Leave encashment exemption under section 10(10AA)(ii) allowed at revised Rs. 25 lakh ceiling

5-Second Takeaway

The assessee was entitled to exemption on leave encashment under section 10(10AA)(ii) up to the revised Rs. 25 lakh monetary ceiling, so the CPC’s restriction to Rs. 3 lakh was unsustainable. The tax demand raised on the balance amount was deleted and the tax already paid was directed to be refunded.

The assessee claimed exemption of Rs. 15,93,539 as leave encashment received on retirement under section 10(10AA)(ii). The Central Processing Centre restricted the exemption to Rs. 3 lakh through an intimation under section 143(1) and raised demand on the balance amount, which the assessee paid.

The issue was whether the claim had to be tested against the revised ceiling of Rs. 25 lakh introduced by Notification No. 31/2023 dated 24 May 2023. The assessee was also denied the benefit of that notification in the processing stage.

The published editorial notes record that the claim was allowed, following Govind Chhatwani v. CIT(A). On that basis, the CPC’s adjustment was deleted.

The result was a full deletion of the demand and a direction to refund the tax paid by the assessee.