ITO Vs Anant Kumar Shah (ITAT Jaipur)
What the Statute Allowed Cannot Be Taken Back Through Rectification — ₹25,000 Rebate on STCG Restored
SEO Title: ITAT Jaipur Allows Section 87A Rebate on STCG under Section 111A
SEO Description: ITAT Jaipur held that Section 87A rebate was allowable against tax on Section 111A STCG for AY 2024-25 and dismissed Revenue appeal.
Summary:
The Jaipur Bench of the ITAT has upheld the grant of rebate u/s 87A against tax payable on short-term capital gains u/s 111A for AY 2024-25. The assessee’s total income was ₹6,99,150—barely ₹850 below the statutory threshold of ₹7 lakh—and there was no express restriction in either section 87A or section 111A denying the rebate.
The case had an unusual procedural feature. CPC initially allowed the rebate while processing the return u/s 143(1), but subsequently withdrew it through a rectification order u/s 154. The CIT(A) restored the benefit, and the Revenue carried the matter to the Tribunal.
The assessee, Anant Kumar Shah, filed his return declaring a total income of ₹6,99,150. This included short-term capital gains of ₹1,06,999, long-term capital gains of ₹2,61,914 on the sale of a house and income from other sources of ₹1,32,004, apart from other returned income.
Being a resident individual governed by the new tax regime u/s 115BAC(1A), the assessee claimed the maximum rebate of ₹25,000 u/s 87A.
CPC originally allowed the claim in the intimation u/s 143(1). It thereafter passed an order u/s 154 withdrawing the rebate against the tax attributable to STCG u/s 111A.
Before the CIT(A), the assessee contended that section 87A, as amended by the Finance Act, 2023 and applicable from AY 2024-25, granted a rebate up to ₹25,000 where a resident individual’s total income chargeable under the new regime did not exceed ₹7 lakh.
The provision referred to the income-tax computed on the assessee’s total income. It did not restrict the rebate only to tax calculated at slab rates, nor did it exclude tax arising from STCG u/s 111A.
The CIT(A) relied upon the Ahmedabad Tribunal’s decision in Jayshreeben Jayantibhai Palsana v. ITO, ITA No. 1014/Ahd/2025, which held that section 87A rebate was available against tax on STCG u/s 111A for AY 2024-25.
Accordingly, the CIT(A) directed the AO to allow the claim. The Revenue challenged this relief before the Jaipur Tribunal.
The Revenue contended that income taxed at special rates under Chapter XII formed a distinct class and was not intended to be reduced by the general rebate provision. It argued that the expression “subject to the provisions of this Chapter” in section 115BAC(1A) preserved the special-rate tax liability under section 111A and thereby excluded it from section 87A.
The Department further argued that the absence of an express prohibition in section 111A could not, by itself, justify the rebate. Reliance was placed upon CBDT Circular No. 13/2025 dated 19.09.2025, which, according to the Revenue, clarified that rebate was never intended to be available against special-rate income.
The Tribunal noted that the controversy had already been decided in favour of assessees in several cases, including ITO v. Rajshree Kothari, ITA No. 399/Jpr/2026, Pranay M. Kothari v. DCIT, Manojbhai C. Kamdar v. ITO, Jayshreeben Jayantibhai Palsana v. ITO and Basty Keshava Shenoy v. ITO.
These decisions held that section 115BAC(1A) and section 111A perform a computational function. Section 111A determines the rate at which qualifying STCG is taxed. Section 87A operates thereafter by allowing a deduction from the tax computed on total income.
The fact that section 115BAC operates subject to Chapter XII ensures that STCG is taxed at the section 111A rate rather than at ordinary slab rates. It does not automatically create a further restriction prohibiting rebate against that tax.
The Tribunal regarded the contrast with section 112A(6) as decisive. Parliament expressly provided that rebate u/s 87A could not be allowed against tax payable on specified LTCG covered by section 112A. No similar clause existed in section 111A.
Where the legislature intended to exclude special-rate tax from rebate, it had said so clearly. A comparable restriction for section 111A could not be introduced merely through an inference based on the broader scheme of Chapter XII.
The later amendment expressly restricting rebate against special-rate income was also regarded as prospective. The Finance Bill 2025 or a subsequent CBDT Circular could not override the plain language applicable to AY 2024-25.
The Departmental Representative was unable to distinguish the consistent Tribunal decisions or cite any contrary judgment of the jurisdictional High Court or Supreme Court.
The Tribunal therefore upheld the CIT(A)’s conclusion and held that the assessee was entitled to rebate of ₹25,000 against tax on STCG u/s 111A. The Revenue’s appeal was dismissed.
Author’s Comments
This case is stronger than an ordinary CPC-denial matter because CPC had initially allowed the rebate and subsequently withdrew it u/s 154. Rectification is confined to an obvious and patent mistake. It cannot ordinarily be used where the issue requires interpretation of several provisions and has generated conflicting views.
The very fact that the Revenue raised elaborate grounds concerning the interaction between sections 87A, 111A and 115BAC demonstrates that the controversy was not self-evident. An issue requiring extensive statutory interpretation sits uneasily within the narrow jurisdiction u/s 154.
On merits, the decisive point remains the different drafting of sections 111A and 112A. Section 112A contains an express bar; section 111A did not. Legislative silence cannot always confer a benefit, but an express exclusion in one neighbouring provision makes silence in the other highly significant.
The assessee’s total income of ₹6,99,150 also shows the cliff-edge nature of the rebate. Since it remained within ₹7 lakh, the statutory threshold was satisfied. Had total income crossed the limit, the availability and computation of marginal relief would have required separate examination.
The ruling is confined to the wording applicable to AY 2024-25 and similarly governed years. From AY 2026-27, the express statutory restriction on rebate against special-rate income changes the position.
The broader message is unmistakable: a later circular cannot retrospectively create a disqualification and then use section 154 to take back a rebate which the unamended Act allowed.
Cases Discussed
- Jayshreeben Jayantibhai Palsana v. ITO, ITA No. 1014/Ahd/2025.
- ITO v. Rajshree Kothari, ITA No. 399/JPR/2026, order dated 20.08.2026.
- Pranay M Kothari v. DCIT, ITA No. 3469/Chny/2025.
- Manojbhai C. Kamdar v. ITO, ITA No. 572/RJT/2025.
- Basty Keshava Shenoy v. ITO, ITA No. 3134/Bang/2025.
- Venkatachalam Venkatraman v. ITO, ITA No. 1431/Chny/2025.
- The Chamber of Tax Consultants v. Director General of Income Tax (Systems), judgment dated 24.01.2025.
- Avni Milanbhai Manya, CIT(A)-1, Nagpur, appellate order dated 27.05.2025.
- Beena Manishbhai Fofaria, AY 2024-25.
FULL TEXT OF THE JUDGMENT/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) Bhubaneswar(hereinafter referred to as “Ld. CIT(A)”), dated 09.02.2026 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 & circumstances of the case and in law, the Ld. CIT(A) has erred in allowing rebate u/s 87A of the Income Tax Act, 1961 on income chargeable to tax at special rates u/s 111A, without appreciating the statutory scheme of Chapter XII read with section 115BAC(1A), which treats such income as a distinct class liable to tax at prescribed rates and not intended to be reduced by rebate provisions?
2. Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in allowing rebate u/s 87A on Short Term Capital Gains u/s 111A merely on the ground that no explicit restriction exists similar to section 112A(6), without appreciating that statutory interpretation cannot be based on absence of prohibition and that the scheme of special rate taxation inherently excludes such income from general rebate provisions?
3. Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in relying upon the decision of the Hon’ble ITAT, Ahmedabad in the case of JayshreebenJayantibhai Palsana, which is not binding precedent and has been rendered without considering the binding CBDT Circular No. 13/2025 dated 19.09.2025 and the correct statutory scheme, thereby rendering the impugned order unsustainable in law?
4. Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in not considering and giving effect to the binding clarification issued by the CBDT vide Circular No. 13/2025 dated 19.09.2025, which categorically provides that rebate under section 87A is not allowable on income chargeable at special rates, thereby rendering the impugned order contrary to the binding administrative instructions governing the field?
5. Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in holding that section 115BAC(1A) governs only computation of tax rates and does not affect rebate provisions, without appreciating that the phrase “subject to the provisions of this Chapter” incorporates special rate provisions of Chapter XII, thereby restricting the application of general rebate provisions?
6. Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that the issue involved was not a debatable claim but a correction of an incorrect allowance of rebate contrary to statutory provisions, and therefore validly rectifiable under section 154?
7. The appellant craves to add, amend, alter, delete or modify any or all the above grounds of appeal before or at the time of hearing.
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 by way of a rectification order passed u/s 154 of the Act having initially allowed the claim while processing the return of income filed by the assessee, in the intimation made u/s 143(1) of the Act. The assessee had e-filed his return of income declaring total income of Rs.6,99,150/-, which included the short term capital gain of Rs.1,06,999/-, long term capital gain on sale of House Rs.2,61,914/-, income from other sources Rs.1,32,004/- and tax rebate of Rs.25,000/- u/s 87A of the Act.
4. The ld. CIT(A) allowed the claim of rebate holding as under:-
…….
4. Consideration of issues under appeal and reasons for decision:-
4.1. In the present appeal, the appellant has contested the exclusion of short term capital gain u/s 111A of the Act from the scope of rebate u/s 87A of the Act. The rebate under section 87A, as amended by the Finance Act, 2023 applicable for AY 2024-25, is available where the total income does not exceed Rs. 7,00,000/- and is chargeable under section 115BAC(1A) and the appellant for the impugned assessment year has not opted out also.
4.3. On perusal of the above grounds of appeal, it is found that the contention of the appellant is that it is eligible for 87A rebate on special rate income as well which has been disallowed by the CPC.
Section 87A as amended from 01.04.2023 w.e.f 1-4-2024 is as below:
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 the total income exceeds seven hundred thousand rupees.]
4.4. Further, on following the order passed by the Hon’ble ITAT, AHMEDABAD, in case of JayshreebenJayantibhai Palsana vs. ITO, Ward-1(9) Ahmedabad for AY 2024-25 (ITA No. 1014/Ahd/2025). In that order, the Hon’ble ITAT, on identical facts and issues, ruled unequivocally in favour of the Appellant. Here it is stated that this decision is applicable to the present case of the appellant and the above mentioned ITAT order is reproduced as below:-
“5. We have carefully considered the rival submissions, the impugned order of the CIT(A), the material placed on record, and the applicable statutory provisions. Thus, the core issue for adjudication before us is –
“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.”
5.4. 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. 4,65,440/-, 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. 23,237/-, resulting in a demand of Rs.15,820/-. The CIT(A) upheld the denial, primarily relying on-
(0) the “subject to clause in section 115BAC(1A),
provisions of Chapter XII, and
(ii) the Explanatory notes to the Finance Bill 2025.
5.5. 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.
5.6. 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 (IA) of section 115BAC and the total income.
(a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction
5.7. 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.
5.8. 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 gain 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 gain.
5.9 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 jas in section 112A), it hasdone expressly. In contrast, the absence of any exclusion in section 111A or in section 87A must be construed in favour of the assessee.
5.10. At this point we discuss the interplay of Section 115BAC(1A) with Chapter XII where the soupe 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…
5.11. The purpose of this clause is to enable the computation of income-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 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.
5.12. The CITA) placed strong reliance the Explanatory Memorandum to the Finance Bill 2025, which clarified that rebate under section 87A is not available tax arising from special rata incomes, including those under section 111A. However, we find this reliance to be misplaced for two. reasons:
Firstly, the Finance Bill 2025 itself rebate under section 87A w.e.f. A.Y. 2026-27, which implies that the existing law (ie, as applicable to A.Y. 2024-25) does not contain such a proposes to insert new restrictions on 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.Υ. 2024-25, rebate under section 87A cannot be denied merely because tax arises under section 111A
5.13. 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)-Of, the Hon’ble Bombay HighCourt considered the issue of system-based denial of 87A rebate on STCG under section 111A for assessee 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 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
5.14. 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 Manya, wherein on identical facts the CIT(A) allowed the claim of rebate under section 87A 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.
5.15. 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 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 such 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. 2024-5
5.16. 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 ofRs. 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.
6. In the result, the appeal of the assessee is allowed.”
4.5. Therefore, the AO is directed to allow the claim of the appellant by following the above ITAT order, which is squarely applicable to the case of the appellant.
……
5. I have heard both the parties. 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:-
…….
6. 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
7. 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.
8. 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 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 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.
9. 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.25,000/-.
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
