2017 (11) TMI 1597 - AT - Income Tax

Interest u/s.244A while granting the refund - Held that - 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. Direction for computing interest under Section 244A while granting a refund.

Detailed Analysis:

1. Direction for computing interest under Section 244A while granting a refund:

These are the appeals filed by the Revenue against the order of CIT(A)-5, Mumbai dated 20/08/2015 for A.Y. 1999-2000, 2007-08 & 2000-01 respectively in the matter of order passed by AO to give effect to the order of ITAT.

The only grievance of Revenue relates to the direction given by the CIT(A) for computing the interest u/s.244A while granting the refund.

At the outset, learned AR placed on record the order of the Tribunal in assessee’s own case for the A.Y.2008-09 dated 27/10/2017, wherein exactly similar issue was dealt by the Tribunal.

We have gone through the orders of the authorities below and also the order of the Tribunal dated 27/10/2017. From the record we found that the assessee was in appeal before CIT(A) against the computation of interest while granting interest u/s.244A.

By the impugned order, CIT(A) directed as under:-

(3) The appellant claimed that adjustment of refund granted should be first - adjusted against the interest and thereafter against the tax refund due. In support of its claim, the appellant relied on the decision of the Delhi High Court in the case of India Trade Promotion Organisation vs CIT (361 ITR 646). Following the said order, AO is directed to recompute the refund granted to the appellant accordingly. The AO is directed to compute refund in a manner so that the refund granted should be first adjusted against the interest refund due and balance if any, should be adjusted against the tax refund due. Hence, the ground of appeal is allowed.

The issue under consideration is squarely covered by the order of the Tribunal dated 27/10/2017, wherein the Tribunal observed as under:-

The only issue in this appeal of Revenue is against the order of CIT(A) directing the AO to adjust the refund granted first towards interest and consider the balance against tax amount refundable. According to the Revenue, this will lead to excess amount of interest. For this Revenue has raised following ground: - “2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to adjust the refund granted, first towards interest amount refundable and thereafter consider the balance against tax amount refundable which will lead to excess grant of interest, contrary to the practice followed by the department and the intention of the legislation.”

Briefly stated facts are the original assessment was completed under section 143(3) of the Act vide order dated 26-03-2010 for the relevant AY 2008-09. Subsequently, the assessee moved rectification application dated 10-04-2014 and requested for allowing rebate undersection 88E of the Act and for grant of balance amount of refund. The AO rectified the mistake vide order under section 154 of the Act dated 28-05- 2014 but refund granted to the assessee was not adjusted first against interest and hence, assessee carried the matter before CIT(A), who allowed the claim of the assessee vide Para 6 as under: -

“6. The appellant in his submissions stated that refund granted to the appellant should be first adjusted against the interest refund due and thereafter against the tax refund due. This as on account of the reason that when there tax and interest due from the appellant, the Department always adjusts the payments made first against the interest and thereafter against the tax due. On the same principle, refund granted should also be adjusted. In support of its claim, the applicant relied on the decision of Delhi High Court in the case of India Trade Promotion Organization v/s CIT (361 ITR 646). Following the order of the Delhi High Court, AC is directed to compute part of the refund granted first against the refund due and then tax due. Hence, ground of appeal is allowed.”

Aggrieved, now Revenue is in second appeal before Tribunal.

Before us, the learned Counsel for the assessee stated that the issue is squarely covered in favour of assessee and against Revenue by the decision of Hon'ble Supreme Court in the case of Union of India Vs. Tata Chemicals Ltd. (2014) 363 ITR 658 (SC) and also by Delhi High court decision in the case of India Trade Promotion Organization vs. CIT (2014) 361 ITR 646 (Del.) and the same was followed by the Co-ordinate Bench decision in the case of Union Bank of India Vs. ACIT (2016) 72 taxmann.com 348 (Mumbai-Trib.) wherein it is held that while granting refund in pursuance to appeal effect order, the amount of refund granted earlier should be adjusted first against interest on earlier refund and thereafter balance amount should be adjusted against principal component of tax in refund granted earlier, on which assessee is entitled to get interest under section 244A of the Act. The Tribunal has considered the issue vide paras 3.4 to 3.10 as under:

“3.4 We have gone through the facts of this case and submissions made by both sides, provisions of law as well as judgments placed before us. It is noted that the only issue to be decided by us is that while granting the refund in pursuance to the appeal effect order, whether the amount of refund granted earlier should be adjusted first against the interest component of the earlier refund and thereafter the balance amount should be adjusted against the principal component of tax in the refund granted earlier order OR vice-versa as has been done by the AO. It is noted that this issue is not coming for the first time before the Tribunal as the same has arisen for A.Ys. 1988-89, 2001-02 & 2005-06. Copies of the orders were placed before us and it was contended by the Ld. Counsel that the Tribunal had already decided this issue in favour of the Tribunal therefore, before proceeding further we find it appropriate to first reproduce and discuss the reasoning given by the Tribunal in earlier years. The relevant part of order dated 23.06.2014 is reproduced hereunder for the sake of ready reference:

“4. Undisputedly for A.Y. 1988-89 the assessee is entitled to refund of ? 14.07 crores as per assessment order and interest payable thereon works out to ? 1.58 crores; thus total refund due is ? 15.65 crores. The Assessing Officer granted refund of ? 12.03 crores. The dispute between the Assessing Officer and the assessee is with regard to adjustment of refund; according to the assessee refund should first be adjusted against interest payable and only the balance amount shall be adjusted against tax refundable and in this process the balance refund due would work out to ? 3,52,28.442/- on which the assessee is entitled to interest u/s. 244A of the Act whereas the Assessing Officer calculated the balance refund clue at ? 2,03,99,541/-(tax component) and ? 1,58,28,901/- (interest component). Reason for such calculation was that according to the Assessing Officer no interest is payable on interest due in which event, even if there is substantial delay in interest payable, the assessee can be made to wait unendingly without payment of interest. Though, before the Assessing Officer as well learned CIT (A), the assessee's claim of interest u/s. 244A is not properly focused but sum and substance of the assessee's case before us is that in the event of adjustment of refund against interest due to the assessee tax refund due shall work out to ? 3.62 crores on which the assessee would be entitled to get interest u/s. 244A of the Act. In this regard the assessee relied upon the order of Hon'ble Delhi High Court in the case of India Trade Promotion Organisation v. CIT (361 ITR 646) wherein the Court observed that under Explanation to section 140A(1) of the Act, when an assessee is duty bound to pay the outstanding tax, amount paid by the assessee shall first be adjusted against interest payable and the balance shall be adjusted against tax payable, the same procedure needs to be followed in respect of refund due to the assessee i.e., the amount shall first be adjusted towards interest payable and balance, if any, shall be adjusted towards lax payable (in the instant case tax refundable to the assessee).

Learned counsel, appearing on behalf of the assessee, pleaded accordingly. On the other hand learned Departmental Representative submitted that the assessee is not entitled to interest on interest. However with regard to the plea of the assessee that ii does not amount to payment of interest on interest but only adjustment of the refund from the Revenue against interest component first and thereafter against tax component, in which event u/s. 244A assessee is entitled to interest on the tax component, learned Departmental Representative could not place any decision contrary to the decision of Hon'ble Delhi High Court cited by learned counsel for the assessee.

We have carefully considered the rival submissions. As rightly pointed out by the assessee Hon'ble Delhi High Court rightly explained that the amount refunded by the Revenue has to be adjusted towards interest payable to the assessee and the balance, if any, shall be adjusted towards tax. On this principle there is no contrary decision placed before us, we therefore agree, with the plea of the assessee and direct the Assessing Officer accordingly.”

3.5 From the perusal of the above, it is noted by us that the Tribunal has relied upon the judgment of Hon'ble Delhi High Court in the case of India Trade Promotion Organisation (supra), wherein it was inter-alia held that in a situation where only part amount is refunded by the department, then payment of interest on the balance amount due from the department to the assessee, on a particular date, does not amount to payment of interest on interest. Their lordships, taking support from the judgment of Hon'ble Supreme Court in the case of CIT v. HEG Ltd. [2010] 324 ITR 331/189 Taxman 335, observed as under:

“14. Matter was taken by the Revenue before the Supreme Court in the case of HEG Limited and the SLP was granted and civil appeal was registered. The Supreme Court thereupon answered the question against the Revenue in the following words:-

Therefore, this is not a case where the assessee is claiming compound interest or interest on interest as is sought to be made out in the civil appeals filed by the Department.

The next question which we are required to answer is - what is the meaning of the words “refund of any amount becomes due to the assessee” in Section 244A? In the present case, as stated above, there are two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of ? 45,73,528 and tax paid after original assessment of ? 1,71,00,320. The Department contends that the words “any amount” will not include the interest which accrued to the respondent for not refunding ? 45,73,528 for 57 months. We see no merit in this argument. The interest component will partake of the character of the “amount due” under Section 244A. It becomes an integral part of ? 45,73,528 which is not paid for 57 months after the said