Kajol Patel Vs ITO (ITAT Ahmedabad)
For AY 2025-26, rebate under Section 87A cannot be denied merely because part of the income comprises short-term capital gains taxable under Section 111A, as no such statutory restriction existed during the relevant year.
Summary: The Ahmedabad Bench of the Income Tax Appellate Tribunal considered whether, for A.Y. 2025-26, rebate under the first proviso to Section 87A could be denied to the extent tax liability included Short Term Capital Gain chargeable under Section 111A. The assessee had declared total income of Rs. 6,95,720/-, including STCG of Rs. 1,54,411/-, and claimed rebate of Rs. 25,000 under Section 87A. While processing the return under Section 143(1), the CPC restricted the rebate to Rs. 12,066/-, and the Addl. CIT(A) upheld the adjustment, relying upon CBDT Circular No. 13/2025 dated 19.09.2025. The Tribunal examined the statutory language applicable to A.Y. 2025-26 and found that Section 87A did not contain an express exclusion of income chargeable at the special rate under Section 111A. It noted that the Finance Act, 2025 subsequently amended Section 87A with effect from 1st April 2026, corresponding to A.Y. 2026-27, and inserted a restriction concerning tax payable at the rates under Section 115BAC(1A). The Tribunal held that the subsequent amendment could not be applied retrospectively and that an administrative circular could not impose a substantive restriction absent from the statute applicable to the relevant assessment year. Following the reasoning in Jayshreeben Jayantibhai Palsana v. ITO and relying also upon the principle recognised in The Chamber of Tax Consultants v. Director General of Income-tax (Systems) & Ors., the Tribunal directed the Assessing Officer/CPC to allow the full Rs. 25,000 rebate, subject to verification of other statutory conditions and consequential tax and cess computation, and deleted the CPC demand. The assessee’s appeal was accordingly allowed.
