Bombay High Court Rules in Favor of Taxpayers: Key Takeaways on Section 87A Rebate

Justice is not only about interpreting the law but ensuring that the law is applied fairly to all, especially those who seek relief under it

The Bombay High Court delivered a landmark verdict addressing procedural lapses in the e-filing utility for Income Tax Returns that denied taxpayers their rightful claims under Section 87A. The Court held that the restrictive design of the utility violated constitutional rights under Articles 14, 19(1)(g), and 265, and directed the CBDT to modify the utility to ensure fairness and compliance with the law.

Key Highlights of the Verdict:

1. The CBDT’s e-filing utility was deemed restrictive and unconstitutional as it arbitrarily prevented taxpayers from claiming rebates.
2. The Court emphasized that it is the role of Assessing Officers (AOs), not the utility, to determine the validity of claims.
3. Section 87A rebates are applicable to the total tax liability unless specifically excluded by law.
4. Tax authorities must process refunds for excess taxes collected due to these utility restrictions.
5. Taxpayers are allowed to file manual rectifications or grievances to reclaim denied benefits.

While the Court recognized the procedural issues, the last date to revise returns as extended by the CBDT (15.01.2025) had already passed when the judgment was issued on 24.01.2025. This leaves taxpayers with limited remedies, including filing rectification requests or raising grievances with their jurisdictional AO.

If you were denied the Section 87A rebate due to the utility’s restrictions, follow these steps to secure your rightful tax relief:

Step 1: File a Rectification Request Online (Section 154)

Correct errors or denial of rebates in processed returns or demand orders.

• How to File:
  1. Log in to the Income Tax e-filing portal.
  2. Navigate to "Rectification" under the Services tab.
  3. Select the relevant Assessment Year and the reason for rectification (e.g., denial of Section 87A rebate).
  4. Attach supporting documents like proof of eligibility for Section 87A.
  5.  If approved, the rebate will be allowed, and refunds will be processed.

Step 2: Submit a Grievance

Escalate unresolved issues to the authorities.

• How to File:
  1. Log in to the Income Tax portal and select "Grievance" under the Services tab.
  2. Submit a detailed grievance explaining how you were denied the rebate due to utility restrictions.
  3. Attach copies of your ITR and computation sheet to support your claim.

Step 3: Approach the Jurisdictional AO

   Manually address denial of rebates or incorrect demand orders.

• How to File:
  • Submit a formal written application to the AO, detailing the denial of Section 87A benefits.
  • Attach:
    • A copy of the ITR filed.
    • Supporting documents for rebate eligibility.
    • Computation of excess taxes paid.
    • The AO may rectify the return manually or adjust the demand order.

Step 4: Rectify CPC Demand Orders

Reduce or nullify demand raised by CPC due to denied rebates.

• How to File:
  1. Log in to the Income Tax portal and review the CPC demand order under "Pending Actions."
  2. File a rectification request with supporting documentation.
  3. The demand will be corrected, and refunds processed if applicable.

Bombay High Court’s Verdict on Section 87A 

In a significant ruling on January 24, 2025, the Bombay High Court addressed the issues faced by taxpayers due to the restrictive e-filing utility that denied legitimate claims under Section 87A. The Court not only called for utility modifications but also emphasized taxpayers' rights to fair treatment under the Constitution.

However, with the revision deadline of January 15, 2025, already passed, affected taxpayers must explore other remedies to claim their benefits and avoid financial loss.

What Can You Do If You Were Denied Section 87A Rebate?

If the restrictive e-filing utility led to the denial of your rebate, here are the steps you can take:

1. File a Rectification Request (Section 154):

   • Log in to the e-filing portal and submit a rectification request for denied rebates or incorrect demand orders.
   • Attach proof of your eligibility for the Section 87A rebate.

2. Raise a Grievance:

   • Submit a complaint via the portal if the rectification is delayed or unresolved.
   • Escalate the issue to your jurisdictional AO if needed.

3. Approach the Jurisdictional Assessing Officer:

   • File a manual application with supporting documents to correct denied rebates or adjust demands.

4. Rectify CPC Demand Orders:

   • If CPC raised a demand due to denied rebates, file a rectification request to correct the assessment.

The Section 87A rebate is a crucial relief for small taxpayers, reducing their tax liability up to ₹12,500. Procedural lapses in the e-filing utility shouldn’t deprive taxpayers of their rightful benefits. The Bombay High Court’s judgment reinforces that taxpayer rights must be upheld, and procedural barriers must not stand in the way of justice.

Act now to file rectifications, grievances, or manual applications to secure your rebate and ensure compliance with the Court’s directives