PRANAY M KOTHARI,CHENNAI V. DCIT, NCC-4(1), CHENNAI

ITA 3469/CHNY/2025

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The case revolves around the eligibility of the assessee, Pranay M Kothari, for a tax rebate under section 87A of the Income-tax Act, 1961, despite declaring short-term capital gains in his income tax return for the assessment year 2024-25. The Central Processing Centre (CPC), Bangalore, initially denied the rebate during the processing of the return, leading to a demand for additional tax. The assessee appealed this decision, which was upheld by the CIT(A). Subsequently, the assessee approached the Income Tax Appellate Tribunal, Chennai, which reversed the CIT(A)'s decision, allowing the rebate based on precedents and the interpretation of the relevant tax provisions.

• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Chennai
• Assessment Year: 2024-2025
• Appeal Filed On: 26-11-2025
• Other Referred Cases: Venkatachalam Venkatraman vs. ITO, Jayshreeben Jayantibhai Palsana Shingala Sheri vs. ITO, The Chamber of Tax Consultants vs. Director General of Income Tax (Systems)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASSESSEES WHO HAD OPTED; KUMAR CHANDAN
• Assessee Lawyers: JOSHITA JOTHI
• Keywords: Set aside; Capital Gains

Judgement Text

"आयकर अपील य अ धकरण, ‘सी’ \u000eयायपीठ, चे\u000eनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI \u0015ी एबी ट वक\u001a, \u000eया\u001bयक सद य एवं \u0015ी एस. आर. रघुनाथा, लेखा सद य क े सम$ BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 3469/Chny/2025 \u001bनधा%रण वष% / Assessment Year: 2024-25 Pranay M Kothari, Mayur Vasant Apartments, 46, Anna Pillai Street, Sowcarpet, Chennai – 600 001. vs. Deputy Commissioner of Income Tax, Non Corporate Circle -4(1), 16, BSNL Building Tower 01, 2nd Floor, Greams Road, Chennai – 600 006. [PAN: LKAPK-3125-K] (अपीलाथ'/Appellant) (()यथ'/Respondent) अपीलाथ' क* ओर से/Appellant by : Ms. Joshita Jothi, CA ()यथ' क* ओर से/Respondent by : Shri. Kumar Chandan, JCIT सुनवाई क* तार ख/Date of Hearing : 21.01.2026 घोषणा क* तार ख/Date of Pronouncement : 23.03.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : The present appeal of the Assessee is directed against the order dated 31.10.2025 passed by the Learned Addl/JCIT(A), Raipur [hereinafter referred to as the “Ld.CIT(A)”], arising out of the intimation passed u/s. 143(1) of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] dated 28.02.2025, by the CPC, Bangalore for the assessment year 2024-25. Printed from counselvise.com :-2-: ITA. No:3469/Chny/2025 2. The brief facts of the case, as borne out from the records, are that the assessee is an individual, filed his return of income on 08.01.2025, declaring a total income of Rs.5,28,020/- for the assessment year 2024-25. The return of income was processed by the CPC, Bangalore and intimation u/s. 143(1) of the Act was issued on 28.02.2025 by making some adjustments and raising a demand of Rs.25,510/-. The CPC, Bangalore has rejected the rebate claimed u/s. 87A of the Act as the assessee had declared short term capital gains which is not eligible to claim rebate u/s. 87A of the Act. Aggrieved by the order u/s. 143(1) of the Act, the assessee preferred an appeal before the ld.CIT(A). 3. On perusal of the submissions made by the assessee, the ld.CIT(A) passed an order dated 31.10.2025 by confirming the rejection of rebate u/s. 87A of the Act. Aggrieved by the order of the ld.CIT(A), the assessee is before us. 4. The ld.AR for the assessee submitted that the provisions of section 87A is available to the assessee as the short term capital gains declared by the assessee is liable to be taxed at regular rate of tax. Further, the ld.AR contended that the assessee’s total income for the relevant assessment year does not exceed Rs. 7,00,000/- and therefore, the assessee is squarely entitled to the benefit of rebate under said provisions, not with standing the fact that said income comprises elements chargeable to tax at special rates. In support of the above arguments, the ld.AR relied on the decision of the co- ordinate bench of this Tribunal in the case of Venkatachalam Venkatraman vs. ITO in ITA No. 1431/Chny/2025, dated 20.08.2025, wherein under similar facts and circumstances the Tribunal had allowed the claim of rebate u/s. 87A of the Act. Hence, the Ld.AR prayed for setting aside the order of the ld.CIT(A) by allowing the claim of the assessee as per the return of income u/s. 87A of the Act. Printed from counselvise.com :-3-: ITA. No:3469/Chny/2025 5. Per contra, the ld.DR supported the order of the ld.CIT(A) and contended that the provisions of section 115BAC(1A) of the Act do not extend the income which is liable to be taxed at the special rates prescribed under chapter XII of the Act. Hence, prayed for confirming the order of the ld.CIT(A). 6. We have heard the rival submissions and perused the material available on record and gone through the orders of the authorities along with the case laws relied on. The solitary issue before us for our adjudication is eligibility of rebate of tax u/s. 87A of the Act, where the total income consists of income chargeable to tax at special rates. 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 is Printed from counselvise.com :-4-: ITA. No:3469/Chny/2025 trite 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 Jayshreeben Jayantibhai Palsana Shingala Sheri v. 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 Printed from counselvise.com :-5-: ITA. No:3469/Chny/2025 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/Addl.CIT(A) relying on the decision of Beena Manishbhai Printed from counselvise.com :-6-: ITA. No:3469/Chny/2025 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 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. 10. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 23rd March, 2026 at Chennai. Sd/- (एबी ट वक\u001a ) (ABY T VARKEY) \u000eया\u001bयक सद य/Judicial Member Sd/- (एस. आर. रघुनाथा) (S.R.RAGHUNATHA) लेखासद य/Accountant Member चे\u000eनई/Chennai, Printed from counselvise.com :-7-: ITA. No:3469/Chny/2025 .दनांक/Dated, the 23rd March, 2026 JPV आदेश क* (\u001bत0ल1प अ2े1षत/Copy to: 1. अपीलाथ'/Appellant 2. ()यथ'/Respondent 3.आयकर आयु3त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 1वभागीय (\u001bत\u001bन ध/DR 5. गाड% फाईल/GF BY ORDER Printed from counselvise.com PRASANNA VANI JETTY Digitally signed by PRASANNA VANI JETTY Date: 2026.03.24 15:47:42 +05'30' "