Rs 8.02 lakh leave encashment tax exemption denied: Retired employee wins case in ITAT Surat

When Mr Patel from Bharuch, Gujarat, retired from a well-respected company, he received Rs 8.02 lakh as leave encashment. However, for reasons unknown, his company’s HR department recorded only Rs 3 lakh as the income tax exempted amount for leave encashment in the salary certificate. Nonetheless, Patel filed his income tax return (ITR) claiming a tax refund of Rs 1.53 lakh and sought full income tax exemption on his Rs 8.02 lakh leave encashment under Section 10(10AA)(ii) of the Income Tax Act, 1961.

This created problems as Patel’s salary certificate mentioned that his income tax exemption on leave encashment is restricted to Rs 3 lakh while Patel had claimed full Rs 8.02 lakh income tax exemption in his ITR.Initially this issue was overlooked by the Income Tax Department and his ITR was successfully processed with Rs 1.

54 lakh tax refund including Rs 1,280 interest for delay in tax refund. But later on the ADIT, CPC Bengaluru noticed this discrepancy between Patel’s claim and his company’s salary certificate and so on November 1, 2021, took action against it. On that date, the ADIT, CPC Bengaluru, passed a rectification order and restricted Patel’s tax exemption for leave encashment claim to Rs 3 lakh and added Rs 5.