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2024 (4) TMI 258 - AT - Income TaxAdjustment of part income-tax refund received by the assessee against the total outstanding refund, comprising of principal/ tax and interest - quantum of interest to which the assessee would be entitled u/s 244A - with the assessee contending that the refund be adjusted first against the interest component outstanding and then against the principal/tax, while the Department s contention was to the contrary - Interest to be allowed on all outstanding after adjustment of part refund - HELD THAT - As decided in UNION BANK OF INDIA 2016 (8) TMI 688 - ITAT MUMBAI as relying on INDIA TRADE PROMOTION ORGANISATION 2013 (9) TMI 451 - DELHI HIGH COURT there is no provision in law for manner of adjustment of part refund granted. And taking into account the provisions of section 140A of the Act requiring self-assessment tax paid short by the assessee to be first adjusted against interest outstanding and then against tax, and also the provisions of section 220 of the Act charging interest on the portion of outstanding demand of tax including interest, the hon ble court held that the same principle would follow if Revenue defaults in full payment of refund. Since section 244A of the Act debars payment of interest on interest refund, it held that part refund needs to be adjusted against interest first otherwise the assessing Officer/ Revenue would refund the principal amount and not pay the interest component u/s 244A for an unlimited period with impunity and without any sanction which would tantamount to allowing a premium on non-compliance with the law. Since the issue has been so decided in favour of the assessee by the Hon ble Delhi High Court and no other contrary decision of either the jurisdictional High Court or the Hon ble apex court has been brought to our notice, we have no hesitation in allowing the assesses appeal directing interest to be allowed on all outstanding after adjustment of part refund. First contention of the DR is that interest being in the nature of compensation for amount outstanding and not paid, whatever is once paid , there is no question of any interest being payable thereon - DR, we find, has simplified the issue to an extent which is not acceptable. It is not so black and white as stated by the ld. DR from what we understand of her submissions. According to ld. DR, whatever is refunded is towards the principal, and there is no question, therefore, of paying any interest on the amount refunded; but that exactly is the controversy before us, i.e. whether the amount refunded should go to be adjusted first the principal and then the interest or vice-a-versa. Therefore, this contention of the ld. DR, we find, is of no consequence and is dismissed. DR secondly contented that the provisions of Indian Contract Act be applied, according to which, as per her submissions, where neither the debtor who has the first right, nor the creditor who has the second right of intimation of usage of the refund, exercise this right, then the amount refunded is to be appropriated proportionately between the principal and interest - This contention also merits no consideration since as observed by the Hon ble Delhi High court in the case of India Trade Promotion (supra) it would result in the Revenue enjoying a premium for its non-compliance since it is not required to pay interest on interest and apportioning any amount of part refund to tax refund outstanding will be to the unjust benefit of the Revenue. Therefore, in all fairness, equity and good conscience, as held by the ITAT Mumabi Bench in the case of Union Bank of India Vs. ACIT (supra), the part refund should first go to be adjusted against the interest component and then against the principal component. The provisions of Indian Contract Act, as pointed out by the ld. DR, cannot be applied in the present situation considering the situation existing in the present case that the assessee is not entitled to interest on interest. No hesitation in acceding to the plea of the assessee that the refund granted to it be first adjusted against the interest component of the refund outstanding and thereafter against the principal component - Decided in favour of assessee.
Issues Involved:
1. Adjustment of income-tax refund against outstanding demand. 2. Entitlement to interest u/s 244A of the Income-tax Act, 1961. Summary: Issue 1: Adjustment of Income-Tax Refund Against Outstanding Demand The solitary issue in both appeals relates to the adjustment of part income-tax refund received by the assessee against the total outstanding refund, comprising of principal/tax and interest. The assessee contends that the refund should be adjusted first against the interest component outstanding and then against the principal/tax. The Department's contention is the opposite. The assessee argues that this method would result in a larger principal component remaining, thus increasing the entitlement to interest u/s 244A of the Act. AY 1993-94:The Assessing Officer's order on 01.05.2019 assessed the income at Rs. 2,93,61,076/-, resulting in a refund of Rs. 6,28,89,345/- to the assessee. The calculation included a tax refund of Rs. 4,60,52,921/- and interest thereon Rs. 2,02,83,300/-. The assessee disputes the adjustment of demands of various assessment years, which should be adjusted against the interest refund entirely. The assessee claims a total refund of Rs. 8,96,87,702/- and further interest on the shortfall, totaling Rs. 9,65,21,283/-. AY 1998-99:For AY 1998-99, the income was assessed at Rs. 72,22,89,780/- on 30.05.2016. The High Court granted relief on 11.10.2017, reducing the income to Rs. 46,41,25,441/-. The assessee filed a writ petition for the refund, which the High Court allowed on 20.02.2023, directing the Revenue to issue a refund of Rs. 17,15,34,707/- plus interest. The CIT(A) dismissed the assessee's plea of adjustment of refund first against interest and then against the principal. The Assessing Officer issued a refund of Rs. 21,80,45,001/- on 10.03.2023, which the assessee does not contest but fears reduction due to the CIT(A)'s order. Issue 2: Entitlement to Interest u/s 244A of the Income-Tax Act, 1961The ITAT noted that the issue has been repeatedly settled in favor of the assessee by various decisions, including the ITAT Mumbai Bench in Union Bank of India Vs. ACIT and other cases. The ITAT held that the refund should first be adjusted against the interest component, following the principle laid down by the Hon'ble Delhi High Court in India Trade Promotion Organisation Vs Commissioner of Income Tax (2014) 361 ITR 646(Delhi). This principle ensures that the Revenue does not benefit from non-compliance by avoiding interest on interest payments. The ITAT dismissed the Department's contention that adjusting the refund first against interest would result in interest on interest, which is not allowable u/s 244A(1) of the Act. The ITAT also rejected the application of the Indian Contract Act provisions, as it would unjustly benefit the Revenue. In conclusion, the ITAT directed that the refund granted to the assessee be first adjusted against the interest component of the refund outstanding and thereafter against the principal component. Both appeals of the assessee were allowed. Order pronounced in the Court on 3rd April, 2024 at Ahmedabad.
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