2023 (2) TMI 861 - HC - Income Tax

Delay in paying the audit fee - Petitioner was engaged as an auditor in exercise of the Assessing Officer s (AO) powers u/s 142(2A) - HELD THAT - There is enormous delay in each case in payment of the determined audit fee. The delay is nearly four years in each case. Insofar as the interest is concerned, it is payable if there is statutory enactment i.e., substantive law to that effect, or if trade, usage, custom or practice, which is enforceable in law mandates the grant of interest, or there is an agreement to that effect. The other eventuality where interest is awarded, is in circumstances where the Court, exercising equitable jurisdiction, seeks to preserve the real value of money. This is one such circumstance, given the inordinate delay in remitting the audit fee to the petitioner for no cause. The petitioner is, thus, in our view, entitled to be compensated for delay in payment of money that it could have used, had the money been remitted to it within a reasonable timeframe. Four years and above cannot be construed as a reasonable period. Thus interest ought to be paid to the petitioner at the rate of 7% per annum. Interest will run from the date of determination in each case till the date of payment of audit fee was made.

Summary

Issues: Delay in payment of audit fee, entitlement to interest on delayed payment

Delay in payment of audit fee:
The petitioner raised a central grievance regarding a significant delay in paying the audit fee. It was acknowledged that the audit fee had been paid during the pendency of the writ petitions. The petitioner, engaged as an auditor under the Assessing Officer's powers, conducted audits for three entities. The delays in payment for each entity were substantial, ranging from nearly four years in each case. The petitioner sought interest compensation for the delays in payment.

Entitlement to interest on delayed payment:
The respondents argued that the statute did not grant the petitioner the right to interest despite the delays in payment. On the contrary, the petitioner contended that interest should be granted as compensation for the delays. The petitioner relied on previous judgments to support their claim, including a case involving SC & Associates, Chartered Accountants vs. Union of India and Sandvik Asia Ltd. vs. Commissioner of Income Tax-I, Pune and Others. After hearing arguments from both sides, the court considered the delay in payment of the audit fee and the petitioner's entitlement to compensation for the delay.

The court held that interest should be paid to the petitioner at a rate of 7% per annum. This decision was based on the principle that interest is payable when there is a statutory enactment, trade practice, or an agreement to that effect. Additionally, interest may be awarded to preserve the real value of money in cases of inordinate delay. The court emphasized that a delay of four years or more cannot be deemed reasonable. Therefore, the petitioner was deemed entitled to compensation for the delay in payment of the audit fee. The interest would accrue from the date of determination in each case until the date of payment, and the payment of interest was to be made expeditiously, not later than eight weeks from the receipt of the court's order. The matters were listed for compliance on a specified date.