2015 (3) TMI 646 - AT - Income Tax

Computation of interest u/s.244A - AO did not allow interest on interest - CIT(A) confirmed the action of the AO - Held that - When the refund of tax becomes payable as a result of orders passed in appeal or other proceedings under the Act, this refund is to be given along with interest, which is to be calculated as per sec. 244 of the Act. If that interest is paid along with the excess tax, no further payment is to be made. It is only when the excess amount of tax is refunded but the interest is not refunded along therewith, the retention of interest amount would become unjustified and interest on interest would also become payable. The reason is simple. It is the tax which was paid in excess by the assessee which became refundable. The assessee would be compensated by paying interest thereupon. It is only when the interest is not refunded along with excess tax that the withholding of the said interest becomes unjustified and it becomes an amount due to the assessee on which the assessee can claim further interest. Such a situation has not happened in the present case as the amount of interest is calculated and refunded along with the refundable tax amount. The Hon ble Supreme Court has made adverse remarks about the decision of Sandvik Asia Ltd. 2006 (1) TMI 55 - SUPREME Court in the decision of Gujarat Fluoro Chemicals 2012 (8) TMI 740 - SUPREME COURT , wherein held that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest. Therefore, following Gujarat Floura Chemicals and the decision of Hon ble Delhi High Court in case of The Motor & General Finance Ltd. vs. CIT 2009 (10) TMI 51 - DELHI HIGH COURT , the stand of the AO is upheld and the grounds of appeal of the appellant are dismissed.

Summary

Issues Involved:
1. Computation of interest under section 244A of the Income Tax Act.
2. Entitlement to interest on interest for the refund due.

Detailed Analysis:

Computation of Interest under Section 244A:
The primary issue in this appeal is the computation of interest under section 244A of the Income Tax Act. The assessee company received a refund determined by an order giving effect to the ITAT's order dated 11-10-2010. While calculating the interest under section 244A, the Assessing Officer (AO) did not allow interest on the interest portion of the refund issued earlier, leading to a discrepancy in the interest amount calculated by the AO and the amount claimed by the assessee.

The CIT(A) confirmed the AO's action, noting that the issue was factual and required comments from the AO. The AO's remand report highlighted that the assessee was seeking additional interest based on the Supreme Court's decision in Sandvik Asia Limited vs. CIT, which directed compensation in the form of interest for inordinate delay in paying interest on advance tax. However, the AO argued that the decision in Sandvik Asia was not applicable due to subsequent Supreme Court observations in the case of CIT vs. Gujarat Flouro Chemicals, which doubted the correctness of the Sandvik Asia judgment.

Entitlement to Interest on Interest:
The assessee contended that interest on interest should be allowed based on the Sandvik Asia judgment. However, the CIT(A) and the AO referenced the Supreme Court's decision in Gujarat Flouro Chemicals, which clarified that the Sandvik Asia judgment was not correctly decided. The CIT(A) emphasized that the provisions of section 244A, applicable from AY 1989 onwards, did not support the claim for interest on interest. Furthermore, the CIT(A) noted that the Sandvik Asia case dealt with provisions applicable to earlier assessment years and involved compensation for an inordinate delay, which was not analogous to the present case.

The CIT(A) also referenced the Delhi High Court's decision in The Motor & General Finance Ltd. vs. CIT, which held that interest on interest is not payable if the refund along with interest is paid within the statutory period. The CIT(A) concluded that the AO had correctly allowed interest under section 244A and dismissed the assessee's appeal.

Conclusion:
The tribunal upheld the CIT(A)'s decision, agreeing that the AO had correctly computed the interest under section 244A. The tribunal noted that the Sandvik Asia judgment was doubted by the Supreme Court in Gujarat Flouro Chemicals and that the facts of the present case did not warrant the application of the Sandvik Asia ruling. The appeal was dismissed, and the order was pronounced in the open court on 11th March 2015.