IT Exemption To Defence Personnel Invalidated From Service Due To Disability: ITAT Rejects Revenue's Contention

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that income tax exemption shall be available to Defence Forces personnel who have been invalidated from service on account of bodily disability while in service.

The two-member bench of Chandra Mohan Garg (Judicial Member) has deleted the addition made by the A.O. on account of disability pension not exempt from tax as the assessee had taken premature retirement at his own request.

The appellant/assessee is a retired employee of the Indian Air Force. The assessee had declared income from salary, income from house property and income from other sources during the financial year relevant to the assessment year under consideration. The assessee filed a return of income declaring total income which was processed under section 143(1) of the Income Tax Act, 1961. The assessee later filed a revised Return of Income for the fiscal year 2017-18.

The case was selected for scrutiny under CASS and, accordingly, a notice under section 143(2) of the Income Tax Act, 1961 was issued, which was duly served upon the assessee. In response to the notice, the assessee filed a reply. The AO issued a statutory notice under section 142(1) along with a detailed questionnaire.

The AO issued notices under section 142(1) and the assessee filed his replies to the said notices. During the course of assessment proceedings, the A.O. noted that the assessee had claimed "Disability Pension" as exempt income in his revised ITR.

The investigation of the submissions and verification with the concerned authorities showed that the assessee had taken premature retirement from the Indian Air Force w.e.f. 01.04.2016 and the disability was not the reason for retirement.

Information was called for by the AO from the Directorate of Air Veterans, Air Force Head Quarters. In reply to the notice, information was received from the Directorate of Air Veterans that the officer had prematurely retired on his own request and the disability was not the reason for the retirement. The information provided also contained the certificate regarding the premature separation from service of the assessee issued by Air Headquarters (VB), New Delhi. The AO reproduced the certificate issued by the Air Headquarters in the assessment order. The AO noted that since the assessee had taken premature retirement at his own request and was not invalided from service on account of bodily disability.

The assessee submitted that the CBDT in its Circular dated 24.06.2019 exempted the armed forces personnel who have been invalided from service on account of bodily disability attributable to or aggravated by service and not to personnel who have been retired on superannuation or otherwise.

The department contended that the assessee was not disabled while in service and he has taken voluntary retirement from service and, therefore, the circular issued by the CBDT cannot be taken into consideration in the case of the assessee.

The tribunal noted that the department failed to furnish any contrary material or decision of any higher judicial forum to the notice of the bench.

The ITAT allowed the claim of the assessee and directed the AO to delete the addition.

Case Title: Aradhya Ghosh Versus DCIT

Citation: ITA.No.1788/Del./2022

Date: 14.10.2022

Counsel For Appellant: C.A. Hemant Pai

Counsel For Respondent: Sr. DR Anuj Garg

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