ITAT Quashes Rs 6 Lakh Leave Encashment Disallowance for Sec 143(1)(a) Intimation Lapse

 The Centralised Processing Centre (CPC) processed the revised return of the assessee’s income under Section 143(1) and denied the exemption to Rs. 300,000, relying on the prescribed limit under the notification dated 31.05.2002.

The first appellate authority upheld this adjustment, holding that employees of public sector undertakings are not “Government employees” for Section 10(10AA)(i) and that the Rs. 3,00,000 cap under clause (ii) applies to the assessee’s case.

Issue Raised:
Whether the adjustment done under Section 143(1)(a) limiting the leave encashment exemption to Rs. 3,00,000 without issuing the mandatory notice to the assessee was sustainable.

Decision of the Tribunal:

The Appellant Tribunal accepted the argument of the assessee. ITAT noted that the statutory framework under the first proviso to Section 143(1)(a) mandates issuance of intimation via notice before making such adjustments so that the assessee has an opportunity to respond. In this case, no evidence was produced by the Revenue to show that any such intimation was served or received. Following its earlier decision in a similar matter, the Tribunal held that the absence of such notice rendered the adjustment legally unsustainable.

 The Tribunal refrained from deciding the merits of the exemption claim under Section 10(10AA), as the adjustment failed on procedural grounds. The Hon’ble tribunal quashed the adjustment of Rs. 6,00,501 made against the assessee and set aside the order of the first appellate authority, allowing the appeal in full.

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