ITO Vs Akansha Jain (ITAT Jaipur)
A Debatable Issue Cannot Be Settled by CPC’s Algorithm — Section 87A Rebate on STCG Restored
The Jaipur Bench of the ITAT has held that, for AY 2024-25, rebate u/s 87A was available against tax payable on short-term capital gains u/s 111A where the resident individual’s total income did not exceed ₹7 lakh under the new tax regime. The Tribunal also upheld the CIT(A)’s finding that a contentious issue requiring interpretation of sections 87A, 111A and 115BAC could not be summarily decided against the assessee through an adjustment u/s 143(1).
The assessee, Akansha Jain, filed her return under the new tax regime declaring a total income of ₹4,66,310. The income included STCG of ₹2,21,200 taxable at the special rate prescribed u/s 111A.
Since the total income was below ₹7 lakh, the assessee claimed rebate of ₹24,947 u/s 87A. CPC denied the rebate while processing the return u/s 143(1).
The assessee challenged the adjustment before the CIT(A). The CIT(A) noted that the Bombay High Court, in The Chamber of Tax Consultants v. Director General of Income-tax (Systems), dated 24.01.2025, had examined the Department’s decision to modify the ITR utility so as to prevent taxpayers from claiming section 87A rebate against special-rate income.
The High Court observed that the Department was unable to point to any provision which expressly prohibited an assessee from raising such a claim. It also noticed that Parliament had expressly enacted section 112A(6) wherever it intended to deny the rebate against a particular special-rate income.
The High Court did not conclusively decide the substantive eligibility for rebate. It held that the interaction between sections 87A, 115BAC and the special-rate provisions of Chapter XII required an interpretative and adjudicatory exercise. The claim was therefore, at the least, contentious or debatable and could not be blocked at the threshold through the return utility.
Relying upon this reasoning, the CIT(A) held that the availability of section 87A rebate against section 111A tax was not a matter capable of a mechanical adjustment u/s 143(1).
The CIT(A) also relied upon the settled principle that where an issue is debatable, it cannot be adjusted during summary processing. Reference was made to CIT v. Raghuvir Synthetics Ltd. Accordingly, CPC’s adjustment was deleted and the rebate was allowed.
The Revenue appealed to the Tribunal. It argued that special-rate income under Chapter XII formed a separate class and was outside the intended operation of section 87A. The Revenue further contended that the CIT(A), after holding the issue debatable and beyond the scope of section 143(1), could not proceed to grant substantive relief on merits.
Reliance was also placed upon CBDT Circular No. 13/2025 dated 19.09.2025, which, according to the Department, clarified that rebate u/s 87A was unavailable on income chargeable at special rates.
The Tribunal noted that the substantive controversy had already been decided in favour of taxpayers by several Benches. It relied particularly upon ITO v. Rajshree Kothari, ITA No. 399/Jpr/2026, dated 20.08.2026, which followed 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 87A grants a deduction from the income-tax computed on the assessee’s total income. Under the law applicable to AY 2024-25, it did not distinguish between tax on income chargeable at normal slab rates and tax on STCG chargeable at the special rate u/s 111A.
Section 115BAC(1A) operates subject to Chapter XII, ensuring that specified income is taxed at the special rates prescribed therein. However, this does not mean that every special-rate tax is automatically excluded from a rebate available under Chapter VIII.
The Tribunal again relied upon the statutory contrast between sections 111A and 112A. Section 112A(6) expressly prevents section 87A rebate from reducing tax payable on specified LTCG. Section 111A contained no corresponding restriction.
The subsequent legislative amendment restricting rebate against special-rate income from AY 2026-27 was treated as prospective. It could not be used to retrospectively insert an exclusion into section 87A for AY 2024-25. Nor could a later CBDT Circular override the statutory language applicable to the earlier year.
The Departmental Representative was unable to cite any contrary decision of the jurisdictional High Court or the Supreme Court.
The Tribunal therefore upheld the CIT(A)’s order and held that the assessee was entitled to the rebate claimed against tax on STCG u/s 111A. The Revenue’s appeal was dismissed.
Author’s Comments
This decision rests on two independent foundations. First, the denial was outside the permissible scope of section 143(1) because the issue required elaborate statutory interpretation. Second, even on substantive interpretation, the Tribunal held that the rebate was legally available.
The first principle is important beyond section 87A. CPC processing is intended to make specified prima facie adjustments. It cannot be converted into a summary assessment mechanism for resolving a controversy involving competing interpretations, several statutory provisions and divergent appellate decisions.
The Revenue argued that a debatable claim does not automatically become allowable merely because CPC cannot disallow it. That proposition is correct in the abstract. However, the CIT(A) possesses appellate jurisdiction to examine the merits. Having removed the impermissible adjustment, it was not required to stop without deciding whether the claim itself was legally sustainable.
The substantive reasoning remains anchored in the contrast with section 112A(6). Parliament expressly excluded rebate against tax on specified LTCG but enacted no corresponding exclusion for STCG u/s 111A. A return utility or circular cannot supply the missing prohibition.
The Bombay High Court’s decision did not finally grant the rebate; it recognised the assessee’s right to make the claim and declared the controversy debatable. The Tribunal decisions subsequently completed the interpretative exercise and allowed the benefit.
The favourable position applies to the statutory language governing AY 2024-25 and similarly placed years before the later amendment. From AY 2026-27, the express restriction on rebate against special-rate income changes the outcome.
The principle is memorable: CPC may process an obvious adjustment, but it cannot decide a legal debate by preventing one side from speaking.
Cases Discussed
- ITO v. 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.
- Basty Keshava Shenoy Vs. 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), dated 24.01.2025.
- CIT v. Raghuvir Synthetics Ltd., (2017) 247 taxmann.com 393 (SC).
- Rajiv G Shah.
- Avni Milanbhai Maniya.
- Beena Manishbhai Fofaria.
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) Chennai 06(hereinafter referred to as “Ld. CIT(A)”), dated 28.02.2026 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 in the 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 under section 111A, without appreciating the statutory scheme of Chapter XII read with section 115BAC (1A), which treats such income as a separate class liable to tax at specified rates and not intended to be reduced by rebate provisions?
2. Whether on the facts and in the 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?
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in relying upon the decision of the Hon’ble Bombay High Court in the case of The Chambers of Tax Consultants vs DGIT (Systems), which does not adjudicate the allowability of rebate u/s 87A on special rate income but merely permits raising of such claim, and hence has been misapplied to grant substantive relief?
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the issue is debatable and beyond the scope of adjustment under section 143(1), and thereafter granting substantive relief on merits, without appreciating that even if an issue is debatable, the same does not automatically validate the claim, thereby exceeding the permissible scope of appellate adjudication in such proceedings?
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 her return of income under the New Tax Regime declaring total income of Rs.4,66,310/- which included short term capital gain of Rs.2,21,200/- and claimed rebate u/s 87A amounting to Rs.24,947/- which was not allowed
4. The same was allowed by the ld. CIT(A). The ld. CIT(A) has dealt with the issue in his order as under:-
5. Decision:
5.1 The sole issue at hand is whether 87A relief is permissible on short-term capital gains. While the appellant has quoted several case laws, the decision of the Hon’ble Bombay HC in the case of The Chambers of Tax Consultants vs DGIT (Systems) dated 24th January 2025 is pertinent. The Hon’ble HC directed the Department to make modifications to the return filing utility thereby enabling assesses to make claim of 87A relief on short-term capital gains. However, the court further observed,
Respondents did not show any provision under the Income-tax Act which expressly debars an assessee to raise or make the claim under Section 87A qua the tax computed at the rates specified in the provisions of Chapter XII other than Section 115BAC. If that be so, then certainly one cannot accept the argument that the respondents’ case is crystal clear. There was no rebuttal to the petitioner’s contention that a provision like Section 112A(6) has been expressly enacted wherever the legislature intended to deny such a benefit. Therefore, in our view, insofar as the prayers of the petitioners are concerned that the utility should permit an assessee to at least make a claim under Section 87A of the Act, it cannot be rejected at the threshold.
In our view and after hearing the learned senior counsel for the petitioner and the learned ASG, whether rebate under Section 87A is to be allowed only on the tax calculated in accordance with the provisions of Section 115BAC or also on taxes calculated under other provisions of Chapter XII would require interpretation of the interplay of Section 87A and Section 115BAC. To what extent the overriding provisions contained in Section 115BAC(1A) would result in allowability or denial of rebate under Section 87A will have to be examined by interpretative process. Similarly, the impact of the phrase ‘subject to the provisions of this Chapter would also have to be examined along with other provisions for adjudicating the claim under Section 87A of the Act.
What is the purport of the proviso to Section 87A on the claim proposed to be made will have to be interpreted in conjunction with the provisions of Section 115BAC(1A) and other connected sections. How the phrase “total income’ should be construed for Section 87A and Section 115BAC along with the definition sections, charging sections and scope of total income and the scheme of the Act, will have to be examined. Whether the provisions of Section 115BAC restrict itself only to tax rates or computation of total income will also have to be examined.
In our view, if the above exercise is required to be undertaken before coming to a definite conclusion as to whether the rebate under Section 87A is to be granted or denied on the tax computed under the provisions of Chapter XII other than Section 115BAC, then this is something which has to be deduced by interpretative and adjudicating process. We cannot accept the submission of the learned ASG that the provisions of Section 87A and Section 115BAC are so crystal clear that there is no conclusion other than what is canvassed by the respondents. Based upon such a conclusion, the revenue was not justified in modifying the utility from 5 July 2024, by which unassessed is debarred at the threshold from making the claim, which claim, according to us, is, at best, a contentious or debatable claim.
5.2 The Hon’ble Bombay HC declared that whether 87A rebate is to be granted or denied on tax under Chapter XII other than 115BAC is something which has to be deduced by interpretative and adjudicating process.
5.3 It is a well settled principle of law rendered by the decisions of various courts including the decision of the Hon’ble Supreme Court in the case of CIT vs Raghuvir Synthetics Ltd (2017) 247 taxmann.com 393 (SC) wherein it held that if the issue involved is debatable, then the same cannot be adjusted by way of intimation u/s.143(1) of the Act. Therefore, in the facts and circumstances of the case and in law, CPC had erred in disallowing 87A rebate and hence the same stands deleted.
5. I have heard both the parties. The issue of claim of rebate u/s 87A of the Act on the Short Term Capital Gains has been decided by the ITAT in number of decisions in favour of the assessee. In the recent decision, in the case of ITO Vs. Rajshree Kothariin ITA No.399/JPR/2026 order dated 20.08.2026, the ITAT has allowed the assessee for eligible to claim rebated u/s 87A of the Act on the Short Term Capital Gains referring to several decisions of the ITAT 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 JayshreebenJayantibhai Palsana Shingala 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.
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 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.
8. Grounds of appeal 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
