Case Law Details
Padmaben Kantilal Ranpara Vs ITO (ITAT Rajkot)
The Income Tax Appellate Tribunal (ITAT), Rajkot allowed the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 26.06.2025, arising from an intimation issued under Section 143(1) of the Income-tax Act, 1961 for Assessment Year (AY) 2024-25. The dispute concerned the denial of rebate under Section 87A amounting to ₹23,653 in respect of Short-Term Capital Gains (STCG) of ₹3,46,992 taxable under Section 111A.
The assessee contended that the tax on STCG under Section 111A, amounting to ₹23,653, qualified for rebate under Section 87A, resulting in nil tax liability. Reliance was placed on the decision of the ITAT Ahmedabad in Jayshreeben Jayantibhai Palsana v. ITO, and it was submitted that the issue stood covered in favour of the assessee. The Department relied on the findings of the CIT(A).
The Tribunal observed that it found no reason to take a different view from that adopted by the Ahmedabad Bench in Jayshreeben Jayantibhai Palsana. The Tribunal reproduced the reasoning in that decision, which identified the core issue as whether a resident individual who opted for taxation under Section 115BAC(1A) and whose total income does not exceed ₹7,00,000 is entitled to rebate under Section 87A against tax payable on STCG under Section 111A in the absence of any express restriction in either Section 87A or Section 111A.
The Tribunal noted that the earlier decision held that the first proviso to Section 87A, inserted by the Finance Act, 2023 with effect from AY 2024-25, applies to resident individuals assessed under Section 115BAC(1A) whose total income does not exceed ₹7,00,000. It observed that the provision does not distinguish between normal income and income taxable at special rates, nor does it contain any express exclusion for income taxable under Section 111A. The Tribunal further noted that Section 112A(6) specifically contains a restriction on the availability of rebate, whereas no corresponding restriction exists in Section 111A or Section 87A, and this distinction was considered legally significant in the earlier decision.
The Tribunal further noted that the earlier decision explained that Section 115BAC(1A) governs the computation of tax under the concessional tax regime and does not affect eligibility for rebate under Section 87A, which is an independent rebate provision under Chapter VIII. It also observed that the Finance Bill, 2025 proposed restrictions on rebate only from AY 2026-27, indicating that no such restriction existed for AY 2024-25. The Tribunal further referred to the Bombay High Court’s decision in The Chamber of Tax Consultants v. Director General of Income Tax (Systems), which held that the CPC utility or system configuration cannot override statutory rights, and that the claim for rebate must be decided on its merits by the quasi-judicial authority.
The earlier decision, as reproduced by the Tribunal, also held that there was no express bar in either Section 87A or Section 111A against granting rebate in respect of STCG taxable under Section 111A for AY 2024-25. It observed that the proposed amendment in the Finance Bill, 2025 was prospective, and that the denial of rebate by the CPC appeared to be based on system-driven logic rather than statutory mandate. It consequently held that the assessee was entitled to the rebate under Section 87A, directed the Assessing Officer to allow the rebate, recompute the tax liability, delete the demand, and grant refund, if admissible.
Applying the same reasoning, the ITAT Rajkot held that the issue was squarely covered in favour of the assessee by the decision of the Coordinate Bench in Jayshreeben Jayantibhai Palsana. The Tribunal noted that there was no change in facts or law, and the Department was unable to produce any contrary material or decision. Respectfully following the Coordinate Bench’s decision, the Tribunal deleted the addition and allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
The present appeal has been filed by the Assessee, against the order passed by the Learned Commissioner of Income Tax (Appeal), National Faceless Appeal, Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 26.06.2025 arising in the matter of assessment order passed u/s. 143(1) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 20 2425.
2. The Grounds of appeal raised by the assessee, are as follows:
“The learned CIT(A) has erred in not allowing rebate u/s. 87A of Rs. 23,653 on short Term Capital Gains of Rs. 3,46,992/- u/s. 111A. The tax on short term capital gains u/s. 111A @15% is Rs. 23,653 against which rebate u/s. 87A was claimed and tax payable was worked out at Rs. NIL. Your petitioner prays that the rebate u/s. 87A be allowed. Your petitioner reliance is placed on ITAT decision of Jayshreeben J. Palsana v. ITO in ITA No. 1014/Ahd/2025. Your petitioner prays that rebate may be allowed u/s. 87A for which act of kindness your petitioner is ever bound. It is prayed that the assessee may be allowed to add, amend to delete or otherwise change any of the grounds at the time of hearing.”
3. When this appeal was called out for hearing, the Ld. Counsel for the assessee invited my attention to the order dated 12.08.2025 passed by the division Bench of ITAT, Ahmedabad in ITA 1014/Ahd/2025 for AY 2024 -25, wherein the issue related to rebate u/s. 87A against tax payabl e on Short Term of Capital Gain were discussed and adjudicated in favour of the assessee. The Ld. Counsel for the assessee submitted that the present appeal is squarely covered by the above said order of the Tribunal, which was also placed on record before the Bench.
4. The ld. DR for the Revenue relied on the finding of the Ld. CIT(A).
5. I see no reason to take any another view of the matter, then the view taken by the division Bench of the Tribunal in the case of Jayshreeben Jayantibhai Palsana, vide order dated 12.08.2025, in this order the Tribunal inter-alia observed as follows;
“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.”
5.6 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.6,76,402/-, 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.13,320/-, resulting in a demand of Rs.15,820/-. The CIT(A) upheld the denial, primarily relying on –
(i) the “subject to” clause in section 115BAC(1A),
(ii) provisions of Chapter XII, and
(iii) the Explanatory notes to the Finance Bill 2025.
5.7 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. 5.8 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 subsection (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 8 7A 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 ITA No.1014/Ahd/2025 9 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 m et.
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 fin d 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) [TS5026-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 assessee who had opted for 115BAC(1A). While the Hon’ble Court ITA No.1014/Ahd/2025 10 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/Addl.CIT(A) relying on the decision of Beena Manishbhai Fofaria 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 spec ial 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 section 111A. The AO is directed to allow rebate of Rs.13,320/- and recomputed 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”
6. The issue is squarely covered in favour of the assessee by the decision of the Co-ordinate Bench in the case of Jayshreeben Jayantibhai Palsana (supra), and there is no change in facts and law and the DR for the revenue unable to produce any contrary material to the above -said finding of the Co-ordinate Bench (supra). I find no reason to interfere in the said order of the Co -ordinate Bench, therefore, respectfully following the binding judgement of the Co -ordinate Bench , I delete the addition, and allow the appeal of the assessee.
7. In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 11/09/2025
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