VENKEDAPATHY VENUGOPAL,COIMBATORE V. ITO, NON CORP WE 2(1) COIMBATORE, COIMBATORE

ITA 2064/CHNY/2025

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The case revolves around the denial of a tax rebate under Section 87A of the Income-tax Act, 1961, to the assessee, Venkedapathy Venugopal, by the Centralized Processing Centre (CPC), Bengaluru. The CPC denied the rebate during the processing of the assessee's return for the Assessment Year 2024-25, which included taxable long-term capital gains. The assessee appealed to the Commissioner of Income Tax (Appeals), who upheld the CPC's decision. The Tribunal, however, reversed this decision, citing precedents and the absence of a statutory provision excluding special rate incomes from the rebate.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 778310 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2024-2025
• Appeal Filed On: 26-07-2025
• Other Referred Cases: Venkatachalam Venkatraman v. ITO, Jayshreeben Jayantibhai Palsana Shingala Sheri v. ITO, The Chamber of Tax Consultants vs. Director General of Income Tax (Systems), Avni Milanbhai Maniya v. ITO, Beena Manishbhai Fofaria v. ITO, Rajiv G Shah v. ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASSESSEES WHO HAD OPTED; R.ANITA; C.I.T
• Assessee Lawyers: SANKETH S. NAYAK; BY VIRTUAL
• Keywords: Set aside; Opportunity of being heard; Capital Gains; Principle of natural justice

Judgement Text

" आयकर अपील य अ धकरण, ‘सी’ \u000eयायपीठ, चे\u000eनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI \u0015ी मनु क ुमार ग\u0019र, \u000eया\u001aयक सद य एवं \u0015ी एस. आर. रघुनाथा, लेखा सद य क े सम# BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.:2064/Chny/2025 \u001aनधा$रण वष$ / Assessment Year: 2024-25 Venkedapathy Venugopal, Old No.43A, New No.16, Vivekananda Street, Ganapathy S.O., Coimbatore North, Coimbatore – 641 006. vs. ITO, Non-Corporate Ward – 2(1), Coimbatore. [PAN:AFCPV-1720-R] (अपीलाथ&/Appellant) ('(यथ&/Respondent) अपीलाथ& क) ओर से/Appellant by : Shri. Sanketh S. Nayak, C.A. (by Virtual) '(यथ& क) ओर से/Respondent by : Ms. R. Anita, Addl.C.I.T. सुनवाई क) तार ख/Date of Hearing : 18.09.2025 घोषणा क) तार ख/Date of Pronouncement : 09.10.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : This appeal by the assessee is directed against the order dated 29.05.2025, passed by the Learned Commissioner of Income Tax (Appeals), Addl/JCIT(A)-2, Delhi [hereinafter referred to as \"the ld. CIT(A)\"], arising out of the intimation dated 15.04.2025 passed u/s.143(1) of the Income-tax Act, 1961 Printed from counselvise.com :-2-: ITA. No.:2064/Chny/2025 [hereinafter referred to as \"the Act\"] by the Centralized Processing Centre, Bengaluru [hereinafter referred to as \"the CPC\"], for the Assessment Year 2024- 25. 2. The assessee has raised the following grounds of appeal: - 1. The Learned Commissioner of Income Tax (Appeals) has erred in law and on facts by confirming the disallowance of the rebate under Section 87A of the Act, amounting to Rs.25,000. 2. The Learned CIT(A) has incorrectly interpreted the proviso to Section 87A. The provision entities an assessee to a rebate if their “total income” does not exceed Rs.7,00,000. The law does not provide for excluding any part of the total income, such as capital gains, for determining this eligibility threshold. 3. The Learned. CIT(A) was not justified in relying on the Memorandum to Finance Bill 2025 to deny a benefit available for the Assessment Year 2024-25. It is a settled principle that a subsequent clarification cannot be used to interpret the law for a prior assessment year to the detriment of the assessee. “Section 87A as amended by Finance Act 2023 makes no such exclusion for LTCG. 4. The learned CIT(A) dismissed the appeal without granting an effective opportunity of being heard, violating the principles of natural justice. 5. The order passed is erroneous, unjust, and liable to be quashed. 6. Any other grounds that may be urged at the time of hearing. 3. The assessee, an individual, filed his return of income for the A.Y.2024- 25 on 26.07.2024 declaring a total income of Rs.6,75,940/- and claimed a rebate of income tax of Rs.25,000/- u/s.87A of the Act. The returned income inter alia included taxable long-term capital gains of Rs.4,72,175/-, and the rebate so claimed was attributable to the tax payable on such capital gains. The return of income was processed by the CPC u/s.143(1) of the Act on 15.04.2025, wherein the claim of rebate of Rs.25,000/- u/s.87A of the Act was Printed from counselvise.com :-3-: ITA. No.:2064/Chny/2025 denied. The intimation so issued does not spell out the precise reasons for such denial. 4. Aggrieved, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) vide order dated 29.05.2025, confirmed the action of the CPC in denying the assessee’s claim of rebate u/s.87A of the Act. The ld.CIT(A) held that the benefit of rebate u/s.87A of the Act is not available in respect of incomes chargeable at special rates of tax which form part of the total income. According to the ld.CIT(A), rebate u/s.87A of the Act is available only to incomes specified under sub-section (1A) of section 115BAC of the Act. The provisions of section 115BAC(1A) are subject to the other provisions of Chapter XII of the Act, dealing with determination of tax in special cases. Consequently, in view of the proviso to section 87A, income chargeable to tax at special rates under the provisions of Chapter XII is to be excluded while allowing rebate under section 87A. In view of the foregoing reasoning, the ld.CIT(A) held that the assessee is not entitled to the rebate of Rs.25,000/- claimed u/s.87A of the Act. Being aggrieved by the aforesaid order of the ld.CIT(A), the assessee has preferred the present appeal before this Tribunal. 5. The ld.AR, appearing on behalf of the assessee, submitted that the sole issue arising for adjudication pertains to the denial of rebate u/s.87A of the Act. It was 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 the said provision, notwithstanding the Printed from counselvise.com :-4-: ITA. No.:2064/Chny/2025 fact that such income comprises elements chargeable to tax at special rates. In support of this contention, reliance was placed upon the decision of the Coordinate Bench of this Tribunal in the case of Venkatachalam Venkatraman v. ITO [ITA No.1431/Chny/2025 dated 20.08.2025], wherein, under similar facts and circumstances, the Tribunal had allowed the claim of rebate under section 87A of the Act. The ld. AR, therefore, prayed that the order of the ld.CIT(A) be set aside and the assessee’s claim for rebate of Rs.25,000/- u/s.87A of the Act be allowed. 6. The ld.DR vehemently supported the order of the ld.CIT(A) and contended that the provisions of Section 115BAC(1A) of the Act do not extend to income which is liable to be taxed at the special rates prescribed under Chapter XII of the Act. It was thus submitted by the ld.DR that the assessee is not eligible to claim the rebate of Rs.25,000/- under Section 87A of the Act. 7. We have heard the rival submissions and carefully perused the orders of the lower authorities as well as the material placed on record. The sole issue arising for our adjudication is whether the assessee is entitled to rebate of tax u/s.87A of the Act where the total income consists, inter alia, of income chargeable to tax at special rates. 8. 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 Printed from counselvise.com :-5-: ITA. No.:2064/Chny/2025 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 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.” 9. 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 — Printed from counselvise.com :-6-: ITA. No.:2064/Chny/2025 (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 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: Printed from counselvise.com :-7-: ITA. No.:2064/Chny/2025 - 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 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 Printed from counselvise.com :-8-: ITA. No.:2064/Chny/2025 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.” 10. 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. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 09th October, 2025 at Chennai. Sd/- Sd/- (मनु क ुमार ग\u0019र) (MANU KUMAR GIRI) \u000eया\u001aयक सद य/Judicial Member (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखासद य/Accountant Member चे\u000eनई/Chennai, .दनांक/Dated, the 09th October, 2025 SP Printed from counselvise.com :-9-: ITA. No.:2064/Chny/2025 आदेश क) '\u001aत0ल1प अ2े1षत/Copy to: 1. अपीलाथ&/Appellant 2. '(यथ&/Respondent 3.आयकर आयु3त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 1वभागीय '\u001aत\u001aन ध/DR 5. गाड$ फाईल/GF Printed from counselvise.com "