CPC denied my leave encashment exemption under s.10(10AA) because Form 26AS shows the gross salary, and the Department says I resigned and joined another employer in the same year. Can I still get it?
Yes on both points. Leave encashment received on resignation is exempt under s.10(10AA), and nothing in the statute disentitles an employee who takes up fresh employment in the same year; what matters is that the receipt was on cessation of employment. A Form 26AS mismatch thrown up in s.143(1) processing is not a sustainable ground to tax the amount where the claim is supported by the employer's Form 16.
Decided by the ITAT (Shri Manu Kumar Giri, Judicial Member and Shri S.R. Raghunatha, Accountant Member (ITAT, 'B' Bench, Chennai)) on 2025-12-18, reported as ITA No.1740/Chny/2025, assessment year 2017-18. It bears on section 10(10AA), section 143(1), section 154 of the Income Tax Act 1961, in Capital Gains Exemptions, Salary & Perquisites and Assessment & Scrutiny matters.
This is the modern, machine-generated version of the old dispute. The employer reports the exemption in Form 16 but the TDS return and Form 26AS carry the gross figure, CPC adjusts the salary upward under s.143(1), and the claim dies without anyone ever considering the section. The Tribunal disposed of both the substantive objection (resignation is not retirement) and the procedural one (26AS mismatch) in the assessee's favour, which makes it useful for a very ordinary fact pattern. Two things to keep in view. The exemption was Rs 3,00,000 for the year in issue, AY 2017-18; the ceiling for a non-government employee is Rs 25,00,000 with effect from 1 April 2023, and is a lifetime aggregate across employers, not a per-employer allowance. And the Revenue's argument that a fresh job defeats the claim was rejected on the statutory text, not on any concession — it is available to argue again.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee resigned from M/s TE Connectivity India Pvt Ltd and received Rs 3,00,000 as leave encashment, which his Form 16 showed as exempt under s.10(10AA). In the same financial year he took up employment with L & W Construction Pvt Ltd. For assessment year 2017-18 he returned total income of Rs 38,91,460, arriving at net salary of Rs 42,57,204 after reducing the Rs 3,00,000. On processing under s.143(1) on 21 March 2019, CPC noticed a discrepancy between the salary returned and the gross figure of Rs 45,45,519 in Form 26AS, raised salary to the 26AS figure, recomputed total income at Rs 41,79,770 and raised a demand of Rs 1,16,570 with interest under ss.234B and 234C of Rs 42,335. A rectification application under s.154 filed on 11 January 2021 was rejected on 20 June 2023 on the ground that there was no mistake apparent from the record, and the CIT(A), NFAC dismissed the appeal on 5 March 2025. Before the Tribunal the Revenue's case was that the assessee had merely resigned from one job and joined another in the same year, that resignation cannot be equated with retirement, and that the exemption was therefore unavailable. There was a delay of 18 days in filing the appeal, explained by a bilateral subdural haemorrhage and craniotomy with medical advice against activity, which the Tribunal condoned.
The appeal was allowed. Leave encashment received on resignation is exempt under s.10(10AA); the expression 'retirement whether on superannuation or otherwise' is of wide amplitude and takes in cessation of employment on resignation. The Revenue's contention that taking up another employment in the same year disentitles the assessee was held to be devoid of merit, the statute imposing no such condition. Denial of the exemption merely on a Form 26AS mismatch at the s.143(1) processing stage was held unsustainable where the claim is supported by documentary evidence. The order of the CIT(A) was set aside and the Assessing Officer directed to allow the exemption of Rs 3,00,000 and recompute total income.
The Tribunal took the statutory words as its starting point — the exemption is for leave encashment received 'at the time of his retirement whether on superannuation or otherwise' — and treated the meaning of 'or otherwise' as settled by authority. It relied on the Madras High Court in CIT v. R.J. Shahney for the width of the expression and its inclusion of cessation on resignation, and on the Bombay High Court in CIT v. D.P. Malhotra for the propositions both that resignation amounts to retirement for this clause and that the exemption cannot be denied merely because the employee resigned and then took up another employment. On the facts it recorded three undisputed matters: that the assessee had resigned, that the encashment was received at the time of cessation of employment, and that the claim was supported by the employer's Form 16. Against that, the Revenue's condition about subsequent employment was one the statute does not contain; what is relevant is receipt of the leave encashment at the time of cessation. The 26AS point was disposed of on the footing that a processing-stage mismatch cannot displace a claim supported by documentary evidence and settled legal principle.
The statute does not impose any condition that the employee should not take up subsequent employment. What is relevant is the receipt of leave encashment at the time of cessation of employment.
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Handle my notice → Ask a CA on WhatsAppYes on both points. Leave encashment received on resignation is exempt under s.10(10AA), and nothing in the statute disentitles an employee who takes up fresh employment in the same year; what matters is that the receipt was on cessation of employment. A Form 26AS mismatch thrown up in s.143(1) processing is not a sustainable ground to tax the amount where the claim is supported by the employer's Form 16. This was decided by the ITAT (Shri Manu Kumar Giri, Judicial Member and Shri S.R. Raghunatha, Accountant Member (ITAT, 'B' Bench, Chennai)) and bears on section 10(10AA), section 143(1), section 154 of the Income Tax Act 1961. It is reported as ITA No.1740/Chny/2025, assessment year 2017-18. This is the modern, machine-generated version of the old dispute. The employer reports the exemption in Form 16 but the TDS return and Form 26AS carry the gross figure, CPC adjusts the salary upward under s.143(1), and the claim dies without anyone ever considering the section. The Tribunal disposed of both the substantive objection (resignation is not retirement) and the procedural one (26AS mismatch) in the assessee's favour, which makes it useful for a very ordinary fact pattern. Two things to keep in view. The exemption was Rs 3,00,000 for the year in issue, AY 2017-18; the ceiling for a non-government employee is Rs 25,00,000 with effect from 1 April 2023, and is a lifetime aggregate across employers, not a per-employer allowance. And the Revenue's argument that a fresh job defeats the claim was rejected on the statutory text, not on any concession — it is available to argue again. If it applies to you, the first step is this: If CPC has adjusted salary to the Form 26AS gross, file the s.154 rectification but do not stop there — the officer here rejected it as 'no mistake apparent from the record', and the appeal is the effective remedy.
The assessee resigned from M/s TE Connectivity India Pvt Ltd and received Rs 3,00,000 as leave encashment, which his Form 16 showed as exempt under s.10(10AA). In the same financial year he took up employment with L & W Construction Pvt Ltd. For assessment year 2017-18 he returned total income of Rs 38,91,460, arriving at net salary of Rs 42,57,204 after reducing the Rs 3,00,000. On processing under s.143(1) on 21 March 2019, CPC noticed a discrepancy between the salary returned and the gross figure of Rs 45,45,519 in Form 26AS, raised salary to the 26AS figure, recomputed total income at Rs 41,79,770 and raised a demand of Rs 1,16,570 with interest under ss.234B and 234C of Rs 42,335. A rectification application under s.154 filed on 11 January 2021 was rejected on 20 June 2023 on the ground that there was no mistake apparent from the record, and the CIT(A), NFAC dismissed the appeal on 5 March 2025. Before the Tribunal the Revenue's case was that the assessee had merely resigned from one job and joined another in the same year, that resignation cannot be equated with retirement, and that the exemption was therefore unavailable. There was a delay of 18 days in filing the appeal, explained by a bilateral subdural haemorrhage and craniotomy with medical advice against activity, which the Tribunal condoned. The matter was decided on 2025-12-18 by the ITAT (Shri Manu Kumar Giri, Judicial Member and Shri S.R. Raghunatha, Accountant Member (ITAT, 'B' Bench, Chennai)). On those facts the ITAT held as follows. The appeal was allowed. Leave encashment received on resignation is exempt under s.10(10AA); the expression 'retirement whether on superannuation or otherwise' is of wide amplitude and takes in cessation of employment on resignation. The Revenue's contention that taking up another employment in the same year disentitles the assessee was held to be devoid of merit, the statute imposing no such condition. Denial of the exemption merely on a Form 26AS mismatch at the s.143(1) processing stage was held unsustainable where the claim is supported by documentary evidence. The order of the CIT(A) was set aside and the Assessing Officer directed to allow the exemption of Rs 3,00,000 and recompute total income.
The Tribunal took the statutory words as its starting point — the exemption is for leave encashment received 'at the time of his retirement whether on superannuation or otherwise' — and treated the meaning of 'or otherwise' as settled by authority. It relied on the Madras High Court in CIT v. R.J. Shahney for the width of the expression and its inclusion of cessation on resignation, and on the Bombay High Court in CIT v. D.P. Malhotra for the propositions both that resignation amounts to retirement for this clause and that the exemption cannot be denied merely because the employee resigned and then took up another employment. On the facts it recorded three undisputed matters: that the assessee had resigned, that the encashment was received at the time of cessation of employment, and that the claim was supported by the employer's Form 16. Against that, the Revenue's condition about subsequent employment was one the statute does not contain; what is relevant is receipt of the leave encashment at the time of cessation. The 26AS point was disposed of on the footing that a processing-stage mismatch cannot displace a claim supported by documentary evidence and settled legal principle. In the words reproduced by the source cited on this page: "The statute does not impose any condition that the employee should not take up subsequent employment. What is relevant is the receipt of leave encashment at the time of cessation of employment." The decision followed or applied CIT v. R.J. Shahney [1986] 159 ITR 160 (Mad) — followed; CIT v. D.P. Malhotra [1998] 229 ITR 394 (Bom) — followed.
It was decided by the ITAT on 2025-12-18 and is reported as ITA No.1740/Chny/2025, assessment year 2017-18. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 10(10AA), section 143(1), section 154, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed. Leave encashment received on resignation is exempt under s.10(10AA); the expression 'retirement whether on superannuation or otherwise' is of wide amplitude and takes in cessation of employment on resignation. The Revenue's contention that taking up another employment in the same year disentitles the assessee was held to be devoid of merit, the statute imposing no such condition. Denial of the exemption merely on a Form 26AS mismatch at the s.143(1) processing stage was held unsustainable where the claim is supported by documentary evidence. The order of the CIT(A) was set aside and the Assessing Officer directed to allow the exemption of Rs 3,00,000 and recompute total income. It arises in Capital Gains Exemptions, Salary & Perquisites and Assessment & Scrutiny matters, on section 10(10AA), section 143(1), section 154 of the Income Tax Act 1961, and was decided by Shri Manu Kumar Giri, Judicial Member and Shri S.R. Raghunatha, Accountant Member (ITAT, 'B' Bench, Chennai). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put Form 16 on record showing the employer itself treated the amount as exempt under s.10(10AA), and reconcile it against Form 26AS line by line, since the gap between the two is the whole of the Department's case. Meet the 'you joined another employer' point head on: the statute imposes no such condition, and the Tribunal said so. Cite CIT v. R.J. Shahney [1986] 159 ITR 160 (Mad) and CIT v. D.P. Malhotra [1998] 229 ITR 394 (Bom) for resignation being retirement. Where the employee has drawn leave encashment from an earlier employer too, aggregate the exemptions already taken before computing the balance available.
Validity check could not be completed. Validity check could not be completed. The order was pronounced on 18 December 2025 and no later treatment was searched for; whether the Revenue has appealed is not known. The two High Court decisions it applies were separately read for this batch and are consistent with it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The indiankanoon search listing dates this order 9 July 2025; the order itself records 25 November 2025 as the date of hearing and 18 December 2025 as the date of pronouncement, and the latter is taken. The order does not disclose which limb of the s.10(10AA) computation produced the Rs 3,00,000 figure — the amount was simply the sum claimed and allowed — so it should not be read as a statement of any ceiling. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed. Leave encashment received on resignation is exempt under s.10(10AA); the expression 'retirement whether on superannuation or otherwise' is of wide amplitude and takes in cessation of employment on resignation. The Revenue's contention that taking up another employment in the same year disentitles the assessee was held to be devoid of merit, the statute imposing no such condition. Denial of the exemption merely on a Form 26AS mismatch at the s.143(1) processing stage was held unsustainable where the claim is supported by documentary evidence. The order of the CIT(A) was set aside and the Assessing Officer directed to allow the exemption of Rs 3,00,000 and recompute total income.
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