In a significant ruling for former employees of sick public sector undertakings, the Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a major addition made to the income of an assessee, clarifying the distinction between Voluntary Retirement Scheme (VRS) payments and retrenchment compensation.
Facts of the Case
The appellant, Manjoor Ali Ansari, was an employee of M/s. Instrumentation Ltd., a sick Central Public Sector Undertaking that underwent closure. Following the approved scheme for the company’s closure, Mr. Ansari received a compensation amount.
During the assessment for the Assessment Year 2018-19, the Assessing Officer (AO) treated this compensation as a payment received under a Voluntary Retirement Scheme (VRS). Consequently, the AO made an addition to the appellant’s income, which was subsequently upheld by the National Faceless Appeal Centre (NFAC)/CIT(A).
The Dispute and Financial Breakup
The core of the dispute centered on the classification of the following amount:
- Addition to Income: Rs. 18,47,750/-.
- AO’s View: Categorized the amount as VRS compensation.
- Assessee’s View: Argued the amount was retrenchment compensation received due to the forced closure of a sick unit, making it eligible for exemption under Section 10(10B) of the Income Tax Act.
The appellant’s counsel argued that the assessee never opted for VRS; instead, his services were terminated because the company was declared sick. Even if the payment was colloquially termed “compensation on retirement,” its legal substance was retrenchment compensation.
The Tribunal’s Decision
The ITAT Jaipur (SMC Bench), presided over by Shri Sanjay Garg (Judicial Member), observed that the issue was squarely covered by a previous decision of a Coordinate Bench in the case of Harish Kumar vs. ITO. In that case, under identical circumstances, it was held that compensation received due to the closure of the same company qualified for exemption under Section 10(10B).
Aligning with this precedent, the Tribunal ordered the deletion of the Rs. 18,47,750/- addition and allowed the appeal.
Representatives
- For the Appellant: Sh. Kushal Soni, CA (appearing via Video Conferencing).
- For the Respondent (Revenue): Sh. Gautam Singh Choudhary, Addl. CIT.
Date of Order: April 8, 2026.