Facts of the Case

The assessee, Kanhaiya Lal Panchal, an individual, filed his return of income for Assessment Year 2024-25 declaring total income of ₹4,15,620, comprising salary income, short-term capital gains under Section 111A, long-term capital gains under Section 112, income from transfer of virtual digital assets, and agricultural income. The assessee opted for taxation under the new tax regime under Section 115BAC and claimed full rebate of ₹22,536 under Section 87A, resulting in nil tax liability. The return was processed under Section 143(1), wherein the Assessing Officer allowed only ₹200 as rebate under Section 87A and denied the balance amount, raising a demand. The rectification application under Section 154 was rejected, and the CIT(A) upheld the denial. The assessee preferred an appeal before the Tribunal.

Issues Involved

Whether rebate under Section 87A is allowable against tax payable on short-term capital gains taxable under Section 111A and long-term capital gains taxable under Section 112 when the assessee opts for the new tax regime under Section 115BAC and total income does not exceed ₹7 lakh, and whether such rebate is allowable on tax arising from transfer of virtual digital assets.

Petitioner’s Arguments

The assessee contended that Section 87A grants rebate on the total tax liability computed on total income and does not exclude income taxable at special rates under Sections 111A or 112. It was argued that while Section 112A(6) expressly restricts rebate on certain long-term capital gains, no such restriction exists under Section 111A or Section 112. The assessee further submitted that the reliance placed by the CIT(A) on the Explanatory Memorandum to the Finance Bill, 2025 was misplaced as the amendment is prospective and applicable only from AY 2026-27. Judicial precedents of coordinate benches allowing rebate under identical circumstances were relied upon. However, the assessee fairly conceded that rebate under Section 87A may not be allowable on tax arising from transfer of virtual digital assets.

Respondent’s Arguments

The Revenue supported the orders of the lower authorities and contended that rebate under Section 87A is not allowable on income taxable at special rates under Chapter XII, particularly when the assessee has opted for the new tax regime under Section 115BAC.

Court Order / Findings

The ITAT Indore held that Section 87A, as applicable for AY 2024-25, does not contain any express restriction denying rebate on tax payable under Sections 111A or 112. The Tribunal observed that the legislature has consciously provided a restriction only under Section 112A(6) and not under other provisions. It was held that Section 115BAC governs computation of tax rates and does not curtail the availability of rebate under Section 87A. The Tribunal further observed that the amendment proposed in the Finance Act, 2025 restricting rebate on special rate incomes is prospective and reinforces that no such restriction existed for AY 2024-25. Accordingly, the Tribunal directed the Assessing Officer to allow further rebate of ₹22,291 in respect of tax on short-term and long-term capital gains. However, in view of the assessee’s concession, the Tribunal upheld denial of rebate on tax of ₹45 arising from transfer of virtual digital assets.

Important Clarification

The Tribunal clarified that for AY 2024-25, rebate under Section 87A cannot be denied on tax payable under Sections 111A and 112 in absence of an express statutory bar, even when the assessee opts for the new tax regime. However, rebate may be restricted where the assessee does not press the claim or where specific statutory provisions apply.

Final Outcome

The appeal filed by the assessee was partly allowed. The Assessing Officer was directed to grant additional rebate of ₹22,291 under Section 87A and recompute the tax liability accordingly, while denial of rebate on tax arising from transfer of virtual digital assets was upheld.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769158811_KANHAIYALALPANCHALRATLAMVS.BPLW9195RATLAM.pdf

 

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