2016 (11) TMI 1406 - AT - Income Tax

Interest on interest for the delay in refund of the tax paid by the assessee - Held that - The assessee now claims that the part of the amount repaid by the Assessing Officer has to be first adjusted towards interest. We find merit in the claim of the assessee. When the Assessing Officer repaid part of the amount to be refunded to the assessee first it has to be adjusted towards the interest and if anything remains it has to be adjusted towards refund of excess tax paid by the assessee. Therefore the excess tax remains to be refunded by the Department is again subject to payment of interest under Section 244A of the Act. It is not known why the Department has not refunded the entire amount after quantification of the excess tax refundable by the Department together with interest thereon. Whatever the case may be after the adjustment of interest from the refund made by the Department if excess tax remains to be refunded the Department has to pay interest under Section 244A of the Act. However the matter needs to be re-examined by the Assessing Officer.

Summary

Issues:
Delay in filing appeals by Revenue, Granting interest on interest for delayed tax refund, Interpretation of Apex Court judgments on interest on interest, Adjustment of refund towards interest payment, Re-examination of refund process by Assessing Officer.

Analysis:
1. Delay in Filing Appeals:
The Revenue filed appeals with a delay of 2 days, seeking condonation of delay. The Tribunal found sufficient cause for the delay and admitted the appeals after hearing both parties.

2. Granting Interest on Interest:
The CIT(A) directed the Assessing Officer to grant interest on interest for delayed tax refund. The Revenue argued against this based on the Apex Court judgment in CIT v. Gujarat Fluoro Chemicals, which disallowed interest on interest. The assessee contended that it was an adjustment of the refund towards interest initially paid. The Tribunal observed that the CIT(A) directed payment covering interest on interest, contrary to the Apex Court ruling.

3. Interpretation of Apex Court Judgments:
The Tribunal referenced the Gujarat Fluoro Chemicals case, where the Apex Court clarified that interest on interest is not allowed, overturning the judgment in Sandvik Asia Ltd. The Tribunal noted that the CIT(A) partly directed interest on interest, which was not in line with the legal position.

4. Adjustment of Refund Towards Interest Payment:
The assessee argued that the refund was to be adjusted towards the interest initially paid by the Department. The Tribunal agreed with this interpretation, stating that any refund or repayment should first adjust towards interest payment. The Assessing Officer's failure to refund the entire amount correctly was highlighted, leading to the direction for re-examination by the Assessing Officer.

5. Re-examination by Assessing Officer:
The Tribunal set aside the lower authorities' orders and remitted the issue back to the Assessing Officer for proper adjustment of the refund towards interest payment and excess tax refund. The Department was directed to pay interest under Section 244A of the Act on the remaining excess tax refundable after interest adjustment.

In conclusion, the Tribunal allowed the Revenue's appeals for statistical purposes, emphasizing the need for the Assessing Officer to re-examine the refund process to ensure correct adjustment and payment of interest on the remaining excess tax refundable.