Chandra Prakash Vashistha vs. ITO
(ITA No. 1139/JPR/2025)ITAT Jaipur

Restored the ₹25 Lakh exemption retrospectively for a retiree from an earlier financial year. It ruled that CBDT Notification No. 31/2023 is beneficial legislation meant to erase historical anomalies.

Dear Client,

Yes, the bank can proceed under SARFAESI and your loan‑agreements against the mortgaged/linked security and, depending on what you signed (personal guarantee, composite‑loan terms), potentially against some jointly owned properties, but not everything you own, and distinct, un‑mortgaged personal assets are harder for them to attach without clear covenants or due‑process attachment‑orders; the distinction between jointly owned and individually owned assets matters mainly in how easily the bank can encumber them, because jointly held properties are more exposed where both spouses are borrowers.

Even though the plot is not yet registered in your name and the sale deed is pending, the bank can still treat the loan as an NPA and proceed under SARFAESI against your borrower‑obligation and the underlying property‑interest, but you can argue in negotiations, RERA/consumer‑forum, and in court that the default is linked to the builder’s NCLT/SARFAESI issues and the unresolved project, not just your conduct. You can also take steps to correct the CIBIL impact: raise a dispute with CIBIL and the bank, provide NCLT/NCLAT and SARFAESI/project‑status documents, and, if the bank refuses to correct the record, consider approaching the RBI‑Ombudsman, consumer‑forum, or even a High‑Court writ petition for relief against wrongful adverse‑CIBIL‑reporting; at the same time, propose a written conditional‑settlement to the bank (willingness to pay once registration is sorted) so you can later show you acted in good faith while protecting your credit‑standing.

I hope this helps and if you have any further issues do not hesitate to contact us.

Yes you can claim the same in appeal

You can claim the higher ₹25 Lakh exemption limit in your appeal to the Commissioner of Income Tax (Appeals) [CIT(A)].

The courts have repeatedly held that beneficial provisions intended to correct historical inflation gaps should be applied retrospectively to pending matters of previous assessment years.

In a landmark case closely mirroring your timelines (ITAT Jaipur, Appeal No. 1139/JPR/2025), an SBI employee who retired and received ₹13 Lakhs in leave encashment was initially restricted to a ₹3 Lakh exemption by the department for AY 2021-22 (the exact same Assessment Year as yours). The ITAT overturned the department's rigid stance and granted the full exemption under the revised ₹25 Lakh limit, ruling that the benefit applies retrospectively.

Given that your rectification application was already disposed of without addressing the core exemption issue, filing a formal appeal before the CIT(A) is your correct next legal step to claim your rightful tax refund.

Prem Brothers Infrastructure LLP vs. NFAC (Delhi High Court) / Brajesh Kumar Singh Case (ITAT Delhi, 2026).

The Ruling: The courts held that in the absence of a specific whisper as to which precise limb of Section 270A(9) is satisfied, a mere reference to the word "misreporting" to deny immunity makes the order manifestly arbitrary and bad in law.

Where an income is assessed at a loss or the tax quantum payable is Nil, the condition under Section 270AA(1)(a) to pay tax and interest becomes impossible to perform (lex non cogit ad impossibilia). The ITAT across benches holds that immunity cannot be denied for a failure to pay what was never due.

Key Case: Nirman Overseas Pvt. Ltd. vs. NFAC (Delhi High Court).

The Ruling: If the assessee has demonstrated clear intent by accepting the assessment and satisfying the substantive conditions (not filing an appeal, clearing undisputed amounts if any), the statutory machinery cannot prejudice the taxpayer due to hyper-technical timelines or portal glitches.

File a Formal Reply to the Penalty SCN: Do not wait. Explicitly state that you have accepted the quantum, filed no appeal, and that the case is a pure case of differences in interpretation (under-reporting at best), not deliberate suppression or misreporting under Section 270A(9).

Concurrently file a physical/e-filing letter to your Jurisdictional Assessing Officer stating that the demand is being rectified/addressed, and request them to exercise their inherent powers to adjust the basic exemption limit before finalizing any penal conclusions.

1) Filing a Rectification Application under Section 154 to resolve a tax credit mismatch modifies the final numbers but keeps the original filing date and

2) since  the Section 156 notice has been formally withdrawn via the rectification order in May 2026, the demand is legally extinguished.

3) Because the principal demand under Section 156 was deleted or modified, the consequential interest automatically drops or is recalculated under Section 220(2)

4)your Income Tax Return (ITR) remained fully alive and legally valid during the notice period. A notice issued under Section 156 is simply a demand for tax, interest, or penalties arising from a completed assessment or intimation; it does not invalidate, erase, or kill your filed return

 No  an appeal before CIT(A) is decided according to the law applicable to the relevant Assessment Year (AY) and the return filed for that year, not according to tax rules/exemption limits introduced later in 2026, unless the amendment is expressly made retrospective.

As the Section 156 demand notice was formally withdrawn through a Rectification Order (Section 154) to correct your tax credit mismatch, the original return remains valid. Further, you can claim your legal rights including the basic exemption limit before the appellate authorities.

Just by receiving a Notice of Demand under Section 156 does not cancel, or invalidate your Income Tax Return.

You may note that when the department processed your Rectification Application and withdrew the notice, they essentially admitted that the original demand was a "mistake apparent from the record.".

The First Appellate Authority (CIT(A) or the Income Tax Appellate Tribunal) has plenary powers. According to landmark judicial precedents (such as the Supreme Court decision in National Thermal Power Co. Ltd. v. CIT), the appellate authorities have the power to entertain a fresh claim or a legal ground that wasn't raised or allowed in the initial assessment, provided all the necessary facts are already available on record.

If the basic exemption claim wasn't explicitly detailed in your initial Form 35 (Appeal Form), move an application before the CIT(A) for the admission of "Additional Grounds of Appeal."

In your case, the principal legal difficulty is that the enhanced exemption limit of ₹25 lakh for leave encashment on retirement became effective prospectively from 01.04.2023, whereas your retirement took place on 31.03.2021 and the relevant assessment year is AY 2022-23. Therefore, the Income Tax Department’s likely stand would be that the exemption applicable to you is the limit prevailing during the relevant assessment year, i.e. ₹3 lakh, and not the subsequently enhanced limit of ₹25 lakh.

Merely because your return proceedings remained pending in some form due to demand notices, rectification proceedings, interest calculations, or recovery proceedings under Sections 156 and 220(2), it does not automatically mean that the law applicable to your assessment year changes to the law prevailing in 2026. Under income-tax jurisprudence, the substantive tax liability is ordinarily governed by the law applicable to the relevant assessment year unless the amendment is expressly retrospective or clarificatory in nature. In the case of enhancement of leave encashment exemption to ₹25 lakh, the notification and amendment were made prospective and effective from 01.04.2023. Therefore, legally, the Department is likely to contend that the enhanced exemption applies only to employees retiring on or after the effective date.

However, your argument that the assessment proceedings remained “alive” due to pending demand, rectification proceedings, and recovery notices is not entirely without legal basis from a procedural standpoint. You may certainly raise the contention before the CIT(A) that once rectification proceedings under Section 154 were entertained and the demand notice under Section 156 as well as consequential proceedings under Section 220(2) continued and were subsequently modified, the assessment had not attained complete finality. On that basis, you may attempt to argue that beneficial amendments should receive liberal interpretation in ongoing proceedings, particularly where the issue concerns exemption limits for retired employees.

That said, it is important to understand that this argument faces substantial legal hurdles because courts generally distinguish between:

• pendency of proceedings, and
• applicability of substantive law.

Even if proceedings remain pending, the substantive exemption available is usually the one applicable to the assessment year concerned unless the amendment itself is retrospective. The enhanced ₹25 lakh exemption was not expressly made retrospective. Therefore, the stronger legal view presently favours the Department.

Nevertheless, you may still file an appeal before the CIT(A) raising the following principal grounds:
firstly, that the rectification proceedings and demand proceedings kept the assessment alive and therefore the benefit of a beneficial exemption notification ought to be liberally extended; secondly, that leave encashment exemption provisions are beneficial social welfare provisions deserving liberal interpretation in favour of retired employees; thirdly, that the Department itself reopened and modified the assessment while disposing of the rectification proceedings, thereby preventing finality from attaching to the earlier order; and lastly, that denial of parity between similarly situated retirees based merely upon date classification may be inequitable, especially where proceedings were pending.

However, you should also realistically appreciate that, as of now, there do not appear to be authoritative precedents directly holding that the ₹25 lakh exemption applies retrospectively to retirees of earlier years merely because assessment or rectification proceedings remained pending. Unless a High Court or Tribunal specifically interprets the amendment retrospectively or beneficially, success on this issue may be difficult.

Regarding your query about CIT(A), ITAT, or NFAC orders in similar matters, there have been disputes regarding procedural rectification, delayed challan credits, and interest under Sections 220(2) and 154 proceedings, but reported precedents specifically granting retrospective benefit of the enhanced ₹25 lakh leave encashment exemption to pre-2023 retirees are presently limited. Your case would therefore likely involve advancing a novel equitable and procedural argument rather than relying upon settled precedent directly on point.

Accordingly, while you may certainly raise the contention in appeal that the assessment remained alive during the notice and rectification period and therefore beneficial exemption should be granted, you should proceed with the understanding that the central legal obstacle remains the prospective nature of the exemption enhancement effective from 01.04.2023.

Dear Client,

Yes, your return can be treated as still “alive” during the notice and rectification period, because the department raised a Section 156 / 220(2) demand in March 2025, continued processing your Rectification Application for the tax‑credit‑mismatch, and only later withdrew the demand in May 2026, so the matter remained technically under correction rather than finally closed; this means you can argue in your CIT(A) appeal that the assessment‑status extended into the period when the ₹25 lakh leave‑encashment‑exemption notification became effective and that the beneficial CBDT amendment (raising the limit from ₹3 lakh to ₹25 lakh with retrospective‑retro‑beneficial treatment for earlier years) should apply to you, especially since recent ITAT decisions (like Chandra Prakash Vashistha v. ITO and similar orders) have recognised that the ₹25‑lakh exemption can be granted where assessments were pending or under rectification when the new notification came into force.

I hope this helps and if you have any further issues do not hesitate to contact us.

Stick to the principal argument 

the Income Tax Department kept your assessment alive through active demand notices up until recently, your case is technically open and subject to recent, binding judicial updates. Multiple benches of the Income Tax Appellate Tribunal (ITAT) have recently ruled that the ₹25 Lakh limit is a remedial and beneficial provision that must apply retrospectively to retirees from earlier years

Income Tax Appellate Tribunal (ITAT) and National Faceless Appeal Centre (NFAC) benches are usually  bound by precedent, especially when a position is backed by a case law. Tribunals generally favor arguments that show a consistent judicial consensus. In tax law, it is a well-settled principle that beneficial provisions or exemptions intended to alleviate hardship should be interpreted liberally and can be applied retrospectively if they are clarifying or curative in nature.

While the argument that the demand remains alive up to April 2026 is a clever technical point, relying on it alone carries a strategic risk. Do not discard the April 2026 demand argument entirely, but do not make it your headline. Instead, structure your submissions using it as an alternative or subsidiary ground.

You can insist in your argument that  the ₹25L exemption is retrospective and a beneficial social welfare measure.

Best of luck 

If the Exemption of 25L being retrospective in nature, you are entitle to grant exemption limit of 25!

In my view, you should not rely exclusively on the "assessment remained alive till April 2026" argument, nor should you abandon it altogether. The stronger appellate strategy would be to make the ₹25 lakh exemption issue your principal ground and use the "assessment remained alive" contention as an additional supporting ground.

The reason is that the "alive assessment" argument is procedurally innovative but not presently supported by any settled authority directly holding that a subsequently enhanced exemption limit becomes applicable merely because rectification proceedings, demand notices, or recovery proceedings remained pending. Therefore, if you make that your primary ground, the Department and the CIT(A) may reject it at the threshold by stating that pendency of proceedings does not alter the substantive law applicable to AY 2022-23.

On the other hand, if you have identified a substantial body of ITAT, NFAC, or appellate decisions treating beneficial exemption provisions liberally and recognizing that welfare-oriented tax reliefs deserve purposive interpretation, then that should form the core of your appeal. Your primary submission should be that the enhancement from ₹3 lakh to ₹25 lakh was intended to remove an anomaly that had persisted for many years and to provide meaningful relief to retired employees. You may argue that the amendment is remedial, beneficial, and welfare-oriented in nature and therefore deserves liberal interpretation.

Thereafter, as an alternative ground, you may submit that even otherwise, the assessment had not attained finality because a demand under Section 156 had been raised, proceedings under Section 220(2) had continued, rectification proceedings under Section 154 were entertained and disposed of only in 2026, and the original demand itself was modified. Therefore, according to you, the matter remained live and pending when the beneficial exemption regime was already in force. This may not independently win the case, but it strengthens your equitable argument that the benefit should not be denied on a purely technical basis.

Accordingly, I would suggest the following hierarchy in appeal:

Ground No. 1 (Principal Ground): The ₹25 lakh exemption is a beneficial, remedial, and welfare-oriented measure intended to provide relief to retiring employees and therefore deserves liberal application.

Ground No. 2: The enhancement removed an outdated and unrealistic exemption limit and should be interpreted in a manner that advances the object of the amendment.

Ground No. 3 (Alternative Ground): The assessment had not attained finality due to continuing demand, interest proceedings, and rectification proceedings up to 2026; therefore, the assessee should not be denied the benefit of a beneficial provision while the matter remained under active consideration.

Ground No. 4: Equity, fairness, and avoidance of arbitrary discrimination between similarly situated retirees justify extending the benefit where proceedings remained pending.

Therefore, I would advise including the "assessment remained alive till April 2026" ground, but only as a supplementary and alternative argument, not as the foundation of the appeal. The principal thrust should remain on the beneficial and remedial nature of the enhancement supported by whatever appellate precedents you have collected.

Regarding your first question on claiming the ₹25 lakh exemption limit in appeal before CIT(A): Yes, you can and should claim it. The CBDT Notification No. 31/2023 dated May 24, 2023 raised the exemption limit under Section 10(10AA)(ii) from ₹3 lakh to ₹25 lakh effective April 1, 2023 (AY 2024-25 onward). However, multiple ITAT benches (Jaipur, Delhi, Chennai, Bangalore, Lucknow, Ahmedabad, Agra) have held that this is a beneficial and curative amendment that must apply retrospectively to earlier assessment years including AY 2022-23, especially where matters are pending or demands exist. Since your rectification application was disposed and demand was withdrawn only in May 2026, your case remains alive. You should strongly plead retrospective applicability based on ITAT precedents while also arguing that the assessment was kept alive through demand notices under Sections 156 and 220(2) until April-May 2026.

Regarding ITAT/CIT(A)/NFAC orders: The lead case is Chandra Prakash Vashistha vs. ITO (ITA No. 1139/JPR/2025, Jaipur ITAT, Oct 7, 2025) where a retired SBI employee with ₹13.05 lakh leave encashment for AY 2021-22 was granted full exemption under the ₹25 lakh limit retrospectively. Other binding precedents include Govardhan Deepchand Bhambhani vs. ITO (ITA 289/Ahd/2025, AY 2020-21, Ahmedabad ITAT) allowing PNB retiree full exemption; Ram Charan Gupta, Govind Chhatwani, and Devendra Kumar Gupta (Jaipur ITAT) applying ₹25 lakh limit to AY 2020-21; and Agra ITAT in two SBI retiree cases for AY 2019-20 and 2020-21 allowing full exemption. You should cite these with the argument that beneficial legislation correcting long-standing anomaly (₹3 lakh limit unchanged since 2002) must be liberally interpreted retrospectively. Note that some contrary views exist (Kerala High Court, Patna High Court) but ITAT consistently favours assessees.

On pleading that your ITR was alive due to demand: Your strongest argument is that the department kept your assessment "alive" by issuing a demand notice under Section 156 followed by Section 220(2) interest notice in March 2025, which was only withdrawn during rectification proceedings in May 2026. Since your case was pending before the tax authorities with a live demand until April-May 2026, the principle of "pending proceedings" applies. The ITAT in Govardhan Bhambhani and Agra Benches held that where an assessment is not final and the taxpayer is contesting, the enhanced limit must be applied. Even if rectification under Section 154 failed (as it was disposed without granting ₹25 lakh), your appeal to CIT(A) is the correct forum where the matter is sub judice. You should argue that a pending demand means the assessment year is not closed, and judicial discipline requires applying beneficial amendments to all pending matters.

My specific advice as an advocate: Add the ground of "demand alive up to April 2026" as an additional, not alternative, argument. Your principal argument should remain the retrospective applicability of Notification No. 31/2023 as a beneficial social welfare measure, supported by the 100+ ITAT decisions. The "demand alive" argument strengthens your case by establishing jurisdiction and timeliness, but the substantive entitlement flows from the retrospective nature of the notification. Combine both: first argue that the ₹25 lakh limit applies retrospectively to AY 2022-23 as held in Chandra Prakash Vashistha and dozens of coordinate bench rulings; second argue that even otherwise, since the department kept the assessment alive through demand notices until May 2026, your appeal before CIT(A) is a pending proceeding where the beneficial amendment must be applied. Do not abandon either ground - use them cumulatively for maximum impact. Also cite the Explanatory Memorandum to Notification 31/2023 stating "no person is being adversely affected by giving retrospective effect".