2006 (10) TMI 357 - AT - Income Tax

Summary

Issues Involved:
1. Charging of interest under section 234D on excess refund granted.
2. Determination of the period for which interest under section 234D is applicable.

Issue-wise Detailed Analysis:

1. Charging of interest under section 234D on excess refund granted:

The primary issue in this appeal is whether interest under section 234D should be charged on the entire amount of refund granted to the assessee or only on the excess amount refunded. The assessee received multiple refunds based on different returns filed, and the CIT(A) directed that interest under section 234D should only be charged on the excess refund granted, specifically the third refund.

The CIT(A) observed that section 234D deals with two situations: (1) where no refund is due on regular assessment, and (2) where the amount refunded under section 143(1) exceeds the amount refundable on regular assessment. In the latter case, interest is chargeable on the excess amount refunded. The CIT(A) concluded that since the final refund due to the assessee was more than the first two refunds, these could not be considered excess refunds, and thus, no interest under section 234D could be charged on them. Interest was applicable only on the third refund, which was in excess of the final refund amount due.

2. Determination of the period for which interest under section 234D is applicable:

The CIT(A) directed that interest under section 234D should be computed from the date the excess refund was granted to the date of regular assessment. Specifically, interest should be charged only on the third refund granted on 19-3-2004, as this was the excess amount refunded to the assessee.

The Department contended that interest was rightly calculated by the Assessing Officer on all refunds, including the first two. However, the Tribunal upheld the CIT(A)'s decision, stating that interest under section 234D could only be charged on the excess amount refunded, which in this case was the third refund. The Tribunal emphasized that there was no ambiguity in the language of section 234D, and interest could not be charged on the amount of refund that did not exceed the amount refundable on regular assessment.

Conclusion:

The Tribunal dismissed the Department's appeal, affirming the CIT(A)'s order that interest under section 234D should only be charged on the excess refund granted, specifically the third refund. The Tribunal found no reason to interfere with the CIT(A)'s direction to compute interest under section 234D from the date of the third refund till the date of regular assessment. The Departmental appeal was dismissed in its entirety.