Kavita Paras Shah Vs ITO (ITAT Rajkot)
The appeal was filed by the assessee against the order dated 16.03.2026 passed by the Commissioner of Income Tax (Appeals), which arose from an order under Section 143(1) of the Income-tax Act, 1961 dated 22.01.2026. The dispute concerned the assessee’s claim of rebate under Section 87A for Assessment Year 2025-26.
The assessee had filed her return declaring total income of ₹5,70,000, comprising income from business or profession and short-term capital gains (STCG) from transfer of listed securities taxable under Section 111A. She had opted for the new tax regime under Section 115BAC(1A). Her total tax liability was ₹16,835, comprising ₹9,070 on normal income and ₹7,765 on STCG under Section 111A. Since her total income did not exceed ₹7,00,000, she claimed rebate of the entire tax under the first proviso to Section 87A.
While processing the return under Section 143(1), the Central Processing Centre restricted the Section 87A rebate to the ₹9,070 tax payable on normal income and denied the ₹7,765 rebate relating to STCG under Section 111A. This resulted in a demand of ₹8,076. The adjustment was made without prior intimation or an opportunity of hearing. The CIT(A) upheld the CPC’s action, leading the assessee to approach the Tribunal.
Before the ITAT, the assessee submitted that Section 87A, as applicable for AY 2025-26, entitled an eligible taxpayer under the new tax regime to rebate where total income did not exceed ₹7,00,000. It was contended that Section 111A merely prescribed a special tax rate for specified STCG and did not itself restrict the Section 87A rebate. The assessee also relied upon the Finance Bill, 2025, which introduced a specific restriction on rebate in respect of tax payable on special-rate incomes, including Section 111A income, with effect from AY 2026-27. According to the assessee, the prospective introduction of that restriction indicated that it did not apply to AY 2025-26. Reliance was also placed on Pramod Kumar Dubey v. ITO, ITA No. 314/Agra/2025.
The Departmental Representative relied on the orders of the lower authorities but could not controvert the assessee’s factual and legal submissions.
The Tribunal first held that the Section 143(1) adjustment was liable to be set aside because the CPC had denied the rebate on Section 111A STCG without issuing prior notice or intimation and without affording an opportunity of being heard. The Tribunal further considered the issue on merits and found that, for AY 2025-26, Section 87A did not carve out an exception for tax payable under Section 111A for an eligible assessee opting for the new tax regime under Section 115BAC(1A).
The Tribunal observed that the restriction denying Section 87A rebate on tax payable on special-rate incomes, including Section 111A income, was introduced only with effect from AY 2026-27. It therefore held that the restriction could not be applied to the provisions governing AY 2025-26. Following the Coordinate Bench decision in Pramod Kumar Dubey v. ITO, the Tribunal held that the assessee was entitled to Section 87A rebate on the entire tax liability, including tax payable on Section 111A STCG.
Accordingly, the ITAT held that the adjustment made by the CPC and sustained by the CIT(A) was unsustainable both on procedural grounds and on merits. The Assessing Officer/CPC was directed to delete the adjustment and grant the Section 87A rebate as claimed. The assessee’s appeal was allowed.
Cases Discussed
- Pramod Kumar Dubey v. ITO (ITAT Agra), ITA No. 314/Agra/2025
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2025-26, is directed against the order under section 250 of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] passed by Commissioner of Income Tax(Appeal) [hereinafter referred to as `Ld.CIT(A)1, dated 16.03.2026, which in turn arises out of an order passed by assessing officer u/s. 143(1) of the Act, dated 22.01.2026.
02. Brief facts of the case are that the assessee is an individual who filed her return of income for the Assessment Year 2025-26 declaring a total income of Rs.5,70,000/-. The returned income comprised income from business or profession and short-term capital gains (STCG) arising from transfer of listed securities taxable under Section 111A of the Income-tax Act, 1961. The assessee opted for the new tax regime under Section 115BAC(1A) of the Act. The total tax liability computed on the returned income was Rs.16,835/-, consisting of Rs.9,070/- on normal income and Rs.7,765/- on STCG taxable under Section 111A of the Act. Since the total income did not exceed Rs.7,00,000/-, the assessee claimed rebate of the entire tax amounting to Rs.16,835/- under the first proviso to Section 87A of the Act. While processing the return under Section 143(1) of the Act, the Central Processing Centre (CPC) restricted the rebate under Section 87A of the Act only to the tax of Rs.9,070/- on normal income and denied the rebate of Rs.7,765/- attributable to the STCG taxable under Section 111A of the Act. Consequently, a demand of Rs.8,076/- was raised. It is an admitted position that no prior intimation or opportunity of hearing was granted to the assessee before making the adjustment.
03. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who upheld the action of the CPC. The assessee is now in appeal before the Tribunal. At the time of hearing the Assessee is in person submitted that for Assessment Year 2025-26, the assessee was entitled to rebate under Section 87A of the Act on the entire tax liability, including the tax payable on short-term capital gains taxable under Section 111A of the Act, since the total income did not exceed Rs.7,00,000/- and the assessee had opted for the new tax regime under Section 115BAC(1A) of the Act. It was submitted that Section 111A of the Act merely prescribes a special rate of tax for specified short-term capital gains and does not contain any restriction on the availability of rebate under Section 87A of the Act. Section 87A of the Act grants rebate with reference to the total income and the total tax payable thereon. The provision applicable for Assessment Year 202526 grants rebate of 100% of the tax payable, subject to the prescribed monetary limit, where the total income does not exceed Rs.7,00,000/-. The assessee further submitted that the Finance Bill, 2025 proposed a specific restriction denying rebate under Section 87A of the Act in respect of tax payable on special rate incomes, including income taxable under Section 111A of the Act, with effect from Assessment Year 2026-27. The very fact that such a restriction was introduced prospectively demonstrates that no such restriction existed for Assessment Year 2025-26. The Explanatory Memorandum cannot override the plain language of the statutory provision. Reliance was placed on the decision of the Coordinate Bench in Pramod Kumar Dubey v. ITO, ITA No. 314/Agra/2025, wherein under identical facts it was held that rebate under Section 87A of the Act could not be denied on tax payable under Section 111A for Assessment Year 2025-26. It was also submitted that while processing the return under Section 143(1) of the Act, the CPC made the adjustment without issuing any prior notice or intimation to the assessee, which is in violation of the mandatory procedure prescribed under the Act.
04. The Ld. DR relied upon the orders of the authorities below but could not controvert the factual and legal submissions advanced on behalf of the assessee.
05. We have heard the rival submissions and perused the material available on record. We find that while processing the return under Section 143(1) of the Act, the CPC denied the rebate under Section 87A of the Act in respect of the tax payable on short-term capital gains taxable under Section 111A of the Act without issuing any prior notice or intimation to the assessee. Such an adjustment, made without affording an opportunity of being heard, is contrary to the procedure prescribed under the Act and is liable to be set aside on this ground alone.
06. Even on merits, we find considerable force in the submissions of the assessee. For Assessment Year 2025-26, Section 87A of the Act grants rebate with reference to the total income of an eligible assessee opting for the new tax regime under Section 115BAC(1A) of the Act . The provision, as applicable for the year under consideration, does not carve out any exception in respect of tax payable under Section 111A of the Act . The restriction denying rebate under Section 87A of Act on tax payable on special rate incomes, including those covered under Section 111A of the Act, has been introduced only with effect from Assessment Year 2026-27. Therefore, such restriction cannot be imported into the statutory provisions applicable to Assessment Year 2025-26.
07. We also find that the issue is squarely covered by the decision of the Coordinate Bench in Pramod Kumar Dubey v. ITO (ITA No. 314/Agra/2025), wherein identical relief was granted to the assessee. Respectfully following the said decision, we hold that the assessee is entitled to rebate under Section 87A of the Act on the entire tax liability, including the tax payable under Section 111A of the Act. Accordingly, the adjustment made by the CPC and sustained by the CIT(A) is unsustainable both on account of violation of the prescribed procedure and on merits.
08. The Assessing Officer/CPC is directed to delete the adjustment and grant the rebate under Section 87A of the Act as claimed by the assessee.
09. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 10th day of July, 2026.
