ITAT Directs CPC to Grant Section 87A Rebate on STCG Tax

ITAT Directs CPC to Grant Section 87A Rebate on STCG Tax

The assessee, an individual taxpayer, filed her return for AY 2024-25 declaring total income of Rs.4.41 lakh, which included short-term capital gains (STCG) of Rs.2.33 lakh arising from the sale of listed equity shares taxable under Section 111A. Having opted for the new tax regime under Section 115BAC(1A), she claimed rebate under Section 87A against her total tax liability.

While processing the return under Section 143(1), the Central Processing Centre (CPC) denied the rebate on the ground that Section 87A was not available against tax computed at the special rate under Section 111A and raised a tax demand. The CIT(A) affirmed the CPC’s action, relying mainly on the Explanatory Memorandum to the Finance Bill, 2025, which stated that rebate under Section 87A would not be available against income taxable at special rates. Aggrieved, the assessee appealed before the Tribunal.

The Mumbai ITAT allowed the assessee’s appeal and held that the rebate under Section 87A could not be denied merely because part of the income comprised short-term capital gains taxable under Section 111A.

The Tribunal observed that the provisions applicable for AY 2024-25 did not contain any express restriction denying Section 87A rebate against tax payable under Section 111A. It noted that while Parliament had specifically inserted Section 112A(6) to restrict rebate on long-term capital gains, no similar exclusion existed for short-term capital gains under Section 111A. Applying settled principles of statutory interpretation, the Tribunal held that such an omission could not be supplied by the tax authorities.

Rejecting the CIT(A)’s reliance on the Explanatory Memorandum to the Finance Bill, 2025, the Tribunal held that explanatory notes cannot override the clear language of the statute. It further observed that the Finance Act, 2025 introduced the restriction prospectively from AY 2026-27, which itself indicated that no such bar existed for AY 2024-25.

The Bench also relied on the Ahmedabad Tribunal’s decision in Jayshreeben Jayantibhai Palsana v. ITO, which had taken the same view, and noted that the Bombay High Court in The Chamber of Tax Consultants v. Director General of Income Tax (Systems) had recognised that CPC’s automated processing could not override statutory rights and that such claims must be decided on their legal merits.

Therefore, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer/CPC to grant the rebate under Section 87A and recompute the tax liability in accordance with law.

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