ITO Vs Sanjay Kumar Garg (ITAT Jaipur)
The Jaipur Bench of the ITAT has held that, for AY 2025-26, a resident individual governed by the new tax regime and having total income not exceeding ₹7 lakh was entitled to rebate u/s 87A even against tax payable on short-term capital gains u/s 111A. Neither section 87A nor section 111A, as applicable to the year, contained any express restriction denying the rebate.
The assessee, Sanjay Kumar Garg, filed his return u/s 139(1) on 15.09.2025 under the new tax regime u/s 115BAC. He declared income under the heads salary, capital gains and other sources, aggregating to approximately ₹6.91 lakh.
Since the total income did not exceed ₹7 lakh, the assessee claimed rebate of ₹23,494 u/s 87A. The tax included tax payable upon short-term capital gains chargeable at the special rate u/s 111A.
While processing the return u/s 143(1), CPC denied the rebate against the tax attributable to the special-rate capital gains. The CIT(A), however, allowed the assessee’s claim. The Revenue challenged that relief before the Tribunal.
The Revenue contended that rebate u/s 87A was unavailable against tax payable on income chargeable at special rates, including STCG u/s 111A. Reliance was also placed upon CBDT Circular No. 13/2025 dated 19.09.2025, which, according to the Department, clarified that it was never the legislative intention to allow the rebate against tax on special-rate income and that cases involving an erroneous allowance could be rectified.
The Tribunal noted that the controversy had already been decided in favour of taxpayers in several decisions. It relied particularly upon its recent ruling in ITO v. Rajshree Kothari, ITA No. 399/Jpr/2026, dated 20.08.2026.
In that case, the Jaipur Tribunal had followed decisions including Pranay M. Kothari v. DCIT, Manojbhai C. Kamdar v. ITO, Jayshreeben Jayantibhai Palsana v. ITO and Basty Keshava Shenoy v. ITO. These decisions consistently held that section 87A granted rebate from the tax computed on the assessee’s total income without drawing a distinction between income taxed at slab rates and STCG taxed at the special rate u/s 111A.
The Tribunal examined the language of section 87A applicable under the new regime. The provision entitled a resident individual whose total income did not exceed ₹7 lakh to a deduction from the amount of income-tax computed on the total income, subject to the ceiling of ₹25,000.
There was no clause in section 87A excluding tax payable u/s 111A. Equally, section 111A did not contain any provision stating that rebate u/s 87A would be unavailable against tax on eligible short-term capital gains.
The Tribunal contrasted this statutory silence with the express restriction contained in section 112A(6). In the case of specified long-term capital gains u/s 112A, Parliament specifically provided that rebate u/s 87A would not be allowed against the tax payable on such gains.
This contrast was legally significant. Where Parliament intended to exclude a category of special-rate income from the rebate, it had expressly done so. The absence of a corresponding exclusion in section 111A indicated that tax on STCG was not barred from the section 87A rebate.
The Tribunal further observed that section 115BAC(1A) determines the applicable tax-rate framework under the new regime. Its interaction with the special-rate provisions in Chapter XII does not, by itself, curtail an independent rebate granted under Chapter VIII. A restriction on rebate must arise from the language of section 87A or the relevant special-rate provision and cannot be inferred merely because the income is taxed at a special rate.
Reference was also made to the Bombay High Court’s order in The Chamber of Tax Consultants v. Director General of Income-tax (Systems), dated 24.01.2025. The High Court had directed the Department to enable taxpayers to lodge their rebate claims through the return-filing utility. While the High Court did not conclusively adjudicate the substantive availability of the rebate, it made clear that system design could not prevent taxpayers from making a statutory claim which was required to be decided by the competent quasi-judicial authority.
The Tribunal further observed that a subsequent amendment restricting rebate against special-rate income operated prospectively. Such a later amendment could not be used to insert an exclusion into the statutory language applicable to an earlier year. Similarly, an explanatory circular could not override or rewrite the plain provision.
The Departmental Representative was unable to distinguish the earlier Tribunal decisions or cite any contrary decision of the jurisdictional High Court or the Supreme Court.
Accordingly, the Tribunal upheld the CIT(A)’s order allowing rebate of ₹23,494 against tax payable on the assessee’s STCG u/s 111A. The Revenue’s appeal was dismissed.
Author’s Comments
The controversy arose primarily because the return utility stopped permitting section 87A rebate against certain special-rate incomes even though the statutory provision, as applicable to the relevant year, did not expressly impose such a restriction. A software validation rule may implement the law; it cannot create the law.
The distinction between sections 111A and 112A is the strongest part of the reasoning. Section 112A expressly protects the tax on specified LTCG from being reduced by the section 87A rebate. No equivalent restriction existed in section 111A. Courts cannot ordinarily supply an omission where Parliament has demonstrated that it knows how to enact the necessary exclusion.
The Bombay High Court’s order concerning the ITR utility should nevertheless be understood correctly. It enabled taxpayers to make the claim and required the system to accept returns; it did not finally determine every taxpayer’s substantive eligibility. That adjudicatory task was performed by the Tribunal through interpretation of sections 87A, 111A and 115BAC.
The ruling is relevant for AYs 2024-25 and 2025-26 under the corresponding statutory language. From AY 2026-27, an express legislative restriction concerning special-rate income changes the position. The favourable reasoning for earlier years cannot automatically be extended beyond the amendment.
The larger principle remains enduring: legislative intention must be gathered from enacted words, not reconstructed from a portal restriction or a later circular. If Parliament wished to deny the rebate against section 111A tax for AY 2025-26, the statute had to say so. According to the Tribunal, it did not.
Cases Discussed
- ITO Vs. Rajshree Kothari, ITA No. 399/JPR/2026, order dated 20.08.2026.
- Pranay M. Kothari Vs. DCIT, ITA No. 3469/Chny/2025.
- Manojbhai C. Kamdar Vs. ITO, ITA No. 572/RJT/2025.
- Jayshreeben Jayantibhai Palsana Vs. ITO, ITA No. 1014/Ahd/2025.
- Venkatachalam Venkatraman Vs. ITO, ITA No. 1431/Chny/2025.
- Beena Manishbhai Fofaria, A.Y. 2024-25.
- The Chamber of Tax Consultants Vs. Director General of Income-tax (Systems), Bombay High Court, dated 24.01.2025.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The present appeal has been filed by the Revenue against the order passed by the Office of the Commissioner of Income Tax, Appeal Addl./JCIT(A) Nagpur 01(hereinafter referred to as “Ld. CIT(A)”), dated 05.02.2026 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The grounds raised read as under:-
1. Whether on the facts and circumstances of the case and in law, the Ld. Addl CIT(A)-1, Nagpur is justified in allowing the rebate u/s 87A of the Act, on STCG, when rebate u/s 87A of the Act, 1961 is not available in respect of Income Tax payable on income chargeable to tax on special rates, which includes Short Term Capital Gain u/s 111A of the Act?
2. Whether on the facts and circumstances of the case and in law, the order of the Ld. Addl CIT(A)-1, Nagpur is justified in view of the CBDT Circular No. 13/2025, dated 19.09.2025 which has made it expressly clear that it was never the statutory intent to allow rebate in cases where income is chargeable to tax u/s 115BAC(1) of the Act, 1961 and any such cases where rebate is erroneously claimed are to be rectified, thereby having no doubt that such claim was statutorily never permissible?
3. The appellant craves leave or reserves right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.
3. The solitary issue in the present appeal relates to denial of rebate of tax claimed by the assessee u/s 87A of the Act, on the taxes paid on income earned on short term capital gain. The denial of rebate was made by the CPC while processing the return of income filed by the assessee, in the intimation made u/s 143(1) of the Act. The assessee had filed return of income u/s 139(1) of the Act on 15.09.2025 declaring income under the heads: Income from Salary, Income from Capital Gains and Income from Other Sources, aggregating to a total income of Rs.6,91,062/- and claimed tax rebate of Rs.23,494/- u/s 87A of the Act, which was denied by the CPCin the intimation made u/s 143(1) of the Act.
4. The same was allowed by the ld. CIT(A). The ld. CIT(A) has dealt with the issue in his order as under:-
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5. Appellate Findings:
5.1 The appellant filed his return of income for the Assessment Year 2025-26 on 15.09.2025 vide Acknowledgement No. 508091740150925, declaring income under the heads “Income from Salary”, “Income from Capital Gains” and “Income from Other Sources”, aggregating to a total income of Rs. 6,91,162/-. The return of income was filed under the new tax regime in accordance with the provisions of section 115BAC of the Income-tax Act, 1961.
The AO, Centralised Processing Centre (CPC), Bengaluru, processed the return and issued an intimation under section 143(1) on 10.01.2026, disallowing the rebate claimed under section 87A against part of short term/long term capital gain and raising a demand of Rs. 16,160/-. Accordingly AO, CPC has computed the income of the appellant as under:
Grounds of appeal 3.1 to 3.5(regarding disallowance of claim of rebate u/s 87A)
5.2 Section 87A of Income Tax Act 1961 is as below:
Rebate of income-tax in case of certain individuals. 87A.
An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of twelve thousand and five hundred rupees, whichever is less.
Following proviso shall be inserted in section 87A by the Finance Act, 2023, w.e.f. 1-4- 2024:
Provided that where the total income of the assessee is chargeable to tax under 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 from the amount of income-tax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less,
(b) exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which thetotal income exceeds seven hundred thousand rupees.
As per section 87A, tax rebate of Rs..25,000/- is allowed if assessee’s total income is chargeable to tax under sub-section (1A) of section 115BAC and total if assessee. income does not exceed seven lakh rupees. Further, as per section 87A there is no restriction of tax rebate on Short term Capital Gains u/s 111A.
Further section 111A of Income Tax Act is as below:
Tax on short-term capital gains in certain cases.
“111A. (1) Where the total income of an assessee includes any income chargeable under the head “Capital gains”, arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust and
(a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force, and
(b) such transaction is chargeable to securities transaction tax under that Chapter, the tax payable by the assessee on the total income shall be the aggregate of-
(i) the amount of income-tax calculated on such short-term capital gains at the rate of fifteen per cent, and
(ii) the amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee:
Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such short-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such short-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such short-term capital gains shall be computed at the rate of fifteen percent
Provided further that nothing contained in clause (b) shall apply to a transaction undertaken on a recognized stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency
(2) Where the gross total income of an assessee includes any short-term capital gains referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains.
Explanation. For the purposes of this section,-
a) “equity oriented fund” shall have the meaning assigned to it in clause (a) of the Explanation to section 112A
(b) “International Financial Services Centre shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);
(c) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of the Explanation 1 to sub-section (5) of section 43.
As per section 111A of Income Tax Act 1961, there is no provision of restriction of 87A rebate on the tax calculated u/s 111A. Therefore, by considering both section 87A and section 111A, there is no restriction on allowance of 87A rebate against the tax calculated on short term capital gains u/s 111A.
Also the government has released new ITR utility to allow rebate u/s 87A. The Bombay high court vide order dated 24.01.2025 has directed the government to modify the utilities for filing of the return of income under section 139 of Act immediately, thereby allowing assesses to make claim of rebate under section 87A of the Act read with the proviso to section 87A, in their return of income for the A.Y.2024-25 and subsequent year including revised returns to be filed u/s 139(5) of the Act.
5.3 Further, Hon’ble ITAT (Ahmedabad), in the case of JayshreebenJayantibhai Palsana Vs. ITO, Ward-1(9) Ahmedabad, in its order(ITA No. 1014/Ahd/2025, AY 2024-25) in Para 5.17 and 5.18 held that
“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 denial 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 section111A. 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.”
5.4 Hon’ble Bombay High Court in the, Judgment dated January 24, 2025 discussed the issue of rebate u/s 87A as below:
“The Bombay High Court, in a significant ruling on January 24, 2025, directed the Income Tax Department to update its income Tax Return (ITR) utility software to allow taxpayers to claim rebates under Section 87A of the Income Tax Act, 1961, for the Assessment Year (AY) 2024-25 and beyond. This judgment came in response to a Public Interest Litigation (PIL) filed by The Chamber of Tax Consultants, which challenged the department’s modification of the ITR utility that had prevented taxpayers from claiming the rebate after July 5, 2024. The court found that the Income Tax Department’s unilateral changes to the e-filing utility software, which blocked taxpayers from claiming the Section 87A rebate on certain incomes (including special rate incomes like short-term capital gains under Section 111A), were arbitrary and unconstitutional The rebate under Section 87A allows eligible resident individuals with a total income up to RS 5 lakh (old tax regime) or RS.7 lakh (new tax regime) to reduce their tax liability by up to RS 12,500 or RS.25,000, respectively The court emphasized that procedural restrictions, such as those imposed by the software, cannot override taxpayers.” statutory rights.
As part of its directive, the Bombay High Court issued a writ of mandamus, ordering the Income Tax Department to immediately modify the ITR utility to enable taxpayers to claim the Section 87A rebate, including for revised returns filed under Section 139(5) of the Act. This ruling ensures that taxpayers can now claim the rebate without being restricted by the utility”
5.5 Section 87A of the Income Tax Act, 1961, entitles an individual resident with a total income not exceeding Rs.. 5,00,000/- (or Rs.. 7,00,000/- under the new tax regime u/s 115BAC(1A)) to a rebate of 100% of the income-tax or Rs.. 25,000/-, whichever is less, with no restriction on its applicability to tax calculated on STCG u/s 111A, which is further supported by Section 111A that provides for the taxation of STCG at a concessional rate of 15% without any provision restricting the rebate u/s 87A. This position is reinforced by the Hon’ble ITAT Ahmedabad in its judgment, ITA No. 1014/Ahd/2025,AY 2024-25, where the rebate u/s 87A was allowed on STCG u/s 111A, and the Hon’ble Bombay High Court, vide its order dated 24.01.2025, which directed the government to modify the ITR utility to allow the rebate u/s 87A for A.Υ. 2024-25 and subsequent years. Therefore, AO is directed to allow the rebate of respective amount of taxation for STCG u/s 87A, as the assessee’s total income is below Rs. 7,00,000/- and there is no restriction in the Act for such allowance.
5.6 As per the provisions of Section 112A(6) of the Income Tax Act, 1961, where the total income of an assessee includes any long-term capital gain arising from the transfer of equity shares, units of equity-oriented mutual funds, or units of business trusts referred to in Section 112A, the rebate under Section 87A shall not be allowed against the income tax payable on such long-term capital gains. The section explicitly excludes the applicability of rebate under Section 87A on the tax computed on LTCG under Section 112A. Accordingly, where the tax liability arises solely due to long-term capital gains covered under Section 112A, the assessee is not eligible to claim rebate under Section 87A.
5.7 In light of the provisions of Section 87A and Section 111A of the Income Tax Act, 1961, along with the judicial decision of Hon’ble ITAT, Ahmedabad as discussed above and the Hon’ble Bombay High Court’s order dated 24.01.2025, it is directed to Ld.AO that the rebate u/s 87A to be allowed against the tax calculated on short-term capital gains (STCG of Rs. 95,002) only (not on LTCG of Rs. 1,11,739) u/s 111A as a part of total income
……
5. None appeared on behalf of the assessee.
6. The issue of denial of rebate u/s 87A of the Act on the Short Term Capital Gains has been decided in favour of the assessee by the ITAT in a number of decisions. In the recent decision, in the case of ITO Vs. Rajshree Kothari in ITA No.399/JPR/2026 order dated 20.08.2026, the ITAT has held the assessee eligible to claim rebated u/s 87A of the Act on the Short Term Capital Gains holding as under:-
…….
7. Before us, at the outset itself ld. counsel for the assessee pointed out that this issue has been dealt in various decisions of the ITAT ruling consistently in favour of the assessee as under:-
i) Pranay M Kothari Vs. DCIT in ITA No.3469/Chny/2025
ii) Manojbhai C. Kamdar Vs. ITO in ITA No.572/RJT/2025
iii) Jayshreeben Jayantibhai Palsana Vs. ITO in ITA No.1014/Ahd/2025
iv) Basty Keshava Shenoy Vs. ITO in ITA No.3134/Bang/2025
8. Before us, ld. DR was unable to distinguish the decisions, referred to by ld. Counsel for the assessee as above, nor she was able to draw my attention to any contrary decision of either the Jurisdictional High Court or the Hon’ble Apex Court in this regard.
9. We have gone through the orders of the ITAT, referred to by the ld. Counsel for the assessee, and have noted that it has been consistently held that the provisions of Section 87A of the Act provide rebate on the entire tax liability computed on the “total income” without drawing any distinction between income taxable at normal rates, and income taxable at special rates, i.e. short term capital gain taxable at rates specified u/s 111A of the Act. The findings of the ITAT in the case of Pranay M Kothari Vs. DCIT in ITA No.3469/Chny/2025 dated 23.03.2026 at para 7 to 9 of the order as under:-
… … ….
7. We note that an identical issue came up for consideration before this Tribunal in the case of Venkatachalam Venkatraman v. ITO [ITA No.1431/Chny/2025, order dated 20.08.2025]. The Tribunal therein held that the provisions of section 87A of the Act provide rebate on the entire tax liability computed on the “total income” without drawing any distinction between income taxable at normal rates and income taxable at special rates. It was accordingly concluded that rebate u/s.87A of the Act is available even in respect of such incomes taxed under special provisions. The relevant findings are extracted below for ease of reference:-
“5.0 been concluded that to claim the rebate total income is to be computed after excluding any special rate income so as to determine the final tax liability. We have noted that the view taken by the Ld.CIT(A) of assessee filing return u/s 115BAC and consequently ineligible for rebate is not in order. The only controversy in this case is whether rebate u/s 87A is available on all the incomes or there is any exclusion. We have noted that the provisions of section 87A do not provide for such an exclusion. The first proviso to section 87A includes an exemption qua total income falling u/s 115BAC (1A) however the impugned amendment has been brought by Finance Act 2024 w.e.f 01.04.2025. The present AY-2024 25 would not be hit by the same. We have noted that Hon’ble Bombay High Court in the case of Rajiv G Shah supra has held that “…there is no indication in the plain language of Section 87A that any category of income or tax should be excluded from the computation. If the total income is within the threshold prescribed, rebate cannot be denied….”. It istrite law that when provisions of the statute granting any benefit to the tax payer are unambiguously clear, no different interpretation thereof can be adopted. Accordingly, we are of the view that the assessee is entitled for claim of rebate u/s 87A. The orders of lower authorities are therefore set aside and the Ld.AO is directed to allow the assessee its claim of rebate u/s 87A. All the grounds of appeal raised by the assessee are therefore allowed.”
8. Further, we find support from the decision of the Coordinate Bench in JayshreebenJayantibhaiPalsanaShingala Sheri ITO [ITA No.1014/Ahd/2025, order dated 12.08.2025), where it was held as under:-
“5.8 The amended first proviso to Section 87A [inserted by the Finance Act, 2023 w.e.f. A.Y. 2024-25] provides:
“Where the total income of the assessee is chargeable to tax under 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 115BAC(1A) 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 doesnot 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 CIT(A) 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 (i.e., 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, rebate under section 87A cannot be denied merely because tax arises under section 111A.
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)-O], 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 Milanbhai 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) relying on the decision of Beena ManishbhaiFofaria 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 denial 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.”
9. Respectfully following the ratio laid down in the above cases, we hold that the assessee in the instant case is entitled to rebate u/s.87A of the Act for the impugned assessment year, notwithstanding that the total income includes taxable long term capital gains chargeable at special rates. The AO is accordingly directed to allow the rebate of Rs.25,000/- claimed by the assessee u/s.87A of the Act and recompute the tax liability. Thus, the grounds of appeal raised by the assessee are allowed.
10. The ITAT in the other decisions has also reiterated the proposition of law as above. The decision rendered by the ITAT in the cases above, squarely applies to the facts of the present case, following which, we hold that there is no infirmity in the order of the Ld.CIT(A) holding the assessee entitled to rebate u/s 87A of the Act on the taxes paid on short term capital gain.
…….
6. Before me, ld. DR was unable to distinguish the decisions referred to above, nor was she able to draw my attention to any contrary decision of either the Jurisdictional High Court or the Hon’ble Apex Court in this regard.
7. I therefore hold that Ld. CIT(A) had rightly found the assessee to be eligible to claim rebate u/s 87A of the Act on the taxes paid on short term capital gain of Rs.23,494/-.
8. Grounds raised by the Revenue are dismissed.
9. In effect, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 11.09.2026
