The Bombay High Court has instructed the Central Board of Direct Taxes (CBDT) to issue a notification extending the deadline for revised and belated Income Tax Return (ITR) filings until January 15, 2025. This extension applies only to taxpayers eligible for claiming the section 87A tax rebate.
This is in response to a Public Interest Litigation (PIL) filed by The Chamber of Tax Consultants. It is important to note that this extension is temporary, as the final decision will be announced on January 9, 2025, the Economic Times reported.
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What’s the issue?
The Income Tax offers rebate under Section 87A to individual taxpayers whose income does not exceed the specified threshold. The limit is Rs 7 lakh under the new tax regime and Rs 5 lakh under the old regime. If your income falls within these thresholds, your tax liability will be reduced to zero.
The Finance Act 2019 raised the tax rebate threshold under section 87A to Rs 12,500 for individuals earning Rs 5 lakh or less in the old tax regime. In the new tax regime, the tax rebate amount is now Rs 25,000 for those earning Rs 7 lakh or less.
Effective July 5, 2024, the rebate under section 87A was not applicable on certain special rate incomes when filing income tax returns (ITR). This includes short-term capital gains on equity shares or equity-oriented mutual funds taxed at 15% under Section 111A.
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The Bombay High Court order stated: “The respondents have unilaterally disabled assessees from claiming rebate under Section 87A after 5 July 2024 by modifying the utility software for filing income-tax returns. As a result, if the returns are filed by the assessees using the software of the respondents after 5 July 2024, they are unable to claim the rebate.”
What was the demand?
Senior advocate Percy Pardiwala, representing the petitioner, contended that the software modifications made by CBDT were capricious and infringed upon the statutory rights of taxpayers. The Public Interest Litigation (PIL) highlighted that the Section 87A rebate is a fundamental entitlement under the Income Tax Act, which cannot be diminished through technical alterations.
Furthermore, the petition sought the court’s intervention to instruct the Central Board of Direct Taxes (CBDT) to permit affected taxpayers to submit revised returns under Section 139(5) of the Act in order to retroactively claim the rebate.
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What did the Bombay HC say?
The recent modifications to the utility software of the Income Tax Department, as noted by the Bombay High Court, have hindered eligible taxpayers from availing of the Section 87A rebate. This rebate permits individuals with taxable incomes up to Rs 7 lakh to bring down their tax dues to zero.
The bench, headed by Chief Justice Devendra Kumar Upadhyaya and Justice Amit Borkar, pointed out that the software updates introduced on July 5, 2024, restricted certain taxpayers from claiming the rebate. The judges emphasized that such procedural changes go against the legislative purpose of the rebate and place an unjust burden on taxpayers.
In its order dated December 20, 2024, the Bombay High Court said: “…By way of interim relief, the respondent, Central Board of Direct Taxes is hereby directed to forthwith issue requisite notification under Section 119 of the Act extending the due date for e-filing of the income-tax returns in relation to the assessees who are required to file a return of income by December 31, 2024, at least to January 15, 2025. This extension is to ensure that all taxpayers eligible for the rebate under Section 87A are afforded the opportunity to exercise their statutory rights without facing procedural impediments.”
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What did the Income tax department say
The changes made by the Income Tax Department were deemed necessary to address specific issues with rebate claims and to ensure compliance with legal provisions. The court, however, rejected this reasoning, stating that administrative adjustments should not take precedence over the substantive rights guaranteed by legislation.
“A paradoxical situation happened post July 5, 2024. Taxpayers who filed their ITR through the official utility were denied the benefit of claiming Rebate u/s. 87A for various special rate incomes, including short-term capital gains on equity shares or equity oriented mutual funds taxable at 15% under Section 111A. Once the ITR filing deadline was over the tax department started sending defective notices under section 139(9) for claiming Rebate for such specified tax cases. This was the main issue which created a problem. A defective notice would mean that the original ITR will get accepted only if the defect is cured. Owing to this, the tax-payers were indirectly forced to give up on the claim of 87A and pay the difference amount of tax,” said Kinjal Bhuta, Secretary, Bombay Chartered Accountants’ Society (BCAS).
“However, now due to this Bombay High Court Judgement, taxpayers who filed a ITR by forgoing 87A in response to the defective notice can now file a revised ITR claiming the tax rebate under section 87A before the extended due date of 15th January, 2025. The issue still is not resolved for those taxpayers who took no action after getting the defective ITR notice for claiming section 87A rebate. These taxpayers as of now seem to have only option of filing a belated ITR same as those who did not file any ITR, but they may be disadvantaged as they may have to forgo certain deductions and losses,” he added.
