DCIT Vs IDBI Bank Ltd. (ITAT Mumbai)
ITAT Mumbai held that the amount of interest u/s. 244A of the Income Tax Act is to be calculated by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component.
Facts- The case was selected for scrutiny and the assessment u/s. 143(3) was completed assessing the income of the assessee at Rs.13216,623,26,540/-. Aggrieved, the assessee preferred an appeal, whereby, the Tribunal granted relief to the assessee on three grounds and remanded two of grounds back to AO. AO passed an order u/s. 143(3) r.w.s.254 dated 29.07.2021 giving effect to the order of the Tribunal whereby the assessed income was revised to Rs.921, 37,88,870. The assessee filed an appeal before the CIT(A) against the said order of the assessing officer stating that AO in the order giving effect had not correctly granted interest u/s. 244A.
CIT(A) held that the method of computation for granting interest u/s. 244A for the refund due to the assessee is not in accordance with the prevailing jurisprudence of the issue, directed AO to examine the computation of refund in accordance with the directions given by the co-ordinate bench in the case of Bank of Baroda. The revenue is in appeal before the Tribunal against the order of the CIT(A).
Conclusion- Held that the amount of interest u/s. 244A is to be calculated by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component. Accordingly we hold that the manner in which AO has adjusted the refund is not correct and that the assessee would be entitled to interest on the unpaid refunds in accordance with the principle laid out in the aforesaid decision of the Tribunal. Thus, the AO was directed to compute interest under Section 244A of the Income Tax Act as per the claim of the assessee after giving a proper opportunity to be heard.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals of the Revenue are against the order of the Commissioner of Income-tax, National Faceless Appeal Centre, Delhi [in short, ‘the CIT(A)’] dated 03/04/2023 for A.Y. 1997-98 and 2002-03.
2. The only issue contended in both the appeals is the direction given by the CIT(A) to the Assessing Officer with regard to the manner which the adjustment of refunds granted is carried out for computing of interest under section 244A of the Income Tax Act (the Act).
3. The brief facts pertaining to AY 1997-98 are that the assessee filed the original return of income on 28/11/1997 declaring total income of Rs.918,92,18,700/-. Subsequently, a revised return was filed on 30/03/1999 declaring total income at Rs.905,24,80,790/-. The case was selected for scrutiny and the assessment under section 143(3) was completed vide order dated 25/02/2000 assessing the income of the assessee at Rs.13216,623,26,540/-. Aggrieved, the assessee filed an appeal before the CIT(A), who upheld the additions against which the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 21.06.2019 granted relief to the assessee on three grounds and remanded two of grounds back to the assessing officer The assessing officer passed an order under section 143(3) r.w.s.254 dated 29.07.2021 giving effect to the order of the Tribunal whereby the assessed income was revised to Rs.921, 37,88,870. The assessee filed an appeal before the CIT(A) against the said order of the assessing officer stating that the Assessing Officer in the order giving effect had not correctly granted interest under section 244A. The assessee submitted before the CIT(A) that Assessing Officer had granted interest under section 244A by artificially splitting the refund granted into interest and tax and adjusting the same from interest and tax refund resulting in reduced interest under section 244A being granted.
4. The CIT(A) relied on the decision of the co-ordinate bench in the case of DCIT- 2(1)(1) vs Bank of Baroda (IT Nos 1646 & 2565/Mum/2017 dated 20/12/2018) held that the method of computation for granting interest under section 244A for the refund due to the assessee is not in accordance with the prevailing jurisprudence of the issue, directed the Assessing Officer to examine the computation of refund in accordance with the directions given by the co-ordinate bench in the case of Bank of Baroda (supra). The revenue is in appeal before the Tribunal against the order of the CIT(A).
5. The main contention of the ld DR is that the manner in which the assessee is seeking to adjust the refund would result granting of interest on interest and that the Hon’ble Supreme Court in the case of CIT vs. Gujarat Flouro Chemicals Ltd (2014) 42 com 1 has held that there cannot be any interest on interest. The ld DR drew our attention to the relevant observations of the said decision which is extracted below –
“4. We would first throw light on the reasoning and the decision of this Court on the core issue in Sandvik Asia Ltd.’s case (supra). The only issue formulated by this Court for its consideration and decision was whether an assessee is entitled to be compensated by the Income Tax Department for the delay in paying interest on the refunded amount admittedly due to the assessee. This Court in the facts of the said case had noticed that there was delay of various periods, ranging from 12 to 17 years, in such payment by the Revenue. This Court had further referred to the several decisions which were brought to its notice and also referred to the relevant provisions of the Act which provide for refunds to be made by the Revenue when a superior forum directs refund of certain amounts to an assessee while disposing of an appeal, revision etc.
5. Since, there was an inordinate delay on the part of the Revenue in refunding the amount due to the assessee this Court had thought it fit that the assessee should be properly and adequately compensated and therefore in paragraph 51 of the judgment, the Court while compensating the assessee had directed the Revenue to pay a compensation by way of interest for two periods, namely; for the Assessment Years 1977-78, 1978-79, 1981-82, 1982-83 in a sum of Rs.40,84,906/- and interest @ 9% from 31.03.1986 to 27.03.1998 and in default, to pay the penal interest @ 15% per annum for the aforesaid period.
6. In our considered view, the aforesaid judgment has been misquoted and misinterpreted by the assessees and also by the Revenue. They are of the view that in Sandvik Asia Ltd.’s case (supra), this Court had directed the Revenue to pay interest on the statutory interest in case of delay in the payment. In other words, the interpretation placed is that the Revenue is obliged to pay an interest on interest in the event of its failure to refund the interest payable within the statutory period.
7. As we have already noticed, in Sandvik Asia Ltd.’s case (supra) this Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period. In the facts of that case, this Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest.
8. Further it is brought to our notice that the Legislature by the Act No. 4 of 1988 (w.e.f. 01.04.1989) has inserted Section 244A to the Act which provides for interest on refunds under various contingencies. We clarify that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest.”
6. The Ld. DR further submitted that the Delhi High Court in the case of CIT vs Indian Farmer Fertilizer Co-operative (2016) 71 taxmann.com 37 (Delhi), where it is held that the ruling of the Supreme Court in the case of CIT vs. Gujarat Flouro Chemicals Ltd (supra), should be followed as opposed to the ratio laid down in the case of CIT vs HEG Ltd (2010) 324 ITR 331 which has been followed in the decision of the coordinate bench in the case of Bank of Baroda (supra). Accordingly, the Ld. DR submitted that the decision of the co-ordinate bench cannot be applied in assessee’s case since there is a ratio laid down by the higher court that there cannot be any interest on interest on refunds granted to the assessee. The Ld. DR thus submitted that the method of adjusting the tax as computed by the Assessing Office is the right way since the same would not result in interest on interest and, therefore, should be upheld.
7. The Ld.AR, on the other hand, submitted that the ratio laid down by the Supreme Court in the case of Gujarat Flouro Chemicals Ltd (supra) and Delhi High Court in the case of Indian Farmer Fertilizer Cooperative (supra) are with respect to entitlement of the assessee to any amount for delayed payment of interest under section 244A, i.e. interest on interest under section 244A. However, in assessee’s case, the issue is the manner in which the assessing Officer has adjusted the refund due separating tax and interest and computing interest under section 244A. The Ld.AR therefore, argued that the issue is clearly distinguishable and the ratio laid down by the Hon’ble Supreme Court and Delhi High Court cannot be directly applied in assessee’s case. Accordingly, the Ld.AR submitted that the CIT(A) has correctly followed the decision of the co-ordinate bench in Bank of Baroda’s case which is exactly on the issue under consideration.
8. We heard the parties and perused the materials on record. The refund originally granted to the assessee as of 14.06.2001 was Rs.294,46,70,773 which included Rs.256,23,57,925 towards tax and interest up to 14.06.2001 of Rs.38,23,12,848. The assessing officer reworked the refund by adjusting the refund of Rs.8,19,70,880 (which included an interest of Rs. 1,05,36,544) while giving effect to the order of the Tribunal in a certain manner which the assessee is contending that it is resulting in short grant of interest under section 244A. The manner in which the assessing officer has adjusted the refund in the order giving effect (OGE) and the manner in which assessee the assessee contending that the refund should be adjusted is tabulated below for ease of reference –
