[BREAKING] CIT(A) directs AO to allow Income Tax 87A Rebate on STCG earlier Disallowed by Portal during Processing FY 2023-24 ITR Post-Verification [Read Order]

In a significant development, the Commissioner of Income Tax (Appeals) [CIT(A)] has ruled in favor of an appellant, directing the Assessing Officer to allow the rebate under Section 87A of the Income Tax Act, 1961, that was earlier disallowed during the processing of the income tax return for the Assessment Year (AY) 2024–25.

The appellant-assessee had filed her income tax return for AY 2024–25 on July 29, 2024, declaring a total income of ₹6,93,260, which included a short-term capital gain ( STCG ) of ₹65,066 and a long-term capital gain ( LTCG ) of ₹1,38,049. While processing the return under Section 143(1), the Centralized Processing Centre ( CPC ) limited the rebate under Section 87A to ₹10,250, significantly lower than the claimed rebate of ₹20,010/-.

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The disallowance resulted in an increased tax liability of ₹9,760 for the appellant. Aggrieved by the adjustment, the appellant filed an appeal under Section 246A.

The appellant contended that she was eligible for the full rebate under Section 87A since her total income did not exceed ₹7,00,000, excluding the LTCG on equity shares. The rebate claim included ₹9,760 applicable to the STCG. She also pointed out that the CPC made the adjustment without providing an opportunity to be heard, violating the principles of natural justice.

The appellant argued that the rebate restrictions applied by the CPC were erroneous, as per the Finance Act, 2023. She further cited provisions that allowed for a rebate even on income taxable at special rates, subject to certain conditions.

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In its ruling, CIT(A) reviewed the facts and legal provisions, in particular, the amendments brought in by the Finance Act, 2023.

The appellate authority observed that the Finance Act explicitly states that where the total income does not exceed ₹7,00,000, the assessee is eligible for a rebate under Section 87A, irrespective of the nature of income.

It was also noted that the CPC had erred by excluding income taxable at special rates while calculating the rebate eligibility, resulting in an unjust restriction on the rebate claim.

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The CIT(A) directed the Jurisdictional Assessing Officer (JAO) to verify the appellant’s claim and allow the rebate in accordance with the law. The appeal was allowed, providing much-needed relief to the taxpayer.

This decision brings hope of a refund to those who were denied the rebate under Section 87A of the Income Tax Act, for having Income attributable to Short Term Capital Gains ( STCG ).

To Read the full text of the Order CLICK HERE

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