Order under section 87A by CIT – Appeal: The Controversy to continue
Recently, the judgement on section 87A by CIT Appeal is high in circulation. The most important part of the order is an amazing written submission done by the counsel CA. Shri Kushal Fofaria for this remarkable achievement. He indeed deserves kudos for this. Special thanks to him for getting it circulated amongst us all.
Equally important is promptness with which the judgment was delivered. The speed of disposal by JCIT/ADDL CIT (A), Pune is truly remarkable and commendable. However, the taxpayers are under the wrong impression that the section 87A rebate is granted by the CIT – Appeal. This is not true.
It may be noted that the last para i.e., concluding part of the order reads as under:
the Jurisdictional Assessing Officer (AO) is *directed to verify* the allowability of claim made by the Appellant in the return of income filed by her for A.Y 2024-25, towards rebate u/s 87A of the Act, as per the provisions of law and allow the same accordingly. … Thus, all the grounds raised by the Appellant in the present appeal are treated as allowed *subject to the discussions held herein before*.
In short CIT(A) has not provided comprehensive relief but has instead remanded the matter back for the AO’s reconsideration.
The key part of the submission are as under:
1. 87A Restriction for LTCG not for STCG: Section 87A excludes rebates on long-term capital gains (u/s 112A) but not on short-term capital gains (u/s 111A or 115BAC(1A)).
2. Rebate Allowed under Section 115BAC: While 115BAC disallows certain deductions, it does not disallow rebate u/s 87A, making it valid even under the new tax regime.
3. Total Income Definition Includes Capital Gains: As per Sections 2(45) and 14, total income incorporates all income heads, including capital gains, confirming rebate eligibility.
4. Budget Intent Supports Rebate: The Budget Memorandum raised the rebate limit to ₹7 lakhs as a benefit, with no restrictions on short-term capital gains, aligning with legislative intent.
5. Income Below Threshold: Total income of ₹6,93,260 falls under the ₹7 lakh threshold, making the disallowance by the AO incorrect.
6. Clarification on “Subject to Chapter XII”: This ensures a 15% tax rate for short-term gains (u/s 111A) but does not exclude rebate eligibility if income is within ₹7 lakhs.
7. Legislative Intent Confirms Rebate: Section 112A explicitly excludes rebate for long-term gains, but no such exclusion exists for short-term gains under Section 111A, supporting rebate allowance.
8. Natural Justice Violation: The AO disallowed the rebate without a show-cause notice, violating principles of fairness and natural justice.
9. Prima Facie Adjustment Misuse: Disallowing rebate through Section 143(1) adjustments is impermissible for such contentious matters, requiring detailed assessment under Sections 143(3) or 147.
The copy of the order is as under:
