Delay in Filing Appeal Condoned and Entire BSNL VRS 2019 Ex Gratia Exempt Under Section 10(10B)
Issue
Whether the CIT(A) erred in refusing to condone a 1540-day delay in filing an appeal, and whether ex gratia compensation received by a retired BSNL employee under the BSNL Voluntary Retirement Scheme (VRS), 2019 qualifies for full income tax exemption under Section 10(10B) without being restricted by the monetary limit of Section 10(10C).
Facts
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Assessee Profile: The assessee is a retired employee of Bharat Sanchar Nigam Limited (BSNL) who received ex gratia compensation of approximately ₹12.65 lakhs under the BSNL VRS, 2019 during Assessment Year 2020–21.
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Initial Tax Filing: Due to limited tax knowledge and relying on Form No. 16, the assessee filed the initial income tax return claiming a capped exemption of ₹5 lakhs under Section 10(10C). The return was processed as submitted under Section 143(1).
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Delayed Appeal: Upon receiving professional legal advice, the assessee sought full exemption of the compensation under Section 10(10B) and filed an appeal before the CIT(A), which was delayed by 1540 days.
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CIT(A) Action: The CIT(A) dismissed the appeal as time-barred, holding that sufficient cause for the substantial delay had not been established.
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Nature of BSNL VRS 2019: The BSNL VRS, 2019 was fully funded by Central Government budgetary support to address severe financial stress, reduce operating losses, and rationalize manpower through a major workforce reduction.
Decision
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Condonation of Delay: The Tribunal/Court reversed the CIT(A) order, holding that since coordinate benches had condoned delays under identical facts and circumstances, the delay of 1540 days ought to have been condoned in the interest of justice.
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Characterization of Scheme: The scheme, though termed “voluntary,” was substantially a government-directed downsizing exercise possessing the essential character of retrenchment rather than conventional voluntary retirement.
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Full Exemption Granted: The ex gratia compensation received under BSNL VRS, 2019 is governed by Section 10(10B) and is not restricted by the monetary ceiling prescribed under the first proviso to Section 10(10B) or Section 10(10C), making the entire compensation of ₹12.65 lakhs fully exempt from income tax.
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Outcome: Decided entirely in favor of the assessee on both procedural and substantive grounds.
Key Takeaways
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Substance Over Form in VRS Schemes: Compensatory schemes introduced by Public Sector Undertakings (PSUs) for forced or government-funded workforce rationalization are treated as retrenchment compensation under Section 10(10B) rather than standard voluntary retirement under Section 10(10C).
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Uncapped Benefit for BSNL Retirees: Retirees receiving ex gratia under the BSNL VRS, 2019 are entitled to claim full exemption on the entire compensation amount received.
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Consistency in Judicial Condonation: Tax authorities cannot refuse to condone delays arbitrarily when coordinate benches have consistently granted relief on identical facts and issues.
IN THE ITAT BANGALORE BENCH ‘SMC’
Vittal Nayak Ullal
v.
Income-tax Officer
Prashant Maharishi, Vice President
IT Appeal No. 1122 (Bang) of 2026
[Assessment year 2020-21]
[Assessment year 2020-21]
JULY 27, 2026
Shambhu Sharma, CA for the Appellant. Ganesh R. Ghale, Standing Counsel for the Respondent.
ORDER
1. The assessee has filed this appeal for assessment year 2020-21 against the order of the Commissioner of Income Tax (Appeals), Guwahati, dated 22 January 2026. The learned CIT(A) dismissed the assessee’s appeal against the intimation issued under section 143(1) of the Income-tax Act, 1961, as time-barred by refusing to condone the delay of 1540 days, without considering the bona fide reasons explained by the assessee. The assessee also contends that exemption of Rs. 12,64,591 under section 10(10B) of the Act was wrongly denied in respect of gratuity and retirement compensation received under the Bharat Sanchar Nigam Limited Voluntary Retirement Scheme, 2019, and that the exemption was incorrectly restricted to Rs. 5,00,000 under section 10(10C) of the Act. According to the assessee, the issue has been decided in favour of retired employees covered by the BSNL VRS, 2019. The assessee further submits that several coordinate benches, on identical facts and circumstances, have condoned delays of similar magnitude and allowed the claims of similarly placed assesses
2. The Assessee has raised the following grounds of appeal:
| 1. | The orders passed by the authorities below in so far as they are against the appellant, are not in accordance with law facts and the overall circumstances of the appellant case. |
| 2. | The learned Commissioner of Income Tax Appeals was not justified in dismissing the appeal filed by the appellant as time barred and in not condoning the delay of 1540 days, without adequately considering the bona fide reasons explained by the appellant for such delay. |
| 3. | The learned Commissioner of Income Tax Appeals did not fully appreciate that the delay in filing the appeal occurred due to incorrect professional advice received by the appellant at the time of filing the return of income and due to the appellant limited knowledge of income tax laws and procedures, and that the delay was neither intentional nor with any ulterior motive. |
| 4. | The learned Commissioner of Income Tax Appeals erred in law by not following judicial precedence as laid down in the case of Midas Polymer Compound (P.) Ltd. v. Asstt. CIT [IT Appeal No. 288 (Coch.) of 2017, dated 25-6-2018]: wherein a delay of 2819 days was condoned by relying on the judgment of the Honourable Madras High Court in CIT v. K.S.P. Shanmugavel Nadar 133/[1985] 153 ITR 596 (Madras) and by relying on the judgment of the Honourable Supreme Court in Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC). |
| 5. | The learned Commissioner of Income Tax Appeals erred in law and on facts by dismissing the appeal in limine at the threshold without considering the substantive grounds of appeal, since the dismissal was on a technicality due to delay which has been explained, the Honourable Tribunal should treat the appeal as heard on merits in order to correct the procedural irregularity committed by the lower authority. |
| 6. | Without prejudice to the above grounds the Honourable Tribunal may be pleased to decide the matter on merits to avoid multiplicity of proceedings and protracted litigation, remanding the matter back to the Commissioner of Income Tax Appeals would lead to an unnecessary second round of litigation and cause undue hardship and financial burden to the appellant. |
| 7. | Without prejudice to the above grounds the authorities below were not justified in not allowing full exemption of Rs 1264591 under section 10(10B) of the Income tax Act 1961, to which the appellant is legally entitled in respect of the gratuity OR retirement compensation received under the Bharat Sanchar Nigam Limited VRS 2019 Scheme, and in restricting the exemption to Rs 500000 under section 10(10C) of section 10. |
| 9. | In view of the above and such other grounds as may be urged at the time of hearing, the appellant respectfully prays that the Honourable Tribunal may kindly condone the delay and set aside the order of the learned Commissioner of Income Tax Appeals and decide the case on merits and grant appropriate relief in accordance with law and equity. |
3. The facts show that the assessee is a retired employee who initially served in the Department of Telecommunications and later in Bharat Sanchar Nigam Limited, a public sector undertaking under that Department. Owing to limited knowledge of tax laws, incorrect professional advice, and Form No. 16 issued by the employer, the assessee filed the return of income for assessment year 2020-21 claiming exemption of only Rs. 5,00,000 under section 10(10C) in respect of retrenchment compensation of Rs. 12,64,591 received under the BSNL VRS, 2019. Subsequently, after reviewing the scheme, the Department of Telecommunications notification, the Cabinet approval, and Tribunal decisions in similar BSNL VRS cases, the assessee understood that the entire amount was exempt under section 10(10B) of the Act. On proper professional advice, the assessee filed an appeal before the learned CIT(A), claiming full exemption of Rs. 12,64,591 under section 10(10B). The return was processed under section 143(1) on 28 August 2021 by the Central Processing Centre by accepting the declared income. Against this intimation, the assessee appealed before the learned CIT(A), seeking full exemption under section 10(10B); however, as the appeal was filed with a delay of 1540 days, it was dismissed as time-barred on the ground that the assessee had not established sufficient and reasonable cause for the delay.
4. The assessee is, therefore, in appeal before us. It is submitted that the delay was explained before the learned CIT(A) as having arisen from reasonable cause and ought to have been condoned. The assessee also produced a letter from the Chartered Accountant who advised the appellant to file the appeal before the learned CIT(A). It was contended that the delay occurred because of earlier incorrect professional advice, the incorrect Form No. 16 issued by the employer, and the assessee’s lack of awareness of the correct legal position. Accordingly, the delay deserved to be condoned by the learned CIT(A).
5. The learned authorised representative further submitted that, in 72 identical cases of BSNL employees across the country, delays ranging from 962 days to 1862 days have been condoned. He also submitted that, in 144 cases, various Tribunals have not only condoned the delay wherever applicable but have also allowed full exemption under section 10(10B) for amounts received by BSNL employees under the BSNL VRS, 2019. It was therefore argued that, on similar facts and identical circumstances, BSNL employees who received amounts under the BSNL VRS, 2019 have been granted relief both on limitation and on merits, and that the issue is squarely covered in favour of the assessee.
6. During the hearing, the learned authorised representative relied on decisions of coordinate benches at Chandigarh, Ahmedabad, Pune, Indore, and Mumbai. He also filed a 265-page paper book compiling those decisions and submitted that the issue is now clearly covered in favour of the assessee.
7. The learned Departmental Representative strongly supported the order of the learned CIT(A). He submitted that, irrespective of whether the issue on merits is covered in favour of the assessee, the delay of 1540 days in filing the appeal was not explained by showing sufficient cause, and therefore no infirmity could be found in the order of the learned CIT(A). On merits, he submitted that since the assessee himself offered the income in the return and the Central Processing Centre processed the return as filed, no grievance arose to the assessee and, therefore, the appeal itself was not maintainable before the learned CIT(A). He further submitted that the notification relied upon by the assessee applies prospectively from 2023 and cannot benefit the assessee for the impugned assessment year. He also relied on the decision of the Honourable Patna High Court.
8. We also find that several coordinate benches, on identical facts and circumstances, have condoned delays in filing appeals before the learned CIT(A). Since the assessee’s case is identical to those cases, we have no hesitation in holding that the learned CIT(A) ought to have condoned the delay in filing the appeal before him. To this extent, the order of the learned CIT(A) deserves to be reversed.
9. We find that the assessee separated from service under the Bharat Sanchar Nigam Limited Voluntary Retirement Scheme, 2019, which formed an integral part of the revival and restructuring plan for BSNL approved by the Union Cabinet on 23 October 2019. The scheme was implemented through the Department of Telecommunications Office Memorandum dated 29 October 2019 and was fully funded through Central Government budgetary support. It was introduced in the context of severe financial stress and persistent operating losses in BSNL, with the stated objectives of manpower rationalization, cost reduction, and long-term sustainability through a significant reduction in workforce. Although described as voluntary, the separation was substantially a government-directed downsizing exercise and had the essential character of retrenchment rather than voluntary retirement. In this process, the assessee received ex gratia compensation of Rs. 12,64,591, which is not governed by the monetary limit prescribed under the first proviso to section 10(10B) of the Income-tax Act. Accordingly, the assessee is entitled to exemption of the entire amount. Considering the various decisions of coordinate benches cited before us in respect of hundreds of similarly placed employees, we find no reason to deny the assessee the same relief. We also note that the Honourable Kerala High Court, in Sanchar Nigam Pensioners’ Welfare v. UOI [WP No. 16360 of 2023, dated 6-2-2026], has categorically held that BSNL employees are to be treated as Government servants and that the voluntary retirement or retrenchment compensation received by them should be considered as compensation from the Central Government. In view of the above, we direct the learned Assessing Officer to grant the assessee exemption of Rs. 12,64,591 under section 10(10B) of the Act.
10. In the result, the appeal filed by the assessee is allowed.