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2015 (3) TMI 110 - HC - Income TaxEntitlement to interest under Section 244A on refund - excess self-assessment tax paid under Section 140A - Held that - There cannot be a general rule that whenever a refund of income tax paid in excess is to be made the Revenue must necessarily pay interest on the refunded amount. The letter and spirit of the law on the subject is that the party which committed the error in proper calculation (or delay in proper assessment) must bear the burden. If the excess amount is paid due to erroneous assessment by the Revenue having exacted such burden wrongfully and inequitably on the assessee and having retained the excess amount thus received the reimbursement must be accompanied by payment of interest at the statutorily prescribed rate. Conversely if the assessee is to blamed for the miscalculation (or for delay or for that matter want of claim of refund) the Revenue does not owe any interest even if the excess payment of tax is liable to be refunded. In absence of explanation as to how the assessee erred in calculation of self-assessment tax there being no allegation that such excess deposit was pursuant to demand by the Revenue the claim for interest on excess payment voluntarily made cannot be sustained. In the result the appeal is allowed and the impugned order passed by ITAT directing the AO to pay interest to the assessee on the refunded amount is set aside. - Decided in favour of revenue.
Issues Involved:
1. Entitlement to interest under Section 244A on excess self-assessment tax paid. 2. Deletion of the amount added by the AO under Section 14A read with Rule 8D. Issue 1: Entitlement to Interest under Section 244A on Excess Self-Assessment Tax Paid Background: The assessee, a Government of India undertaking, filed a return for AY 2006-2007 and paid self-assessment tax. The AO disallowed a portion of the claimed dividend income as exempt under Section 10(33) and added Rs. 69,00,000/- under Section 14A read with Rule 8D. The CIT (Appeals) restricted this disallowance to Rs. 25,000/- and upheld the assessee's entitlement to interest on the excess self-assessment tax paid under Section 244A. Contentions: - The Revenue argued that the assessee did not raise the issue of interest before the AO and that the refund amount was less than 10% of the total tax, thus not qualifying for interest under Section 244A(1)(a). - The assessee contended that interest on excess self-assessment tax is admissible under Section 244A(1)(b), which does not have the 10% restriction. Legal Analysis: Section 244A: - Clause (a): Interest is payable on refunds from tax paid under specific sections if the refund exceeds 10% of the tax determined. - Clause (b): Interest is payable in other cases, calculated from the date of payment of tax to the date of refund. Judicial Precedents: - Madras High Court in CIT v. Cholamandalam Investment & Finance Co. Ltd.: Interest is payable on excess self-assessment tax. - Delhi High Court in Commissioner of Income Tax v. Sutlej Industries Ltd.: Self-assessment tax falls within "refund of any amount," thus interest is payable. - Supreme Court in Sandvik Asia Limited: Compensation for delay in refund includes interest on sums wrongfully retained. - Supreme Court in Gujarat Fluoro Chemicals: Clarified that only statutory interest is payable, not interest on interest. Court's Conclusion: - The court concluded that the liability of the Revenue to pay interest on refunds is limited to statutory provisions. - Clause (b) of Section 244A applies to self-assessment tax, but interest is payable only if the excess payment was made pursuant to a demand notice under Section 156. - The court found that the assessee's excess payment was voluntary and not due to a demand notice, thus not qualifying for interest under Section 244A(1)(b). Judgment: The appeal was allowed in favor of the Revenue. The ITAT's order directing the AO to pay interest on the refunded amount was set aside. Issue 2: Deletion of the Amount Added by the AO under Section 14A Read with Rule 8D Background: The AO added Rs. 69,00,000/- under Section 14A read with Rule 8D, which was restricted to Rs. 25,000/- by the CIT (Appeals). The Revenue's appeal on this issue was not entertained as it was covered by the ruling in Maxopp Investment Ltd. v. CIT. Judgment: The court did not entertain the appeal on this issue, adhering to the precedent set in Maxopp Investment Ltd. v. CIT. Final Decision: The substantial question of law was answered in favor of the Revenue. The appeal was allowed, and the ITAT's order was set aside.
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