Facts of the Case

The assessee, a senior citizen and retired employee of Life Insurance Corporation of India, filed his return of income for Assessment Year 2020-21 claiming exemption of ₹13,12,806 on account of leave encashment received at the time of retirement under Section 10(10AA) of the Income-tax Act. While processing the return under Section 143(1), the CPC restricted the exemption to ₹3,00,000 and added the balance amount to the assessee’s income. The CIT(A), Addl./JCIT(A)-1, Gurugram confirmed the adjustment vide order dated 29.03.2024. The assessee filed an appeal before the ITAT with a delay of 476 days along with an application for condonation of delay supported by a sworn affidavit.

Issues Involved

Whether an inordinate delay of 476 days in filing appeal before the ITAT deserved to be condoned, whether the assessee was entitled to full exemption of leave encashment of ₹13,12,806 under Section 10(10AA), and whether the exemption limit applicable for AY 2020-21 was ₹25 lakhs or ₹3 lakhs.

Petitioner’s Arguments

The assessee submitted that the delay was neither deliberate nor mala fide and occurred due to late awareness of the CIT(A)’s order served through email, coupled with negligence on the part of the earlier tax consultant. It was argued that the assessee acted promptly once he became aware of favourable ITAT decisions on identical issues. On merits, it was contended that multiple coordinate bench decisions of the ITAT had consistently held that the enhanced exemption limit of ₹25 lakhs for leave encashment applied for AY 2020-21 and that the CPC erred in restricting the exemption to ₹3 lakhs.

Respondent’s Arguments

The Revenue opposed the condonation of delay on the ground of laxity on the part of the assessee. However, on merits, the Department fairly conceded that the issue relating to exemption of leave encashment was covered in favour of the assessee by several decisions of the ITAT and no contrary judgment of any higher judicial forum was available.

Court Order / Findings

The ITAT Jaipur extensively analysed the principles governing condonation of delay as laid down by the Supreme Court in Collector, Land Acquisition vs. Mst. Katiji and N. Balakrishnan vs. M. Krishnamurthy and held that a liberal approach must be adopted where the delay is not deliberate and refusal to condone would result in miscarriage of justice. Considering the assessee’s status as a senior citizen, the absence of mala fide intent, and the fact that the issue on merits was squarely covered in his favour, the Tribunal condoned the delay of 476 days.

On merits, the Tribunal noted that in more than 22 coordinate bench decisions, it has been consistently held that the exemption limit under Section 10(10AA) applicable for the relevant year was ₹25 lakhs. Since the assessee’s leave encashment was well within this limit, the Tribunal held that the entire exemption of ₹13,12,806 was allowable and the CPC adjustment as well as the CIT(A)’s order were unsustainable.

Important Clarification

The Tribunal clarified that procedural delays should not defeat substantive rights, particularly where the assessee has a legally tenable and covered claim. It was further clarified that for AY 2020-21, the exemption limit of ₹25 lakhs for leave encashment under Section 10(10AA) applies uniformly, and CPC adjustments restricting the exemption to ₹3 lakhs are contrary to law as interpreted by consistent ITAT jurisprudence.

Final Outcome

The delay of 476 days in filing the appeal was condoned. The appeal was allowed in full. The addition of ₹13,12,806 made on account of leave encashment was deleted, and the assessee was held entitled to complete exemption under Section 10(10AA) of the Income-tax Act.

Source Link- https://itat.gov.in/public/files/upload/1767261470-KaJDsN-1-TO.pdf

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