2010 (10) TMI 857 - HC - Income Tax

Entitlement of department to collect interest u/s 234D - Held that - This issue stands decided decision in CIT vs. Kerala Chemicals and Proteins Ltd. (2010 (11) TMI 793 - Kerala High Court) wherein held that the interest is payable only from the date of introduction of the provision, that is, 1st June, 2003. Interest under s. 244A - AO declined interest because the refund is attributable to an additional claim of deduction of provision for bad debt which was allowed by the first appellate authority - Held that - If the issue of the proceedings, that is, refund order, is delayed for any period attributable to the assessee, then assessee is not entitled to interest for such period. Further, what is clear from sub-cl. (2) is that, if the officer feels that delay in refund for any period is attributable to the assessee, the matter should be referred to the CIT or Chief CIT or any other notified person for deciding the issue and ordering exclusion of such periods for the purpose of granting interest to the assessee u/s 244A(1). In this case, there was no decision by the CIT or Chief CIT on this issue and so much so, we do not think that the AO made out the case of delay in refund for any period attributable to the assessee disentitling for interest. So much so, the officer has no escape from granting interest to the assessee in terms of s. 244A(1)(a). Belated claim of deduction of provision for bad debt u/s 36(1)(vii)(a) - whether will disentitle the assessee from getting interest on refund upto the date of making claim - Held that - In this case assessment was taken up in the usual course and before completion of assessment, assessee made the claim which was considered and rejected by the AO. However, in appeal the claim was allowed and based on CIT(A) s order the AO granted refund. No material to hold that the delay in establishing the claim with documents that led to refund is attributable to the assessee and so much so this is not a case covered by sub-s. (2) of the Act. We, therefore, hold that belated claim of deduction made on 10th Jan., 2001 by the assessee will not justify denial of interest otherwise eligible under s. 244A(l)(a) from 1st April, 1999 to 10th Jan., 2001.

Summary

Issues:
1. Entitlement to collect interest under s. 234D of the IT Act.
2. Entitlement to interest under s. 244A of the IT Act on the refund paid to the assessee.

Analysis:
1. The first issue pertains to the entitlement of the Department to collect interest under s. 234D of the IT Act. The judgment refers to a previous decision in CIT vs. Kerala Chemicals and Proteins Ltd., establishing that interest is payable only from the date of the provision's introduction on 1st June 2003.

2. The second issue revolves around the date from which the assessee is entitled to interest under s. 244A of the IT Act on the refund received. The dispute arose from the AO's denial of interest due to an additional claim for deduction of provision for bad debt. The CIT(A) limited the interest from 10th Jan., 2001, as the claim for deduction was made at that time. However, the Tribunal ruled in favor of the assessee, granting interest from 1st April, 1999 onwards. The judgment delves into the interpretation of s. 244A and the implications of delayed proceedings attributable to the assessee.

3. The court heard arguments from both the standing counsel for the appellant and the advocate for the respondent.

4. The judgment scrutinizes the statutory provisions to determine if the Department can restrict interest from the date of the deduction claim leading to the refund. The court extracts s. 244A(1) of the Act to analyze the calculation of interest on refunds due to the assessee.

5. The analysis continues by exploring the implications of sub-s. (2) of s. 244A, which states that the assessee is not entitled to interest for delays attributable to them in the refund proceedings. The court clarifies the conditions under which the assessee may be denied interest under this provision.

6. Further discussion on sub-s. (2) of s. 244A highlights that if the delay in refund proceedings is due to the assessee, interest may be denied for that period. The judgment emphasizes the necessity for a decision by the CIT or Chief CIT on the delay issue to justify withholding interest.

7. The judgment addresses the contention that a belated claim for deduction of bad debt provision should disentitle the assessee from receiving interest on the refund. It clarifies that delays attributable to the assessee in the assessment process, leading to the refund, are the only grounds for denying interest. The court upholds the Tribunal's decision on the entitlement to interest from 1st April, 1999, to the date of refund.

8. A lacuna in the statute is identified concerning situations like the one in this case. The judgment suggests that interest on the excess refund should be limited to the amount claimed in the original return, absent specific provisions in s. 244A. The assessee's entitlement to interest on the excess tax refunded is upheld, subject to the limitations outlined in the Act.

In conclusion, the income-tax appeal is partly allowed and partly dismissed based on the detailed analysis of the issues surrounding the entitlement to interest under the relevant sections of the IT Act.