2016 (6) TMI 1218 - AT - Income Tax

Disallowance of assessee s claim of interest on refund - Held that - Even if the excess TDS was paid by the assessee to the Govt. account voluntarily under misconception, however, as held by the Hon ble Supreme Court in Union of India v/s Tata Chemicals Ltd. 2014 (3) TMI 610 - SUPREME COURT even in the absence of an express statutory provision for payment of interest, the assessee has to be paid interest on refund from the date of payment of such tax. It has further been brought to our notice that the CBDT abiding by the view expressed by the Hon ble Supreme Court in Tata Chemicals Ltd. (supra) had issued Circular no.11 of 2016 dated 26th April 2016, wherein, it is stated that if a resident deductor is entitled for refund of tax deposited, then it has to be refunded with interest under section 244A from the date of payment of such tax. In the said Circular, Departmental Authorities have also been advised not to contest the claim of interest in appeal. Thus, in view of the decision of the Hon ble Supreme Court as referred to above and the CBDT circular no.11 of 2016 dated 26th April 2016, we hold that the assessee is entitled to receive interest on excess TDS refunded to him from the date of payment. Interest on interest - Held that - The primary facts relating to the payment of excess TDS to the Government account as well as claim of interest on refund are available in the records of the Department, therefore, the legal issue pertaining to the assessee s claim of interest on interest can be decided on the basis of those facts. In that view of the matter, the learned Commissioner (Appeals) was not justified in rejecting additional ground raised by the assessee. We, therefore, restore this issue back to the file of the Assessing Officer for deciding assessee s claim of interest on interest in the light of the facts and material on record and in consonance with the relevant statutory provisions as well as the decisions which may be relied upon by the assessee. Accordingly, ground no.3, is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of the assessee’s claim of interest on refund.
2. Claim of interest on interest by the assessee.

Detailed Analysis:

1. Disallowance of the Assessee’s Claim of Interest on Refund:

The assessee, a joint venture engaged in the construction business, entered into an agreement with Lakshdeep Investment and Finance Ltd. (LIFL) in April 2004, agreeing to provide a specified super built-up area in a commercial building. LIFL paid ?10 crore as margin money. Due to changes in the project plan and delays, the agreement was terminated in March 2005, and the margin money was returned to LIFL with interest. The assessee deducted tax at source (TDS) on the interest payment and credited it to the Central Government.

The assessee later realized that TDS was not required and filed revised returns. The Assessing Officer (AO) completed the assessment, accepting the revised income and TDS returns. The assessee then sought a refund of the TDS amount of ?29,27,400, which was mistakenly deducted. Despite repeated requests, the refund was delayed, and the assessee approached the Ombudsman. The AO eventually granted a partial refund of ?16,29,669 after adjusting certain demands but did not compute any interest under section 244A. The AO rejected the assessee’s petition for rectification under section 154, stating no interest on the refund was payable as per the Act.

The Commissioner (Appeals) confirmed the AO’s order, citing CBDT circulars which indicated no interest on voluntary TDS payments. The assessee argued that the TDS was deducted by mistake and that the Department had accepted this by refunding the excess TDS. The assessee claimed interest on the refund under section 244A, citing the Supreme Court’s decision in Tata Chemicals Ltd., which held that interest is compensatory for wrongful retention of money by the Department.

The Tribunal noted that there was no specific prohibition in section 244A against granting interest on delayed refunds. The Tribunal referred to the Supreme Court’s decision in Tata Chemicals Ltd., which emphasized that interest on refunds is a compensation for the use and retention of money collected unauthorizedly by the Department. The Tribunal concluded that the assessee was entitled to interest on the refund from the date of payment, as the Department had retained the money without authority. The Tribunal also noted a CBDT circular aligning with the Supreme Court’s view that interest should be paid on refunds from the date of payment. Thus, the Tribunal allowed the assessee’s claim for interest on the refund.

2. Claim of Interest on Interest by the Assessee:

The assessee raised an additional ground before the Commissioner (Appeals) for interest on interest, which was rejected on the basis that the primary claim of interest was not allowed. The Tribunal, however, observed that as per the Supreme Court’s decision in National Thermal Power Corp. Ltd., a legal issue can be entertained if the primary facts are available on record. The Tribunal noted that the primary facts regarding the excess TDS payment and the claim for interest were available. Therefore, the Tribunal restored the issue to the AO for reconsideration in light of the relevant statutory provisions and judicial decisions.

Conclusion:

The Tribunal partly allowed the assessee’s appeal, granting interest on the refund of excess TDS from the date of payment and remanding the issue of interest on interest back to the AO for further consideration.