ITAT Allows Full Exemption Despite 1400 | Biz Flow Kit
BSNL Ex-Gratia Scheme: ITAT Allows Full Exemption Despite 1400+ Days Delay – Big Relief for Taxpayers
In a significant and taxpayer-friendly ruling, the Pune ITAT has delivered much-needed relief to individuals who opted for the BSNL revival scheme and ended up paying tax due to incorrect reporting. The decision clarifies a crucial issue: ex-gratia received under the BSNL revival scheme is not VRS compensation-it is retrenchment compensation eligible for full exemption. Even more importantly, the Tribunal condoned massive delays of over 1400 days and still granted relief, making this ruling highly relevant for thousands of similarly placed taxpayers.
As part of the Union Government’s revival package announced in October 2019, employees of Bharat Sanchar Nigam Limited (BSNL) were offered an ex-gratia payment upon separation. However, due to confusion in tax treatment, many employees reported the amount as VRS compensation under Section 10(10C) and ended up paying tax on amounts that could otherwise be fully exempt.
When the matter reached the ITAT, the cases were far from simple. The income had already been voluntarily offered to tax, the appeals related to AY 2020–21 and AY 2021–22, and there was a delay of over 1400 days in filing appeals. Ordinarily, such factors could weaken the case, but the legal issue involved was too significant to be ignored.
The core argument raised by the assessees was that the amount received under the BSNL revival scheme is not voluntary retirement compensation but is in the nature of retrenchment compensation and therefore eligible for full exemption under the Income Tax Act. Reliance was placed on the Chandigarh Bench ruling in Harsh Kumar v. ITO, which had already taken a similar view on the nature of such receipts.
In its order dated 24th March 2026, the Pune Bench accepted this position and ruled in favour of the assessees. It held that the ex-gratia received under the BSNL revival scheme is retrenchment compensation and not VRS compensation, thereby making it eligible for full exemption. The Tribunal also directed that taxes wrongly paid be refunded to the assessees. Most notably, the delay of over 1400 days was condoned, emphasizing that substantive justice should prevail over procedural technicalities.
This ruling has far-reaching implications as it corrects a widespread tax position adopted by many taxpayers and offers an opportunity to claim rightful relief. It also reinforces that delay in filing appeals, even if substantial, can be condoned where the issue is genuine and supported by law. Further, it highlights the importance of determining the true nature of income rather than merely relying on how it was originally reported.
For taxpayers and professionals, this decision serves as a reminder to revisit cases where BSNL ex-gratia has been taxed and to explore remedies such as appeal or rectification. The key takeaway is clear-just because tax has been paid does not mean it was correctly payable. If the law supports exemption, relief can still be claimed.
In essence, the ITAT has reinforced a fundamental principle of tax jurisprudence: substance prevails over form. The BSNL ex-gratia is not VRS compensation but retrenchment compensation, and rightful exemption cannot be denied merely due to initial reporting errors or procedural delays.
The copy of the order is as under:
