2015 (10) TMI 1079 - AT - Income Tax

Entitlement to interest on refund - Held that - There is no substance in the argument of the Revenue that the delay n the refund was caused because of the conduct of the assessees. In fact, the assessee was questioning the proposition of the Revenue to assess the income in the hands of the Main Trusts. That is why the beneficiary trusts have filed their individual returns of income disclosing the benefits received from the main trusts also. But when KVSS was pronounced by the Government of India, it was for the assessees to decide whether to take benefit out of that or not. Therefore, it is only when KVSS was promulgated, the assessee had an occasion to make a move and settle the dispute. So also the proceedings were locked up in different appellate forums. Therefore, there is no merit in the argument of the Revenue that the delay was caused by the conduct of the assessee. Therefore, we also find that the assessing officer has rightly granted interest to the assessees on refunds due to them. Assessee is not entitled to interest on interest - See Hon ble Supreme Court in the case of CIT vs. Gujarat Flouro Chemicals (2013 (10) TMI 117 - SUPREME COURT) - Decided in favour of assessee in part.

Summary

Issues Involved:

1. Entitlement to interest on refund of Rs. 40,442.
2. Entitlement to interest on refund of Rs. 11,138.
3. Eligibility for interest on interest.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Refund of Rs. 40,442:

The assessee, a beneficiary of a specific family trust, filed a return showing an income of Rs. 1,10,335, which was accepted on a protective basis. The main trust settled the dispute under the Kar Vivad Samadhan Scheme (KVSS), leading to the deletion of income in the hands of the assessee and a refund of Rs. 40,442. The assessee sought interest on this refund. The Tribunal noted that the Special Bench and the Hon'ble Gujarat High Court had previously upheld that beneficiaries are entitled to interest on refunds. The Tribunal directed the Revenue to grant interest on the refund, emphasizing that the conduct of the Assessing Officer (AO) was contrary to the decisions of higher judicial forums.

2. Entitlement to Interest on Refund of Rs. 11,138:

Similar to the first issue, the assessee sought interest on an additional refund of Rs. 11,138. The Tribunal reiterated that the issue was covered by the decisions of the Special Bench and the Hon'ble Gujarat High Court, which had established that beneficiaries are entitled to interest on refunds. The Tribunal directed the Revenue to grant interest on this refund as well, aligning with the established legal precedents.

3. Eligibility for Interest on Interest:

The assessee argued that they should also be entitled to interest on the interest due to the delay caused by the Revenue. However, the Tribunal referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Gujarat Flouro Chemicals, which clarified that interest on refunds under section 244A is limited to the interest provided in that section and does not extend to interest on such statutory interest. Consequently, the Tribunal held that the assessee is not entitled to interest on interest.

Conclusion:

The appeals were partly allowed. The Tribunal directed the Revenue to grant interest on the refunds of Rs. 40,442 and Rs. 11,138, following the decisions of the Special Bench and the Hon'ble Gujarat High Court. However, the claim for interest on interest was denied based on the Supreme Court's ruling. The Tribunal also noted the improper conduct of the Revenue in disregarding established judicial decisions and dragging the assessee into unnecessary litigation.