Ganga Devi Agarwal Vs CPC (ITAT Jaipur)
The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has allowed rebate under Section 87A against tax payable on short-term capital gains taxable under Section 111A for Assessment Year 2024-25.
In Ganga Devi Agarwal v. CPC, Bengaluru, ITA No. 409/JPR/2026, decided on 4 November 2026, the Tribunal directed the CPC/Assessing Officer to allow the assessee’s rebate claim of ₹24,581. It rejected the view that the rebate could be restricted to tax computed at normal slab rates merely because part of the income attracted a special rate.
Background: Rebate Restricted During Return Processing
The assessee filed her return declaring total income of ₹4,66,703. This comprised short-term capital gains of ₹1,62,451, taxable at the special rate under Section 111A, and income from other sources of ₹3,04,252.
She claimed a rebate of ₹24,581 under Section 87A.
While processing the return under Section 143(1), the CPC restricted the rebate to the tax attributable to normal slab-rate income.
The computation reproduced in the appellate order showed normal-rate tax of ₹213 and special-rate tax of ₹24,368. The CPC allowed rebate of only ₹213, leaving the special-rate component payable, together with cess.
The assessee sought rectification and subsequently challenged the denial before the first appellate authority.
First Appellate Authority Supported CPC’s Approach
The CIT(A) upheld the restriction, reasoning that Section 87A did not override the provisions prescribing special tax rates.
According to the appellate authority, capital gains falling under the special-rate framework constituted a separate stream for tax computation. Allowing rebate to extinguish that liability would dilute the legislative purpose of prescribing a distinct rate.
The CIT(A) also referred to the Department’s position concerning rebate on special-rate income and considered the CPC’s computational treatment consistent with that approach.
On rectification, it held that Section 154 could not be used to resolve a debatable interpretation of law. The assessee’s appeal was therefore dismissed.
Tribunal Followed Consistent Decisions Favouring Assessees
The ITAT noted that the issue had already been decided in favour of taxpayers in several Tribunal decisions.
It particularly relied on ITO v. Rajshree Kothari, ITA No. 399/JPR/2026, decided on 20 August 2026, which had examined the same question with reference to decisions from other benches.
The authorities discussed included Pranay M. Kothari, Manojbhai C. Kamdar, Jayshreeben Jayantibhai Palsana and Basty Keshava Shenoy.
The Tribunal observed that the Departmental Representative could not point to any contrary decision of the jurisdictional High Court or Supreme Court on the issue.
It consequently treated the controversy as covered by the existing Tribunal decisions.
“Total Income” Did Not Exclude Section 111A Gains
The reasoning adopted by the Tribunal focused on the language of Section 87A as applicable to AY 2024-25.
The cited decisions held that the rebate operated on the tax liability computed with reference to total income, without drawing a distinction between normal-rate income and short-term capital gains taxable under Section 111A.
The fact that a special rate applied determined how tax was calculated. It did not, by itself, create a separate statutory prohibition against rebate.
The Tribunal therefore rejected the proposition that special-rate taxation alone was sufficient to deny the claim.
Express Restriction under Section 112A Was Distinguished
An important distinction concerned Section 112A(6), which expressly restricts the availability of Section 87A rebate against tax on the specified long-term capital gains covered by that provision.
The authorities followed by the Tribunal contrasted that express restriction with the absence of a corresponding exclusion in Section 111A.
Their reasoning was that where Parliament intended to exclude a particular category of capital gains tax from rebate, it had provided so expressly.
Accordingly, the present ruling concerns short-term capital gains under Section 111A. It should not be read as allowing rebate against tax expressly excluded under Section 112A.
Software Treatment Could Not Replace Statutory Examination
The decisions reproduced in the order also emphasised that a system-based denial could not determine substantive eligibility.
They referred to the Bombay High Court proceedings in The Chamber of Tax Consultants v. Director General of Income Tax (Systems), distinguishing the ability to claim rebate from the subsequent adjudication of entitlement.
The Tribunal’s task was therefore to examine the statutory provision and applicable precedents rather than accept the CPC’s processing logic as conclusive.
Rebate of ₹24,581 Directed to Be Allowed
The ITAT held that the CIT(A) had erred in treating the assessee as ineligible for rebate against tax on her short-term capital gains.
It directed the CPC/Assessing Officer to allow ₹24,581 under Section 87A and allowed the appeal.
The decision reinforces the distinction between computation at a special rate and an express statutory exclusion from rebate. Its conclusion is tied to the provisions applicable to AY 2024-25 and the Section 111A income involved.
Cases Discussed
- ITO Vs Rajshree Kothari — ITA No. 399/JPR/2026 (ITAT Jaipur, 20.08.2026)
- Pranay M Kothari Vs DCIT — ITA No. 3469/Chny/2025 (ITAT Chennai)
- Manojbhai C. Kamdar Vs ITO — ITA No. 572/RJT/2025 (ITAT Rajkot)
- Jayshreeben Jayantibhai Palsana Vs ITO — ITA No. 1014/Ahd/2025 (ITAT Ahmedabad)
- Basty Keshava Shenoy Vs ITO — ITA No. 3134/Bang/2025 (ITAT Bengaluru)
- Venkatachalam Venkatraman Vs ITO — ITA No. 1431/Chny/2025 (ITAT Chennai)
- The Chamber of Tax Consultants Vs Director General of Income Tax (Systems) (Bombay High Court)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT JAIPUR
The present appeal has been filed by the assessee against the order passed by the Office of the Commissioner of Income Tax, Appeal Addl./JCIT(A) Agra (hereinafter referred to as “Ld. CIT(A)”), dated 29.12.2025 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The grounds raised read as under:-
Rs.24581/-REJECTION OF THE REQUEST FOR RECTIFICATION OF APPARENT MISTAKE
That the Id. AO, CPC was not justified in law and on facts of the case in not rectifying the apparent mistake as the appellant requested to reprocess the return to allow rebate u/s.87A as only option available to him on the system.
UPHELDING BY THE LD. ADDL CIT(A)
That the Id. ADDL CIT(A) was not justified in law and on facts of the case in upholding the non rectification by the Id. AO
Rs.24581/- DISALLOWANCE OF REBATE U/S 87A
The Id. Lower authorities were not justified in law and on facts of the case in restricting the same to the tax on balance income taxable at slab rate and not allowing the full rebate as claimed u/s 87A on total income including Short Term Capial Gain chargeable at special rates u/s.112A.
The appellant prays your honours indulgence to add, alter, amend and/or withdraw any grounds of appeal on or before 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 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 declaring total income of Rs.4,66,703/- comprising short term capital gain of Rs.1,62,451/- chargeable to tax at special rates as per section 111A of the Act and income from other sources of Rs.3,04,252/-.However, the rebate of Rs.24,581/- claimed by the assessee u/s 87A of the Act was denied stating that rebate u/s 87A cannot be applied so as to wipe out tax computed on special rate governed by chapter XII of the Act. In effect holding that tax rebate u/s 87A of the Act does not apply to incomes in the nature of short term capital gains subjected to tax at special rates as per law and that it applies only to incomes taxable as per normal rates.,
4. Aggrieved by the same the assessee preferred appeal to the Ld. CIT(A), who dismissed the appeal of the assessee. Relevant findings of the Ld.CIT(A) are at para 6.1 to 6.8 of his order asunder:-
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6.1 At the outset, Ground Nos. 1 and 2 arise from the same core controversy, namely, whether rebate u/s 87A can be availed to reduce/eliminate tax payable on incomes. chargeable at special rates (here, short-term capital gains), and whether non-allowance of such rebate constitutes a “mistake apparent from record rectifiable u/s 154. Accordingly, these grounds are being clubbed and adjudicated together to optimize coverage and avoid repetition, while maintaining issue-wise granularity.
6.2 The factual matrix is not in dispute. The return/rectification computation reflects: Total income Rs 4,66,700, income chargeable at special rates Rs.1,62,451, balance slab-rate income Rs.3,04,249, tax at normal rates Rs 213, tax on special-rate income (other than 115BBE) Rs.24,368, total tax payable Rs 24,581, rebate u/s 87A allowed Rs.213 (as computed by CPC); tax payable after rebate Rs.24,368, cess Rs.975; gross tax liability Rs 25,343
6.3 The appellant’s position is that since total income is below Rs.7,00,000, rebate u/s 87A should be allowed on “total income including short term capital gain chargeable at special rates and that denial is “against law. The Department’s position, as reflected in the computation mechanics adopted by CPC and reinforced by subsequent departmental clarification, is that rebate u/s 87A cannot be applied so as to wipe out tax computed on special-rate incomes governed by Chapter XII.
6.4 In the considered view of this appellate authority, the Department’s position is operationally and legally sustainable for the following reasons, which directly address the appellant’s core plea:
6.4.1 Section 87A is a rebate provision and does not override charging/special-rate provisions. Rebate operates after tax is computed strictly in accordance with the charging provisions and rate provisions. Special-rate taxation of capital gains is not discretionary; it is statutorily mandated. In the present case, the record itself segregates “Income chargeable at special rates at Rs.1,62,451 and computes the special-rate tax component at Rs 24,368 separately from normal-rate tax of Rs.213. The architecture of the Act recognizes special- rate components as a separate stream for rate application, and the computational segregation is not a mere software design choice but flows from the statutory rate framework
6.4.2 Capital gains fall under a separate statutory regime (Chapter XII) and are treated as special-rate income. The computation in the rectification order explicitly treats Rs 1,62,451 as “income chargeable to tax at special rates” and taxes it accordingly. Allowing section 87A rebate to neutralize the special-rate tax would effectively dilute the legislative intent of prescribing a distinct rate regime for specified income classes
6.4.3 CBDT Circular No. 13/2025 acknowledges the Department’s position that rebate. u/s 87A is not admissible on incomes chargeable at special rates and that rectification. is required where such rebate was incorrectly allowed earlier. The Circular records that in certain cases rebate u/s 87A was incorrectly allowed on incomes chargeable at special rates and that rectifications “have to be carried out to disallow such rebate, resulting in demands, it also deals with consequent interest mitigation. This clarification is aligned with the computational approach adopted in the Impugned rectification order, and it fortifies the compliance posture that special-rate tax cannot be extinguished through section 87A rebate.
6.5 Scope of rectification u/s 154 (Ground No. 1). Rectification u/s 154 is confined to rectifying a mistake apparent from the record and cannot be invoked to re-argue a debatable legal proposition. The appellant’s claim rests on a contested interpretation of section 87A vis-à-vis special-rate taxation of capital gains an issue that has seen litigation and divergent views in public domain over time. In such circumstances, the CPC’s action in restricting rebate to slab-rate component and not extending it to special-rate component cannot be characterized as an apparent mistake. On the contrary, the computation displays a rule-based segregation and applies rebate only to the normal-rate tax component (Rs.213), which is consistent with the Department’s clarified position.
6.6 Evidentiary position. Even otherwise, the appellant has not furnished any conclusive documentary evidence, such as binding jurisdictional judicial precedent applicable to her case facts and AY 2024-25, to demonstrate that rebate u/s 87A must mandatorily be adjusted against special-rate capital gains tax and that denial thereof constitutes an error apparent from record it is also noted that no additional evidence under Rule 46A has been filed
6.7 Ground No. 3 (general prayer). This is a general residuary prayer and does not constitute an independent justiciable ground. In absence of any specific additional ground raised on record with supporting particulars, the same does not warrant separate adjudication. 6.8 Finding. In view of the foregoing, the impugned action of restricting rebate u/s 87A to the normal slab-rate tax component (Rs 213) and not allowing rebate against fax on income chargeable at special rates (Rs 24.368 on STCG component) is held to be in accordance with the Departmental computation framework and the statutory scheme Consequently, Ground Nos. 1 and 2 are rejected. Ground No. 3 is also rejected as infructuous/general in nature….
5. We have heard both the parties.Theissue ofclaim ofrebate 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 held the assessee eligible to claim rebate u/s 87A of the Act on the Short Term Capital Gains referring to several decisions of the ITAT holding as under:-
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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:-
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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.
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.
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6. Before us, ld. DR was unable to draw our attention to any contrary decision of either the Jurisdictional High Court or the Hon’ble Apex Court in this regard.
7. The issue of denial of rebate u/s 87A of the Act on taxes paid at special rate u/s 111A of the Act on short term capital gains, therefore stands covered by various decision of the ITAT in the favour of the assessee.
8. We therefore hold that the Ld. CIT(A) has grossly erred in holding the assessee ineligible to rebate u/s 87A of the Act on the taxes paid on short term capital gain. The CPC/ AO is directed to allow the claim of rebate u/s 87A of the Act amounting to Rs.24,581/-.
9. In effect, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 04.11.2026
