2016 (8) TMI 688 - AT - Income Tax

Interest u/s 244A - granting lesser amount of interest u/s 244A by the AO while computing refund arising as a result of passing impugned order for giving effect to CIT(A) s order - Held that - Where the amount of tax demanded is paid by the assessee then it shall first be adjusted towards interest payable and balance if any whatever tax payable. Now, if we go through section 244A, we find that no specific provision has been brought on the statute with respect to adjustment of refund issued earlier for computing the amount of interest payable by the revenue to the assessee on the amount of refund due to the assessee. Thus, the law is silent on this issue. Under these circumstances, fairness and justice remands that same principle should be applied while granting the refund as has been applied while collecting amount of tax. The revenue is not expected to follow double standards while dealing with the tax payers. The fundamental principle of fiscal legislation in any civilized society should be that the state should treat its citizens (i.e. tax payers in this case) with the same respect, honesty and fairness as it expects from its citizens.It is further noted by us that assessee is not asking for payment for interest on interest. It is simply requesting for proper method of adjustment of refund and for following the same method which was followed by the department while making collection of taxes. Whatever money has been received by the department, it ought to be refunded ex aequo et bono. It is a Latin phrase which means what is just and fair or according to equity and good conscience . Something to be decided ex aequo et bono is something that is to be decided by principles of what is fair and just. A decision-maker who is authorized to decide ex aequo et bono is not bound by legal rules but may take account of what is just and fair. Thus, if we decide the issue before us ex aequo et bono, then it would be decided by the principles of what is fair and just and not necessarily as per strict rule of law. Thus, since the statute itself has already prescribed a particular method of adjustment in explanation to section 140A(1), then justice, fairness, equity and good conscience demands that same method should be followed while making adjustment for refund of taxes, especially when no contrary provision has been provided. Under these circumstances and aforesaid discussion, we find that the judicial proprietary demands that order of the Tribunal of earlier years must be followed and therefore we direct the AO to re-compute the amount of interest u/s 244A by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component. Thus, with these directions, the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Granting of interest under Section 244A on the interest due to the appellant.
2. Method of adjustment of refunds by the Assessing Officer (AO).

Detailed Analysis:

Issue 1: Granting of Interest under Section 244A
The primary issue in this case revolves around the correct computation of interest under Section 244A of the Income Tax Act. The appellant contended that the AO granted a lesser amount of interest (?64,53,58,824) than what was due (?65,73,42,440). The appellant argued that the AO should have adjusted the refund first against the interest due and then against the principal tax amount, citing the Supreme Court's decision in CIT v. HEG Ltd (324 ITR 331) and the Delhi High Court's decision in India Trade Promotion Organisation vs. CIT (361 ITR 646). The AO, however, adjusted the refund first against the principal tax amount, which led to a discrepancy in the interest calculation.

Issue 2: Method of Adjustment of Refunds
The appellant argued that the method used by the AO for adjusting refunds was incorrect. The AO assumed that the balance to be refunded was always the interest portion, which is contrary to the department's method of first adjusting payments towards interest when charging interest from assessees. The appellant cited the decision of the ITAT in their own case (ITA No. 571,574/Mum/2013) and argued that the CIT(A) erred in distinguishing this decision based on the Supreme Court's ruling in Gujarat Fluoro Ltd (358 ITR 291), which was not applicable to the facts of the appellant's case.

Tribunal's Findings:

On Granting of Interest under Section 244A:
The Tribunal noted that the issue was whether the refund should be adjusted first against the interest component and then the principal tax amount or vice versa. The Tribunal referred to its earlier decisions in the appellant's own case and the Delhi High Court's ruling in India Trade Promotion Organisation vs. CIT, which supported the appellant's contention. The Tribunal emphasized that the interest component should be considered part of the "amount due" under Section 244A, as held by the Supreme Court in CIT v. HEG Ltd.

On Method of Adjustment of Refunds:
The Tribunal observed that the CIT(A) did not follow the Tribunal's earlier orders due to the Supreme Court's decision in Gujarat Fluoro Chemicals, which stated that no interest could be granted on the amount of interest. However, the Tribunal clarified that the appellant was not seeking interest on interest but rather the correct method of adjusting refunds. The Tribunal highlighted that fairness and justice demand the same principle be applied while granting refunds as is applied while collecting taxes, as per the explanation to Section 140A(1).

Conclusion:
The Tribunal concluded that the CIT(A) erred in not following the Tribunal's earlier decisions and the Delhi High Court's ruling. The Tribunal directed the AO to re-compute the interest under Section 244A by first adjusting the amount of refund already granted towards the interest component and then the balance towards the tax component. The appeal filed by the assessee was allowed, and the Tribunal emphasized the need for fairness, equity, and good conscience in the adjustment of refunds.