INCOME TAX OFFICER, SIKAR vs. MURARI LAL MISHRA, SIKAR

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, “SMC” BENCH, JAIPUR BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No. 196/JPR/2026 (Assessment Year: 2024-25)

ITO Vs. Murari Lal Mishra Aaykar Bhawan, Todi 2/45 Raj Housing Board Nagar, Sikar Colony, Sikar �थायीलेखासं./जीआइआरसं./PAN/GIR No: ACOPM 8004 E Appellant .. Respondent

Appellant by : Mrs. Aarti Rawat, JCIT Respondent by : Sh. Shrawan Kumar Gupta, Adv.

Date of Hearing 16.07.2026 Date of Pronouncement 29.07.2026 O R D E R The present appeal has been filed by the Revenue against the order passed by the Office of the Commissioner of Income Tax, Appeal, Addl./JCIT(A), Ahmedabad 02 (hereinafter referred to as “Ld. CIT(A)”), dated 20/11/2025 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. The Revenue has raised the following grounds of appeal:- 1. Whether on the facts and circumstances of the case and in law, the AddI/JCIT (A)-2 Ahmedabad is justified in allowing the rebate u/s 87A of the Act, on STCG, when rebate u/s 87A of the Act is not available in respect of Income Tax payable on income

P a g e | 2 ITA No. 196/JPR/2026 Murari Lal Mishra chargeable to tax on special rates, which includes Short Term Capital Gain u/s 111A of the Act? 2. Whether on the facts and circumstances of the case and in law, the order of the AddI/JCIT(A)-2 Ahmedabad is justified in view of the CBDT Circular No. 13/2025, which has made it expressly clear that it was never the statutory intent to allow rebate in cases where income is chargeable to tax u/s 115BAC(1) of the Act and any such cases where rebate is erroneously claimed are to be rectified, thereby having no doubt that such claim was statutorily never permissible? 3. The appellant craves leave or reserves right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 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 same was allowed by the ld. CIT(A). The ld. CIT(A) has dealt with the issue at para 7 to 7.7 of his order asunder:- 7. Decision: 7.1 I have gone through the facts of the case along with grounds of appeal and written submissions filed by the appellant. The appellant is an individual. The return of incomewas filed for AY 2024-25 on 08.06.2024 declaring total income at Rs. 4,22,240/- opting new tax regime under section 115BAC. The ROI was processed by CPC, Bangalore u/s 143(1) of IT Act. While processing the ROI of the appellant, CPC has not granted benefit of section 87A of the Income-tax Act, 1961 and assessed total income of Rs. 4,22,240/- raised demand of Rs. 25,430/-. Subsequently, the appellant has filed rectification to rectify the mistakes as apparent from the record but the AO, CPC has processed the ITR u/s. 154 of the IT Act without rectifying the mistakes. During the appellate proceedings notices were issued to the appellant for furnishing written submission. In response to the same, the appellant has furnished his written submission from time to time which has been duly considered. 7.2 The appellant has raised 04 grounds of appeal. It is seen that vide ground no 1, the appellant has challenged the jurisdiction and time limit of orders passed u/s 143(1) and 154 of Income-tax act, 1961. The ground no 1, raised by the appellant was found devoid

P a g e | 3 ITA No. 196/JPR/2026 Murari Lal Mishra of merits as orders passed by the AO, CPC are well with in jurisdiction and time limit. Therefore, ground no 1, raised by the appellant is dismissed. The ground no. 2is specific in nature wherein the appellant has challenged the action of AO, CPC in denying the rebate under section 87A of the IT Act by AO, CPC on income chargeable to tax at special rates. Ground no. 3 pertains to charging of interest u/s. 234A, 2348 & 2340 of the Income-tax Act, 1961.Ground no 4, raised by the appellant is general in nature which does not require separate adjudication. The grounds raised by the appellant are being adjudicated as under, -

7.3 The appellant vide ground no. 2has challenged the rejection of the claim of rebate by 2has challenged t AO CPC amounting to Rs. 24,449/- u/s 87A on STCG amounting to Rs. 1,80,184/-. The appellant has submitted that his total income was less than Rs.7,00,000/- and hence as per with clause (a) to proviso to section 87A the appellant was eligible for rebate of Rs. 24,449/-on total income of Rs.4,22,240/-.

7.4 The submission made has been duly considered. It is seen from the return that the total income of the appellant, inter-alia, comprised of Rs.4,22,240/-. The appellant had claimed the rebate of Rs. 24,449/-. However, the AO, CPC had denied the rebate.AO CPC has denied claim of rebate on income taxable at special rates i.e. Short-Term capital Gain in the case of appellant.

Before adjudicating the issue, it will be appropriate to refer here provisions of section 87A which provides for allowance of rebate of Income Tax in case of certain individuals.

Rebate of income-tax in case of certain individuals.

87A. An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of twelve thousand and five hundred rupees, whichever is less:

21[Provided that 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 from the amount of income-tax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less;

(b) exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-

P a g e | 4 ITA No. 196/JPR/2026 Murari Lal Mishra tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees.]

7.5. Further section 111A, which reads as under,

"111A (2) where the gross total income of an assessee includes any short-term capital gains referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains"

7.6 The contention of the Appellant is prima-facie found to be genuine as the amendment through Finance Act, 2023 in respect of rebate u/s. 87A of the Act, mentions total income chargeable to tax. The CPC has excluded the amount ofRs. 1,80,184/-(being the income chargeable at special rates) from the total income of the Appellant, while calculating the taxable income for the purpose of allowing rebate u/s. 87Aof the Act. The restriction made by the CPC with respect to the rebate u/s. 87A of the Act is found to be not correct in the light of Appellant's arguments, detailed facts and explicit of law. Section 112A(6) of the Income-tax Act, 1961 imposes restriction to claim rebate u/s. 87A on LTCG prescribed u/s. 112A(1) of the Income-tax Act, 1961. However, there is no such bar on short term capital gain u/s. 111A of the Income-tax Act, 1961. Thus, a composite reading of section 87A r.w.s.111A does not bar the appellant from claiming rebate u/s 87A. In view of the above discussion and also for the fact that the appellant has continued the option exercised u/s 115BAC, it is held that the AO, CPC had erred in restricting the rebate u/s 87A of the Income tax Act, 1961. Therefore, ground no. 2 raised by the appellant isallowed.

7.7 Vide ground no. 3, the appellant has challenged the levy of interest. It is a settled position in law that interest under Section 234A, 234B &234C is levied by the AO as a consequential and mandatory liability arising from the assessment order, rather than a discretionary imposition. The Hon'ble Supreme Court in CIT v. Anjum M.H. Ghaswala [(2001) 252 ITR 1 (SC)] has categorically held that the levy of interest under Section 234A, 234B 234C is automatic and compensatory in nature. Accordingly, in light of the settled judicial position and the fact that interest under section 234A, 234B and 234C is consequential in nature, the Assessing Officer is directed to recompute the interest under Section 234A, 234B &234Cin accordance with law while giving effect to this order. Therefore, ground no 3 is allowed.

P a g e | 5 ITA No. 196/JPR/2026 Murari Lal Mishra 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 Basty Keshava Shenoy Vs. ITO in ITA No.3134/Bang/2025 iv) 5. Before me, 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. 6. I 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:- ………. 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

P a g e | 6 ITA No. 196/JPR/2026 Murari Lal Mishra 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."

“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.

P a g e | 7 ITA No. 196/JPR/2026 Murari Lal Mishra 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

P a g e | 8 ITA No. 196/JPR/2026 Murari Lal Mishra 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."

P a g e | 9 ITA No. 196/JPR/2026 Murari Lal Mishra holding the assessee entitled to rebate u/s 87A of the Act on the taxes paid on short term capital gain. 8. In effect, the appeal of the Revenue is dismissed. Order pronounced in the Open Court on 29.07.2026

Sd/- (Annapurna Gupta) ACCOUNTANT MEMBER Dated 29.07.2026 Mittali, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT By Order, Asst. Registrar ITAT, Jaipur