citing coordinate bench decisions of ITAT Delhi, Pune, Mumbai, Ahmedabad, Chennai, Bangalore, Guwahati, Panaji and Hyderabad. She relied on Harish Kumar vs ITO (ITA No. 42/CHD/2025) to assert full exemption under section 10(10B). She argued that appellate authorities are empowered to admit fresh claims even if not made in the original return, citing CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd. (349 ITR 336, Bom.) and that the ratio in Goetze (India) Ltd. vs CIT [2006] 284 ITR 323 (SC) is limited to the powers of the Assessing Officer and does not restrict appellate authorities. She further invoked CBDT Circular No. 14 of 1955 to contend that the Department must not take advantage of an assessee's ignorance of rights. Finally, she submitted that the delay in filing the appeal was condonable on the basis of sufficient cause, namely lack of awareness of the exemption due to unclear legal position at the time of filing the return.
For the Respondent/State
The Department maintained that section 10(10B) applies only to compensation received by a "workman" at the time of retrenchment under the Industrial Disputes Act, 1947 or under a scheme approved by the Central Government, and not to amounts received on account of voluntary retirement or separation. It argued that the claim for exemption under section 10(10B) was a fresh claim raised for the first time in appellate proceedings and, relying on Goetze (India) Ltd. vs CIT, could not be entertained without a revised return. The Department also asserted that the assessee had failed to show sufficient cause for the delay of 1,396 days in filing the appeal, rendering the appeal non-maintainable under section 249(3) of the Act.
The Court's Analysis
The Tribunal began by noting that the nature of the payment, not its label, determines eligibility under section 10(10B). It observed that the BSNL VRS 2019 was formulated pursuant to a Government-approved revival package and that the assessee had not received regular salary for several months before opting for the scheme, indicating a situation of compelled separation. Drawing on the reasoning of ITAT Chandigarh in Harish Kumar vs ITO, the Tribunal concluded that the scheme partook of the character of a Government-approved retrenchment compensation scheme.
On the fresh-claim issue, the Tribunal distinguished Goetze (India) Ltd. vs CIT, emphasizing that the Supreme Court’s observation therein was confined to the powers of the Assessing Officer and did not restrict appellate authorities. It relied on the binding precedent of CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd., which expressly held that appellate authorities may admit fresh claims even if not made in the original return. The Tribunal further noted that the CBDT Circular No. 14 of 1955 reinforces the protective intent of the provision.
Regarding delay, the Tribunal found that the assessee had offered a plausible explanation - lack of awareness of the exemption due to the unsettled legal position at the time of filing the return - and that this constituted sufficient cause under section 249(3). It cited the Bombay High Court’s decision in Vijay Vishin Meghani vs DCIT [2017] 398 ITR 250 (Bombay) which condoned a far longer delay on similar grounds. Consequently, the Tribunal condoned the delay and proceeded to adjudicate the merits.
Finally, the Tribunal directed the assessee to place a revised computation of income before the Jurisdictional Assessing Officer claiming exemption under section 10(10B) and instructed the revenue authorities to compute tax liability and grant any refund thereafter. It set aside the impugned orders of the CIT(A) and allowed the appeals.
The Verdict
The assessee succeeded in both appeals. The Tribunal set aside the impugned orders dated 20.03.2026 (AY 2020-21) and 25.03.2026 (AY 2021-22). It directed the assessee to place revised computation of income before the respective Jurisdictional Assessing Officers claiming exemption under section 10(10B) on the ex-gratia amounts of Rs.9,93,938/- for AY 2020-21 and Rs.21,81,583/- for AY 2021-22. The revenue authorities were ordered to compute the tax liability and grant any refund (if any) after verification of such revised computation. No specific interest or compensation amount was awarded beyond the principal exemption.
What This Means For Similar Cases
Retrenchment Characterization Overrides Label
Payments termed "voluntary retirement" or "ex-gratia" may still qualify as retrenchment compensation under section 10(10B) if the substance shows a compelled separation due to employer-initiated financial restructuring. Practitioners should examine whether the employee was deprived of regular salary prior to the scheme and whether the scheme was part of a Government-approved revival plan.
Appellate Authorities May Admit Fresh Claims
An exemption claim under section 10(10B) raised for the first time in appeal is maintainable without a revised return, as appellate authorities are not subject to the same restriction as Assessing Officers under Goetze (India) Ltd. vs CIT. Reliance on CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd. is advisable when opposing a fresh-claim objection.
Delay Condonation Requires Plausible Explanation
A delay in filing tax appeals can be condoned if the assessee demonstrates a reasonable ground such as lack of awareness of a beneficial legal development that emerged after the return was filed. Tribunals may look to whether the assessee sought professional advice and whether the legal position was unsettled at the time of original filing.
