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2025 (4) TMI 1083 - AT - Income TaxDisallowing compensation for the inordinate delay in payment of interest on refund - HELD THAT - CIT(A) has dismissed the appeal holding that Section 244A of the Act entitles assessee to receive simple interest on the refund due but does not provide for compensation for any delay in payment of such interest. AR has relied on various case laws. However we find that none of these case laws are relevant to present case. In the case of CIT vs. H.E.G. Ltd 2009 (12) TMI 35 - SUPREME COURT has only answered the meaning of the words refund of any amount becomes due to the assessee in Section 244A of the Act. The case of Sandvik 2006 (1) TMI 55 - SUPREME COURT prior to insertion of section 244A for granting interest on refunds when there was no provision for granting interest for delayed payment of refund. Appeal filed by the assessee is dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal question considered in this appeal is whether the assessee is entitled to compensation for the inordinate delay in payment of interest on the income tax refund under the provisions of the Income Tax Act, specifically in light of Section 244A of the Act. The appeal challenges the order of the Commissioner of Income Tax (Appeals) who allowed interest on delayed refund but denied compensation for delay in payment of such interest. Thus, the principal issue is:
2. ISSUE-WISE DETAILED ANALYSIS Issue: Entitlement to compensation for delay in payment of interest on income tax refund Relevant legal framework and precedents: The statutory provision central to this issue is Section 244A of the Income Tax Act, which mandates the payment of simple interest on refunds due to the assessee. This provision was introduced by the Direct Tax Laws (Amendment) Act, 1987, effective from 1 April 1989. The section entitles the assessee to interest on delayed refunds but does not explicitly provide for compensation for delay in payment of such interest. The assessee relied on several case laws including Commissioner of Income-Tax v. H.E.G. Ltd., Sandvik Asia Ltd. v. CIT, Commissioner of Income-Tax v. Gujarat Fluoro Chemicals, Motor and General Finance Ltd. v. CIT, Commissioner of Income-Tax v. Upasana Finance Ltd., and Umang Agrawal v. Commissioner of Income Tax. However, the Tribunal critically examined the applicability of these precedents to the present facts. Court's interpretation and reasoning: The Tribunal noted that the case of Commissioner of Income-Tax v. H.E.G. Ltd. dealt with the interpretation of the phrase "refund of any amount becomes due to the assessee" under Section 244A and did not address compensation for delay in payment of interest. Similarly, Sandvik Asia Ltd. v. CIT pertained to assessment years prior to the insertion of Section 244A, when no provision for interest on delayed refunds existed, and thus is not relevant to the current statutory regime. In Commissioner of Income-Tax v. Gujarat Fluoro Chemicals, the Supreme Court clarified that only the interest provided under the statute (Section 244A) may be claimed by an assessee and explicitly disallowed any claim for interest on such statutory interest or any compensation beyond the statutory interest. The Tribunal relied heavily on this authoritative pronouncement to conclude that the Income Tax Act does not contemplate compensation for delay in payment of interest on refunds. Key evidence and findings: The facts reveal that the assessee filed returns declaring income and subsequently filed rectification petitions resulting in refunds. The refund amounts were paid after significant delay, and interest was granted under Section 244A. The assessee sought additional compensation for the delay in payment of this interest, which was denied by the CIT(A) and is under challenge before the Tribunal. Application of law to facts: The Tribunal applied the legal principle as clarified by the Supreme Court that the statutory interest under Section 244A is the sole remedy available to the assessee for delayed refunds. Since the Act does not provide for compensation for delay in payment of such interest, the claim for compensation is not maintainable. The Tribunal found no provision or precedent supporting the claim for compensation beyond the statutory interest. Treatment of competing arguments: The assessee argued that the delay was inordinate and thus warranted compensation, relying on various case laws. The Department contended that the Act contains no provision for compensation and supported the CIT(A)'s order. The Tribunal carefully distinguished the cited case laws, finding them either factually or legally inapplicable. It upheld the Department's position based on the statutory scheme and Supreme Court rulings. Conclusions: The Tribunal concluded that the statutory framework under Section 244A allows for payment of simple interest on delayed refunds but does not authorize any compensation for delay in payment of such interest. Accordingly, the appeal for compensation was dismissed. 3. SIGNIFICANT HOLDINGS The Tribunal preserved the following crucial legal reasoning verbatim from the CIT(A)'s order:
The Tribunal further cited the Supreme Court's observation in Commissioner of Income-Tax v. Gujarat Fluoro Chemicals:
Core principles established include:
Final determination on the issue was that the assessee is not entitled to compensation for delay in payment of interest on refunds, and the appeal on this ground was dismissed.
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