ATUL MADHUKAR BHALERAO,PUNE V. INCOME TAX OFFICER WARD 10(1), PUNE

ITA 3115/PUN/2025

AI Insights

The case involves Atul Madhukar Bhalerao, the appellant, who appealed against the orders of the Income Tax Officer and the Commissioner of Income Tax (Appeals), which were based on the assessment year 2020-21. The primary contention revolved around the non-consideration of relief under section 89(1) of the Income Tax Act concerning arrears of salary and issues related to the proper issuance of Form 16 by Hindustan Antibiotics Limited, where the appellant was employed. The appellant argued that due to the financial troubles of the company, regular salary payments were disrupted, affecting the proper filing of income returns and the claiming of due reliefs. The Departmental Representative supported the original assessment, emphasizing the legal provisions that prevent double benefits from VRS compensation and salary arrears. The tribunal, after considering the submissions and the complexities involved, decided to set aside the previous orders for a fresh assessment.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840316 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2020-2021
• Appeal Filed On: 17-12-2025
• Other Referred Cases: CIT Vs. Koodathil Kallyatan Ambujakshan [2007] 309 ITR 113 (Bom), N.S.R. Murthy Vs. CIT [2023] 291 Taxman 580 (Telangana), CIT Vs. H.L.Dattu and H.N Nagamohan DAS [2005] 279 ITR 402 (Karnataka)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJITESH KUMAR MEENA
• Assessee Lawyers: DEEPA KHARE
• Keywords: Revised return
• Section: 143(3); 234B; 10

Judgement Text

" आयकर अपीलीय अधिकरण ”एस एम सी” न्यायपीठ पुणे में। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “SMC” :: PUNE BEFORE DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपऩल सं. / ITA No.3115/PUN/2025 निर्धारण वषा / Assessment Year: 2020-21 Atul Madhukar Bhalerao, Swati Banglow, Khed Ahilyadevi Chowk, Khed, Pune – 410505. Vs Income Tax Officer, Ward-10(1), Pune. PAN:AAVPB0868N Appellant/ Assessee Respondent /Revenue Assessee by Smt Deepa Khare Revenue by Shri Ajitesh Kumar Meena – Addl.CIT Date of hearing 29/01/2026 Date of pronouncement 25/02/2026 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the Assessee against the order of Ld.Commissioner of Income Tax(Appeal)[NFAC], passed under section 250 of the Income Tax Act, 1961 for the A.Y.2020-21 dated 08.12.2025 emanating from the Assessment Order passed under section 143(3) read with section 144B of the I.T.Act, 1961 dated 20.09.2022. The Assessee has raised following grounds of appeal : Printed from counselvise.com ITA No.3115/PUN/2025 [A] 2 “1. The CIT(A) has erred in not considering that the relief u/s 89(1) in respect of arrears of salary pertaining to earlier years and not pertaining to VRS Compensation and other payments received on termination of employment. 2. The learned CIT(A) has erred in not appreciating that part of the salary received during the year pertain to earlier year which is declared in the return of respective year. 3. The appellant craves leave to add, amend or alter an of the grounds of appeal.” Submission of ld.AR : 2. Ld.Authorised Representative(ld.AR) for the Assessee filed a paper book. Ld.AR submitted that Assessee was working in Hindustan Antibiotics Limited. Ld.AR submitted that due to financial problems in Hindustan Antibiotics Limited, regular salary was not paid to the employees. Ld.AR submitted that subsequently company got closed down. Ld.AR submitted that due to these problems, Form 16 was not issued properly to the employees of Hindustan Antibiotics Limited. Therefore, Assessee could not claim the benefits of arrears salary u/s.89 in the original return of income. Subsequently, Assessee filed revised return of income. Ld.AR submitted that Assessee has not been properly advised, hence, there Printed from counselvise.com ITA No.3115/PUN/2025 [A] 3 has been mistakes in filing return of income. Ld.AR submitted that all documents are on record and Assessee has again filed the documents in the form of paper book, hence, ld.AR pleaded that Assessee’s case may set-aside to the Assessing Officer with a direction to verify the documents and decide it on merits. 2.1 Ld.AR vehemently pleaded that in the interest of justice, Assessee may be allowed to explain this case before Assessing Officer. 2.2 Ld.AR relied on the following case laws :  CIT Vs. Koodathil Kallyatan Ambujakshan [2007] 309 ITR 113 (Bom)  N.S.R. Murthy Vs. CIT [2023] 291 Taxman 580 (Telangana) W.P.No.17116 of 2008.  CIT Vs. H.L.Dattu and H.N Nagamohan DAS [2005] 279 ITR 402 (Karnataka) in IT Appeal No189/2005 Submission of ld.DR : 3. Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A). Ld.DR filed a written submission. 3.1 Relevant paragraphs of Revenue’s Submission is reproduced here as under : Printed from counselvise.com ITA No.3115/PUN/2025 [A] 4 “Submissions in ITA no. 3115/PUN/2025 in case of Atul Madhukar Bhalerao vs. ITO Ward 10(1), Pune In Support of Denial of deduction u/s 89 over and excess to claim u/s 10(10C) of the IT Act Respected Sirs, The Id. Counsel of the assessee has requested orally before the hon'ble SMC bench, Pune ON 29.01.2026 that relief under section 89 would be available to assessee on payment received under VRS even once relief was granted under section 10(10C). This claim is not acceptable and justified subsequent to insertion of the proviso to section 89(1). The reliance placed by the assessee on the judgment of the Hon'ble Telangana High Court in N.S.R. Murthy vs. CIT (W.P. No. 17116 of 2008) for 2001-2002 is wholly misplaced and distinguishable both on facts and in law. Firstly, the said judgment was rendered in the context of the statutory framework prevailing prior to insertion of the proviso to section 89(1) by the Finance Act, 2010 with effect from 1.4.2010, AY 2011-12, whereas the assessment year under consideration ie. 2020-21 is governed by the amended provision which explicitly prohibits grant of relief under section 89 in respect of any amount for which exemption has been claimed under section 10(10C). For the purpose of answering the issue in controversy, we may refer to section 89 which reads as under: Section 89-Relief when salary, etc., is paid in arrears or in advance \"89. Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months, or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, or a sum in the nature of family pension as defined in the Explanation to clause (ia) of section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer Printed from counselvise.com ITA No.3115/PUN/2025 [A] 5 shall, on an application made to him in this behalf, grant such relief as may be prescribed; Provided that no such relief shall be granted in respect of any amount received or receivable by an assessee on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or, in the case of a public sector company referred to in sub-clause (i) of clause (10-C) of section 10, a scheme of voluntary separation, if an exemption in respect of any amount received or receivable on such voluntary retirement or termination of his service or voluntary separation has been claimed by the assessee under clause (10-C) of section 10 in respect of such, or any other, assessment year.\" 2. Mention of Section 10(10C) is also crucial here: Section 10(10C) - Exemption for amount received on voluntary retirement or termination of service \"(10C) Any amount received or receivable by an employee of 1) a public sector company, or (11) any other company, or (ii) an authority established under a Central, State or Provincial Act, or on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or, in the case of a public sector company referred to in sub-clause (1), a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees. Provided also that where any relief has been allowed to an assessee under section 89 for any assessment year in respect of any amount received or receivable on his voluntary retirement or termination of service or voluntary separation, no exemption sonder this clause shall be allowed to him in relation to such, or any other, assessment year\" The legislative intent behind insertion of the proviso U/s 89 and section 10(10C) was to expressly curb the unintended and excessive benefit of Printed from counselvise.com ITA No.3115/PUN/2025 [A] 6 claiming both exemption and relief on the same VRS compensation, which mischief had been noticed in judicial decisions including N.S.R. Murthy. 3. Secondly, even otherwise, the ratio of N.S.R. Murthy cannot be mechanically applied, as the Hon'ble High Court proceeded on the premise that the balance VRS amount constitutes \"salary received in advance' qualifying for relief under section 89. Such an assumption is legally unsustainable. VRS compensation is a one-time terminal payment in the nature of compensation for cessation of employment and falls under the category of 'profits in lieu of salary under section 17(3), and not salary pertaining to earlier years. Relief under section 89 is a specific and conditional relief meant only for genuine cases of salary arrears or advance, and not for composite terminal compensation merely because a part thereof is taxable. 4. It is further submitted that section 10(10C) itself is a complete code governing tax treatment of VRS compensation. Once the assessee opts for exemption under section 10(10C), the remaining taxable portion retains the same character of VRS compensation and does not metamorphose into salary relatable to earlier years so as to independently qualify for section 89 relief. Allowing such relief would result in a double tax advantage, which is impermissible in law. 5. The subsequent insertion of the proviso to section 89(1) is clarificatory in nature and reflects the true legislative intent that section 89 relief was never meant to operate alongside exemption under section 10(10C). 6. The assessee's further reliance on the decisions of the Hon'ble Bombay High Court in CIT v. Koodathil Kallyatan Ambujakshan (ITA No. 53 of 2008 dated 04.07.2008) and the Hon'ble Karnataka High Court in CIT v. Surendra Prabhu P (ITA No. 189 of 2005) is also misplaced. Both the judgments were rendered in a completely different statutory regime, prior to the insertion of the proviso to section 89(1) by the Finance Act, 2010, and therefore cannot govern the issue under consideration. 7. More importantly, both decisions proceeded on an assumption that VRS compensation, after granting exemption under section 10(10C), Printed from counselvise.com ITA No.3115/PUN/2025 [A] 7 automatically qualifies as 'salary received in advance' for the purposes of section 89. This foundational assumption itself was later found by the Legislature to be erroneous, necessitating express statutory intervention. The Hon'ble Bombay High Court in Koodathil Kallyatan Ambujakshan allowed relief under section 89 primarily on the ground that, at the relevant time, there was no express statutory prohibition against simultaneous availment of section 10(10C) exemption and section 89 relief. However, the absence of an express prohibition cannot be equated with legislative sanction, particularly where such interpretation results in double tax benefit on a single composite receipt. 8. The decision of the Hon'ble Karnataka High Court in CIT v. Surendra Prabhu P also rests on a broad and liberal construction of section 89, treating the balance VRS amount as salary received in advance. With respect, such an interpretation overlooks the intrinsic character of VRS compensation, which is a terminal payment for cessation of employment and not salary attributable to specific earlier years 9. The subsequent insertion of the proviso to section 89(1) by the Finance Act, 2010 is a clear legislative response to precisely such interpretations. The Explanatory Memorandum to the Finance Bill, 2010 unequivocally records that the amendment was introduced to prevent assessees from claiming relief under section 89 in respect of amounts for which exemption under section 10(10C) has been availed. This demonstrates that the interpretation adopted in Koodathil Kallyatan Ambujakshan and Surendra Prabhu P was contrary to the true legislative intent. 10. Section 89 is a conditional relief provision and applies only where income is demonstrably relatable to earlier years as arrears or advance salary. VRS compensation, however, is a one-time composite payment in the nature of compensation for cessation of employment and is specifically classifiable as 'profits in lieu of salary' under section 17(3), Merely because such compensation is taxable after granting exemption under section 10(10C), it does not automatically satisfy the statutory pre-conditions of section 89. Therefore, VRS compensation cannot be equated with salary arrears or advance so as to qualify for relief under section 89. Printed from counselvise.com ITA No.3115/PUN/2025 [A] 8 11. The insertion of the proviso to section 89 by the Finance Act, 2010 marks a clear and decisive legislative intervention. Parliament expressly recognised that permitting both exemption under section 10(10C) and relief under section 89 resulted in unintended and excessive tax benefits. The proviso is substantive in nature and unequivocally clarifies that where exemption under section 10(10C) is claimed, no relief under section 89 is permissible in respect of such compensation. Consequently, the liberal interpretation adopted in certain pre-amendment decisions, including Surendra Prabhu P, stands legislatively neutralised and cannot govern assessments covered by the amended provision. 12. Once legislative intent is made explicit through statutory amendment, earlier judicial interpretations rendered in the absence of such clarity cannot be relied upon to defeat the amended law. The Hon'ble Supreme Court in Saurashtra Kutch Stock Exchange Ltd. has held that subsequent amendments may be relied upon to ascertain the correct legislative intent where earlier interpretations led to unintended consequences. In view of the clear statutory mandate introduced by the Finance Act, 2010 and the true character of VRS compensation, the claim of the assessee needs to be deleted.” Findings & Analysis : 4. We have heard both the parties and perused the records. In this case, Assessee had filed Return of Income electronically for A.Y.2020-21 declaring total income at Rs.25,23,130/- on 24.09.2020. Then, Assessee filed revised returns on 20.03.2021 and 29.03.2021. Assessing Officer in the assessment order held as under : “3.3 Variation on the basis of inference drawn: Printed from counselvise.com ITA No.3115/PUN/2025 [A] 9 The replies as well as documents submitted by the assessee have been gone through. There is variation of Rs. 17,21,350/- in the total income in the revised return & statement of computation of income submitted with his reply. In view of above, the total income of the assessee is computed as per computation made by the assessee in \"Case A' at total income of Rs.29,25,440/- as against total income shown in revised return at Rs. 12.04.090/- Legal exemptions, deductions and relief u/s 89 will be allowed as per provisions of the Act Penalty proceedings u/s 270A of the Act' for under reporting of income is initiated to be dealt with separately 3.4 Conclusion drawn: After examination of the details and particulars furnished in the course of assessment proceedings and keeping in view the above observations and findings with reference to return of income, clarification of the assessee, the total income of the assessee is determined as under: 4. Final Computation of Taxable Income : S.No. Description Amount 1. Income as per Revised Return of income filed on 29.03.2021 Rs.12,04,090/- 2. Income as computed u/s 143(1)(a) - 3. Variation in respect of issue of showing less income in revised return of income Rs.17,21,350/- 4. Total Income determined: Rs..29,25,440/- Printed from counselvise.com ITA No.3115/PUN/2025 [A] 10 Accordingly, the assessment is completed u/s 143(1) r.w.s 144B of „the Act‟, at Rs.29,25,440/-. Interest u/s 234A, 234B & 234C is charged. The computation of tax on the assessed income is as per annexure to this order and the same forms part of this order. Penalty proceedings u/s 270A of „the Act‟ for under reporting of income is initiated to be dealt with separately. Accordingly, penalty notices u/s 274 read with section 270A of „the Act‟ is issued and forming part of this order are annexed.” 5. Aggrieved by the order of Assessing Officer, Assessee filed appeal before the ld.CIT(A) who confirmed the Assessment Order. 6. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal. 7. In this case, at page no.55 to 56 of the paper book, Assessee has filed statement of arrear salary. It has also been pleaded that Form 16 issued by the Company does not reflect proper salary. Assessee also filed copy of bank statement to prove the receipt of salary. In this case, apparently there have been errors on the part of the Assessee in filing details in the Return of Income and before the Assessing Officer. However, in the interest of justice, we set-aside the assessment order to the Assessing Officer for denovo adjudication. The Assessing Officer shall provide opportunity to the Printed from counselvise.com ITA No.3115/PUN/2025 [A] 11 Assessee. Assessee shall file necessary documents before the Assessing Officer. Accordingly, grounds of appeal raised by the Assessee are allowed for statistical purpose. 8. In the result, appeal of the assessee is allowed for statistical purpose. Order pronounced in the open Court on 25 February, 2026. Sd/- Sd/- VINAY BHAMORE Dr.DIPAK P. RIPOTE JUDICIAL MEMBER ACCOUNTANT MEMBER पपणे / Pune; ददिधंक / Dated : 25 Feb, 2026/ SGR आदेशकीप्रनिनलनपअग्रेनषि / Copy of the Order forwarded to : 1. अपऩलधर्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. नवभधगऩयप्रनिनिनर्, आयकर अपऩलऩय अनर्करण, “एस एम सऩ” बेंच, पपणे / DR, ITAT, “SMC” Bench, Pune. 6. गधर्ाफ़धइल / Guard File. आदेशधिपसधर / BY ORDER, / / TRUE COPY / / सहधयक रनिस्ट्रधर /Assistant Registrar आयकर अपऩलऩय अनर्करण, पपणे/ITAT, Pune. Printed from counselvise.com "