2011 (3) TMI 765 - HC - Income Tax

Addition - Refund - Interest u/s 214/244(1A) - Once assessment was validly made and the tax was due, there is no reason to exclude the applicability of interest liability under Section 214/244(1A). It is, however, clear that interest liability would be only for the period the department was deprived of the amount of tax which it was entitled to recover i.e. the period between the refund in pursuance of order of Tribunal and recovery as per order of this Court. - Decided against the assessee

Summary

Issues:
1. Appeal by revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
2. Validity of assessment and applicability of interest u/s 214/244(1A) of the Income Tax Act.
3. Interpretation of the judgment in Deep Chand Jain Vs. ITO (1984) 145 ITR 676 by the Tribunal.
4. Recovery of amount refunded with interest under Section 214 read with Section 244(1A).

Analysis:

1. The appeal was filed by the revenue under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal. The substantial questions of law raised included the concurring decision of the Tribunal with the order passed by the CIT(A) and the allowance of interest under Section 214/244(1A) of the Income Tax Act. The assessment year in question was 1981-82.

2. The assessee initially filed a return declaring a loss, but the Assessing Officer made additions and assessed the net income under Section 143/144B. The CIT(A) upheld the assessment with a partial setting aside of the addition. The Tribunal, after initially considering the assessment as barred by limitation, reversed its view upon reference to the High Court, which held the assessment to be valid. Subsequently, the assessment was restored, and the refunded amount was sought to be recovered with interest under Section 214 read with Section 244(1A).

3. The Tribunal, in its decision, relied on the judgment in Deep Chand Jain Vs. ITO (1984) 145 ITR 676, where it was held that the tax collected had to be related to a final assessment order. The Tribunal found the recovery to be illegal based on this judgment and the nature of the tax deposited by the assessee as advance-tax, entitling it to simple interest under Section 214.

4. The arguments presented by the counsel for the revenue emphasized the distinction between the present case and the Deep Chand Jain case, asserting that the assessment in the current matter was upheld by the Court, unlike in the cited case. On the other hand, the counsel for the assessee contested the interest claim while acknowledging the validity of the recovery.

5. The Court rejected the submission made on behalf of the assessee, emphasizing that once a valid assessment was made and tax was due, interest liability under Section 214/244(1A) applied. However, the interest liability was limited to the period during which the department was deprived of the tax amount it was entitled to recover, i.e., between the refund ordered by the Tribunal and the subsequent recovery directed by the Court.

6. Ultimately, the Court decided in favor of the revenue, allowing the appeal and upholding the interest liability for the specified period.