2016 (8) TMI 165 - HC - Income Tax

Interest under Section 244A on principal claim of refund of tax - Held that - Sub-section (2) of section 244A provides that the assessee shall not be entitled to interest for the period of delay in issuing the proceedings leading to the refund that is attributable to the assessee. In other words, if the issue of the refund order is delayed for any period attributable to the assessee, then the assessee shall not be entitled to interest for such period. This is of course an exception to clauses (a) and (b) of section 244A(1) of the Act. In other words, if the issue of the proceedings, that is, refund order, is delayed for any period attributable to the assessee, then the assessee is not entitled to interest of such period. Further, what is clear from sub-section (2) is that, if the officer feels that delay in refund for any period is attributable to the assessee, the matter should be referred to the Commissioner or Chief Commissioner or any other notified person for deciding the issue and ordering exclusion of such periods for the purpose of granting interest to the assessee under section 244A(1) of the Act. In this case, there was no decision by the Commissioner or Chief Commissioner on this issue and so much so, we do not think the Assessing Officer made out the case of delay in refund for any period attributable to the assessee disentitling for interest. So much so, in our view, the officer has no escape from granting interest to the assessee in terms of section 244A(1)(a) of the Act

Summary

Issues Involved:
1. Authority of the Commissioner to pass an order advising the Assessing Officer to withdraw interest.
2. Examination of the issue in rectification proceedings.
3. Merits of the revenue authorities' decision to withhold interest on refund under Section 244A(2) of the Income Tax Act, 1961.

Analysis of Judgment:

1. Authority of the Commissioner:
The petitioner argued that the Commissioner lacked the authority to pass the order advising the Assessing Officer to withdraw interest, as such a reference in rectification proceedings would not be maintainable. The court, however, found no error in the Commissioner’s authority. It stated that sub-section (2) of Section 244A does not limit the scope of reference to original proceedings only. Thus, the Assessing Officer was correct in making the reference to the Commissioner, who was competent to decide the question.

2. Examination in Rectification Proceedings:
The petitioner contended that the issue could not be examined in rectification proceedings since no error apparent on the records was committed by the Assessing Officer. The court agreed with this argument, emphasizing that the power of rectification under Section 154 of the Act is limited to correcting errors apparent on the record and cannot be equated with the power of review. Detailed consideration and examination of facts and law are beyond the scope of rectification proceedings. Therefore, the court held that the issue could not have been examined in the rectification application.

3. Merits of Withholding Interest on Refund:
The petitioner argued that the revenue authorities committed a serious error on merits. Interest on refund can be withheld under sub-section (2) of Section 244A only if the assessee is responsible for causing any delay in the proceedings resulting in the refund. The court found that the act of revising a return or raising a claim during the assessment proceedings cannot be considered as delaying the proceedings attributable to the assessee. The court noted that the Commissioner (Appeals) merely recognized a legal position whereby the assessee was entitled to claim certain benefits of reduced tax, and this did not imply any delay caused by the assessee.

The court further referenced the Kerala High Court’s decision in Commissioner of Income-Tax V/s. South Indian Bank Ltd., which held that if the issue of the refund order is delayed for any period attributable to the assessee, then the assessee is not entitled to interest for such period. However, in the present case, there was no foundation to show that the assessee had needlessly or frivolously delayed the assessment proceedings.

Conclusion:
The court quashed the impugned orders dated 18.2.2016 and 16.3.2016 passed by the Commissioner of Income-Tax and the Assessing Officer respectively, along with the demand notice dated 16.3.2016. The petitions were disposed of accordingly.