2015 (6) TMI 142 - HC - Income Tax

Interest on Refund - Unexplained inordinate delay in payment of interest within the statutory period by the department - Held that - It is apparent that the assessee became entitled to payment of interest at least for the pre-assessment period from the date his appeal by CIT was allowed and the liability was reduced to 3,15,415/- only. This payment of interest has been denied to the assessee without any justifiable cause even after expiry of 9 years from the date interest was payable. Similarly, we find that for the post-assessment period, the assessee should have been paid interest on the sum of ₹ 37 lacs refunded to him on 2.2.2007 from the date of the appellate order till the date of money was so returned. It has taken nearly 8 years for the department to make the payment of the interest and that too on wrong calculation. Thus the department was legally not justified in retention of the amount of interest which was payable to the assessee both under Section 132B (4) as well as under Section 243 / 244A for the period of nearly 9 and 8 years respectively. Thus the case of the assessee falls within the category of cases where there has been inordinate delay on the part of the department to pay the statutory interest, therefore, the assessee is entitled to be compensated for such wrongful retention of the money by the department. The assessee is entitled to be compensated at the same rates i.e. 9% as was provided for by the Apex Court in the case of Sandvik Asia Ltd (2006 (1) TMI 55 - SUPREME Court). - Decided in favour of assesse.

Summary

Issues Involved:
1. Entitlement to interest for the pre-assessment period under Section 132B(4)(b) of the Income Tax Act.
2. Entitlement to interest for the post-assessment period under Section 243/244A of the Income Tax Act.
3. Compensation for inordinate delay in payment of interest by the department.

Detailed Analysis:

1. Entitlement to Interest for the Pre-Assessment Period:
The primary issue was whether the assessee was entitled to interest on the sum of Rs. 37 lacs for the pre-assessment period under Section 132B(4)(b) of the Income Tax Act. The court noted that the total cash seized was Rs. 77 lacs, and after the block assessment, there was a surplus of Rs. 37 lacs in favor of the assessee. The court referred to the Apex Court's decision in Chironji Lal Sharma HUF Vs. Union of India, which clarified that Section 132B(4)(b) deals with the pre-assessment period in matters of search and seizure. The court held that the assessee is entitled to interest on the Rs. 37 lacs from the date of expiry of 120 days from the date of seizure until the date of assessment, in accordance with Section 132B(4)(b).

2. Entitlement to Interest for the Post-Assessment Period:
The second issue was whether the assessee was entitled to interest for the post-assessment period under Sections 243/244A of the Income Tax Act. The court found that the authorities had ignored the applicable rates of interest over time and had instead paid a flat rate of 0.5% per month. The court referred to the Division Bench judgments in Vijay Prakash Agarwal and Prayag Udyog P. Ltd. Vs. Union of India, which established that interest should be paid at the rates applicable from time to time from the date the money became refundable until the actual refund. The court directed the authorities to re-quantify the interest due and make the payment within four weeks.

3. Compensation for Inordinate Delay in Payment of Interest:
The final issue was whether the assessee was entitled to compensation for the delay in payment of interest. The court referred to the Apex Court's judgment in Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune, which held that compensation is warranted for inordinate delays in payment of statutory interest. The court also cited the subsequent clarification in Commissioner of Income Tax Vs. Gujarat Flouro Chemicals, which stated that compensation is due for the delay, not interest on interest. The court found that the department had unjustifiably delayed the payment of interest for nearly 9 and 8 years for the pre-assessment and post-assessment periods, respectively. The court held that the assessee is entitled to compensation at the rate of 9% per annum, as provided in Sandvik Asia Ltd.

Conclusion:
The court quashed the impugned orders dated 31.5.2007 and directed the authorities to re-quantify and pay the interest and compensation within four weeks. The writ petition was allowed, and the court exercised its jurisdiction under Article 226 of the Constitution of India, finding it a fit case not to relegate the petitioner to alternative remedies.