Case Law Details
Pushpa Prakash Misar Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai allowed the assessee’s appeal against the order of the Addl./JCIT(A), Agra, dated 21.11.2025, relating to Assessment Year (AY) 2024-25. The dispute concerned the denial of rebate under Section 87A of the Income-tax Act, 1961, where the assessee’s income included Short-Term Capital Gain (STCG) taxable under Section 111A.
The assessee had filed her return of income on 12.07.2024, declaring total income of ₹4,77,910, comprising Short-Term Capital Gain of ₹3,17,552 and income from other sources of ₹1,60,354. After claiming a rebate of ₹25,000 under Section 87A, her tax liability was determined at ₹1,754. However, while processing the return under Section 143(1) on 24.02.2025, the Centralised Processing Centre (CPC) disallowed the rebate. The Commissioner (Appeals) upheld the disallowance, leading to the present appeal before the Tribunal.
Before the Tribunal, the assessee contended that the first proviso to Section 87A, inserted by the Finance Act, 2023 with effect from AY 2024-25, grants a rebate to a resident individual opting for the new tax regime under Section 115BAC(1A) whose total income does not exceed ₹7 lakh. It was argued that the provision refers to “total income” and does not exclude income taxable at special rates under Section 111A. The assessee further submitted that while Section 112A(6) specifically restricts rebate in respect of certain long-term capital gains, no similar restriction exists in either Section 111A or Section 87A. It was also argued that the Finance Act, 2025 introduced a restriction on rebate for special-rate income only from AY 2026-27, making the amendment prospective and inapplicable to AY 2024-25.
The assessee relied on the decision of the Ahmedabad Bench of the Tribunal in Jayshreeben Jayantibhai Palsana, which held that there is no express statutory bar on allowing rebate under Section 87A where the income includes STCG taxable under Section 111A. The assessee also cited subsequent decisions of the Chennai, Rajkot, Bangalore and Indore Benches following the same view.
The Department argued that Section 87A grants rebate on tax payable on total income, whereas income taxable at special rates under Chapter XII, including Section 111A, is computed separately under the statutory framework. According to the Department, tax attributable to such income does not qualify for rebate. It was further submitted that the computation mechanism and the New Common Utility Framework supported denial of rebate, and that the absence of an express exclusion in Section 87A did not override the statutory scheme for special-rate income.
After considering the rival submissions, the Tribunal held that the issue was no longer res integra and was squarely covered by the Ahmedabad Bench’s decision in Jayshreeben Jayantibhai Palsana. The Tribunal reproduced the reasoning from that decision, which held that the amended first proviso to Section 87A applies to any resident individual assessed under Section 115BAC(1A) whose total income does not exceed ₹7 lakh, and does not distinguish between normal income and income chargeable at special rates, nor does it contain any express exclusion for Section 111A income.
The Tribunal noted that Section 112A(6) contains an express restriction on rebate under Section 87A, whereas Section 111A contains no such restriction. It observed that where the legislature intended to deny rebate, it had done so expressly, and the absence of a corresponding provision in Section 111A supported the assessee’s claim. The Tribunal further observed that Section 115BAC(1A) governs the computation of tax under the concessional tax regime and does not modify or override Section 87A, which is an independent rebate provision under Chapter VIII.
The Tribunal also noted that the Finance Bill, 2025 proposed to insert restrictions on rebate under Section 87A with effect from AY 2026-27, indicating that no such restriction existed for AY 2024-25. It held that the explanatory memorandum to the Finance Bill could not override the plain language of the statute. The Tribunal further referred to the Bombay High Court’s decision in The Chamber of Tax Consultants v. Director General of Income Tax (Systems), which held that the CPC system configuration cannot override statutory rights and that rebate claims should be decided by the quasi-judicial authority on their merits.
The Tribunal observed that the assessee satisfied the conditions for claiming rebate, being a resident individual, having total income below ₹7 lakh, and having opted for the new tax regime under Section 115BAC(1A). It held that there was no express statutory bar in Section 87A or Section 111A against granting rebate in respect of STCG taxable under Section 111A for AY 2024-25. The Tribunal also noted that the denial by the CPC appeared to be based on system-driven logic rather than statutory mandate.
Finding no contrary decision from any higher judicial authority and noting that several coordinate benches had followed the Ahmedabad Bench’s ruling, the Tribunal directed the Assessing Officer to allow the rebate under Section 87A of ₹25,000. Accordingly, the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal filed by the assessee against the order of the Learned ADDL/JCIT(A)-Agra [„Ld.CIT(A)‟], dated 21-11-2025, pertaining to Assessment Year (AY) 2024-25.
2. Briefly, the facts of the case are that the assessee filed her return of income on 12-07-2024, declaring total income of Rs. 4,77,910/-comprising of Short Term Capital Gain of Rs. 3,17,552/- and income from other sources amounting to Rs. 1,60,354/- and tax liability was determined at Rs. 1,754/-, after claiming rebate u/s. 87A of the Act amounting to Rs. 25,000/-. The AO/CPC processed the return of income u/s. 143(1) of the Act, dt. 24-02-2025 and disallowed the claim of rebate u/s. 87A of the Act. The assessee thereafter carried the matter in appeal before the Ld.CIT(A), who has dismissed the assessee‟s appeal and against the said order, the assessee is in appeal before us.
3. During the course of hearing, the Ld.AR submitted that the 1st proviso to section 87A of the Act as inserted by the Finance Act, 2023 w.e.f. AY. 2024-25 grants a tax rebate to a resident individual, who has opted for taxation under the new tax regime u/s. 115BAC(1A) of the Act and whose total income does not exceed Rs. 7 lakhs. It was submitted that the 1st proviso to section 87A of the Act does not impose any restriction on the nature of income or exclude income tax at special rates under Chapter XII. It was submitted that the 1st proviso to section 87A speaks of the expression „total income‟ and allows deduction from the amount with income tax, without any exclusion of income taxable u/s. 111A of the Act. In contrast, section 112A(6) specifically provide that rebate u/s. 87A shall not be allowed in respect of Long Term Capital Gain taxable under that section exceeding Rs. 1 lakh. It was submitted that no such exclusion is provided either in section 111A or in 87A of the Act. It was further submitted that by virtue of the Finance Act, 2025, section 87A of the Act has been amended to deny rebate of all income taxable under special rate including those u/s. 111A from AY. 2026-27 onwards and this amendment is prospective in nature and has no application to the assessment year under consideration i.e., AY. 2024-25.
4. It was submitted that the Co-ordinate Bench of the Tribunal in the case of Jayshreeben Jayantibhai Palsana vs. ITO (ITA No. 1014/Ahd/2025, dt. 12-08-2025) has held that on a plain reading of statutory provisions, there exists no express bar either in section 87A or section 111A for denial of rebate in respect of tax payable on Short Term Capital Gain arising from transfer of listed equity shares taxable at special rate u/s. 111A and it was held that the assessee is eligible for rebate u/s. 87A for the AY. 2024-25 even though the income includes Short Term Capital Gain taxable u/s. 111A of the Act. It was submitted that the ratio of the said decision squarely applies in the facts of the present case. It was submitted that the said decision has subsequently been followed by various Co-ordinate Benches of the Tribunal, in the following cases:
i) Seshank Mahadev Vs. ITO (Chennai) ITA No. 2274/CHNY/2025
ii) Manojbhai C Kamdar Vs. ITO (Rajkot) ITA No. 572/RJT/2025
iii) Thejaswini Jakkaraju Vs. ITO (Bangalore) ITA No. 218/BANG/2025
iv) Kanhaiyalal Panchal Vs. BPL (Indore) ITA No. 702/IND/2025
v) Venkadapathy Venugopal Vs. ITO (Chennai) ITA No. 2064/CHNY/2025
5. Per contra, the Ld.DR is heard, who has submitted that Section 87A provides a rebate from income-tax payable on the “total income” subject to threshold conditions. However, the Income-tax Act prescribes a bifurcated computation mechanism wherein incomes chargeable at special rates under Chapter XII, including section 111A, are segregated and taxed independently of the slab-rate computation. Such special-rate incomes are not part of the tax computation to which the rebate mechanism applies. The Finance Act’s reinforce that tax computed at special rates stands outside the ambit of the rebate under section 87A. This statutory interpretation is aligned with the computation architecture approved under the New Common Utility Framework (NCF), as highlighted in the analysis note uploaded by the assessee. It was submitted that the assessee’s total income includes STCG of Rs. 3,17,552/- taxable at the special rate under section 111A. Once such income forms part of the total income, the tax liability attributable to that income becomes chargeable under the special-rate regime and does not qualify for rebate u/s 87A. The language of section 87A must be read harmoniously with the specific charging provisions under Chapter XII. The absence of an explicit exclusion in section 87A regarding STCG does not override the legislative architecture wherein special-rate incomes are carved out distinctly. Therefore, the AO/CPC correctly denied the claim. It was also submitted that the assessee’s contention that a composite reading of sections 87A, 111A, and 112A supports allowance of rebate cannot be sustained. The statutory scheme does not permit merging special-rate tax with normal-rate tax for purposes of rebate. The analysis undertaken by the AO/CPC is correct, system-validated, and in conformity with the law. The assessee has not produced any conclusive or persuasive evidence to demonstrate eligibility for rebate u/s. 87A and the order of the ld CIT(A) be confirmed.
6. We have heard the rival contentions and perused the material available on record. We find that the matter is no more res integra and is squarely covered by the decision of the Ahmedabad Bench of the Tribunal in the case of Jayshreeben Jayantibhai Palsana (supra), wherein the Coordinate Bench has examined the matter at length and has held that the assessee is eligible for rebate u/s. 87A for AY. 2024-25 in relation to income which includes Short Term Capital Gain taxable u/s. 111A of the Act and we can gainfully refer to the discussion therein which read as under:
“5.We have carefully considered the rival submissions, the impugned order of the CITIA), the material placed on record, and the applicable statutory provisions. Thus, the core issue for adjudication before us in- “Whether a resident individual who has exercised the option under section 115BAC(1A) and whose total income is below Rs.7,00,000/-, is eligible to claim rebate under section 87A against tax payable on STCG under section 111A, in the absence of any express restriction in section 87A or section 111A.”
5.6 The undisputed facts of the case are that the assessee, a resident individual, filed a revised return of income for A.Y. 2024-25 declaring total Income of Rs.6.76,402/-, comprising short-term capital gain on listed equity shares taxable at 15% under section 111A, and opted for taxation under the new regime under section 115BAC(1A). The CPC, Bengaluru, processed the return under section 143(1) and denied rebate under section. 87A. of Rs.13,320/-, resulting in a demand of Rs.15,820/- The CITIA) upheld the denial, primarily relying on-
(i) the “subject to clause in section 115BAC(1A),
(ii) provisions of Chapter XII, and
(iii) the Explanatory notes to the Finance Bill 2025
5.7 Having perused the relevant statutory provisions and the arguments advanced by the assessee’s Authorised Representative (AR), we find merit in the claim of the assessee.
5.8 The amended first proviso to section 87A [inserted by the Finance Act, 2023 wef. A.Y. 2024-25] provides:
“Where the total income of the assessee is chargeable to tax ruler sub section (1A) of section 115BAC and the total income-
(a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction….”
5.9 This provision applies to any resident individual whose total income does not exceed Rs.7,00,000 and who is assessed under section 115BAC(1A). The statute does not draw any distinction between normal income and income chargeable at special rates, nor does it contain any express exclusion for tax arising under section 111A.
5.10 By contrast, the legislature has inserted an express bar on availability of section 87A rebate in section 112A(6), which states:
(6) Where the total income of an assessee includes any long-term capital gains referred to in sub-section (1), the rebate under section 87A shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains.
5.11 The absence of a corresponding clause in section 111A is legally significant and supports the principle that when the legislature intended to deny rebate in respect of special income (as in section 112A), it has done so expressly. In contrast, the absence of any exclusion in section 111A or in section 87A must be construed in favour of the assessee.
5.12. At this point we discuss the interplay of Section 1158AC(LA) with Chapter XII where the scope is Confined to Computation of Tax Rates. Section 115BAC(1A) opens with the phrase:
“Notwithstanding anything contained in this Act but subject to the provisions of this Chapter….”
5.13 The purpose of this clause is to enable the computation of income-tax under the concessional rate regime, subject to existing special rate provisions under Chapter XII, such as sections 111A, 112, 112A, etc. This clause governs the computation of tax and does not ipso facto affect eligibility to rebates or deductions unless specifically restricted. Section 87A is not part of Chapter XII; it is an independent rebate provision under Chapter VIII of the Act. Therefore, the overriding clause in section 115BAC(1A) does not derogate or modify section 87A, unless section 87A itself provides for exclusion, which, in the present case, it does not. Thus, section 87A operates on the total tax computed, whether it includes tax at slab rates or special rates, and applies so long as the total income threshold is met.
5.14 The CITIA) placed strong reliance on the Explanatory Memorandum to the Finance Bill 2025, which clarified that rebate under section 87A is not available on tax arising from special rate incomes, including those under section 111A. However, we find this reliance to be misplaced for two reasons:
– Firstly, the Finance Bill 2025 itself proposes to insert new restrictions on rebate under section 87A w.e.f. A.Y. 2026-27, which implies that the existing law fie., as applicable to A.Y. 2024-25) does not contain such a restriction.
– Secondly, the Explanatory Memorandum cannot override the plain language of the statute. It is a tool of interpretation, not a source of substantive law.
Therefore, the prospective amendment in the Finance Act 2025 supports the view that under the unamended provision applicable for A.Y. 2024-25, relate under section 87A cannot be denied merely because tax arises under section 11A.
5.15 In the recent judgment dated 24.01.2025 in the case of The Chamber of Tax Consultants vs. Director General of Income Tax (Systems) [TS-5026-HC-2025(Bombay)-0), the Hon’ble Bombay High Court considered the issue of system-based denial of 87A rebate on STCG under section 111A for assessees who had opted for 115BAC(1A). While the Hon’ble Court refrained from interpreting the substantive provisions, it held that the assessee must be allowed to claim rebate under section 87A, and it is for the quasi-judicial authority to decide on merits.
Thus, the Hon’ble High Court clearly held that the CPC utility or system configuration cannot override statutory rights, and that each case must be adjudicated on its own merits. We at the Tribunal, being such a quasi-judicial authority, are therefore duty-bound to examine the claim in light of the statutory framework and not be influenced by automated denial or procedural logic adopted by the CPC.
5.16 The assessee has also relied on an appellate order dated 27.05.2025 passed by CIT(A)-1, Nagpur in the case of Avni Milanhhai Maniya, wherein on identical facts the CIT(A) allowed the claim of rebate under section 87A in respect of STCG taxable under section 111A. We also note that such decision was taken by the JCIT/AddI.CIT(A) relving on the decision of Beena Manishbhai Fofaria for the A.Y. 2024-25. While not binding, the said appellate order affirms that divergent views exist and such benefit has been allowed in similar factual circumstances.
5.17 in view of the above discussion, we find that the assessee is a resident individual and the total income declared for the assessment year 2024-25 does not exceed Rs.7,00,000. It is also an admitted position that the assessee has exercised the option to be assessed under the new tax regime in accordance with the provisions of section 115BAC(1A) of the Act. On a plain reading of the statutory provisions, there exists no express bar either in section 87A or section 111A for denial of rebate in respect of tax payable on short-term capital gains arising from transfer of listed equity shares taxable at special rates under section 111A. The legislative intent is further clarified by the subsequent amendment proposed in the Finance Bill, 2025. which is prospective in nature and thereby reinforces that no such restriction was in force during the relevant assessment year. The dental of rebate under section 87A by the CPC, Bengaluru, appears to be based solely on system-driven logic and not on any statutory mandate. Moreover, the interpretation adopted by the CIT(A) in upholding such denial is, in our considered view, not in consonance with the plain and unambiguous language of the law as applicable for A.Y. 2024-25.
5.18 Accordingly, we hold that the assessee is eligible for rebate under section 87A for A.Y. 2024-25 even though the income includes STCG taxable under section 111A. The AO is directed to allow rebate of Rs.13,320/- and recompute tax liability accordingly. The demand of Rs.15,820/- raised in CPC intimation stands deleted. Refund, if any, shall be granted in accordance with law.”
7. The said decision has since been followed by various other Co-ordinate Benches of the Tribunal as referred to by the Ld.AR during the course of hearing. The Ld.DR could not bring any factual distinction in the said decisions so rendered by the Co-ordinate Benches of the Tribunal or any contrary decision of the higher authority. Therefore, respectfully following the said decision of the Co-ordinate Bench of the Tribunal, the assessee‟s claim for rebate u/s. 87A of Rs 25,000/- is hereby directed to be allowed.
8. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 23-03-2026.
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