CIT(A) directs AO to allow Rebate under Section 87A on STCG earlier Disallowed by Portal during ITR Processing FY 2023-24

In an important ruling, the Commissioner of Income Tax (Appeals) [CIT(A)] ruled in favour of an appellant, directing the Assessing Officer to allow the rebate under Section 87A of the Income Tax Act, 1961, which was previously denied during the processing of the income tax return for the Assessment Year (AY) 2024-25.

The appellant-assessee filed her income tax return for the financial year 2024-25 on July 29, 2024, declaring a total income of Rs.6,93,260, which included a short-term capital gain (STCG) of Rs.65,066 and a long-term capital gain (LTCG) of Rs.1,38,049. While processing the return under Section 143(1), the Centralised Processing Centre (CPC) reduced the refund under Section 87A to Rs.10,250, which was much less than the sought reimbursement of Rs.20,010.

The disallowance led to an increased tax liability of Rs.9,760 for the appellant. The appellant filed an appeal under Section 246A, claiming that the adjustment was unjustified.

The appellant claimed that she was qualified for the full rebate under Section 87A because her total income did not exceed Rs.7,00,000, excluding LTCG on equity shares. The rebate claim comprised Rs. 9,760 for the STCG. She also pointed out that the CPC implemented the change without giving people a chance to be heard, which violated natural justice norms.

The appellant asserted that the CPC’s rebate restrictions were incorrect under the Finance Act of 2023. She also mentioned rules that provided for a rebate on income taxed at special rates, subject to specific conditions.

In its decision, CIT(A) considered the facts and legislative provisions, including amendments made by the Finance Act of 2023.

The appeal authority remarked that the Finance Act specifically stipulates that if the entire income does not exceed Rs.7,00,000, the assessee is eligible for a refund under Section 87A, regardless of the type of income.

It was also recognised that the CPC erred in removing income taxed at special rates when determining rebate eligibility, resulting in an unfair restriction on the rebate claim.

The CIT(A) directed the Jurisdictional Assessing Officer (JAO) to verify the appellant’s claim and approve the rebate in compliance with the legislation. The appeal was granted, bringing much-needed relief to the taxpayer.

This ruling raises the prospect of a rebate for those who were denied the rebate under Section 87A of the Income Tax Act due to income attributed to Short Term Capital Gains (STCG).

For Official Judgement Download PDF Given Below: