2024 (9) TMI 855 - AT - Income Tax

Grant of interest u/s 244A - additional interest claimed by the assessee for the delayed refund - assessee argued that the AO had incorrectly calculated the interest due on the refund and AO should have first adjusted the refund against the interest component and then against the tax component, as per the principles of equity and fairness. Whether the assessee is entitled to additional interest under section 244A(1A) and whether the AO correctly adjusted the refund against the interest component? HELD THAT - In the present case, the order giving effect to the CIT(A)'s order was passed on 04.05.2016, and the refund was granted on 05.07.2017. Therefore, the provisions of section 244A(1A) are applicable to the period from 01.06.2016 to 05.07.2017. The decision in Tata Sons Pvt. Ltd. 2023 (12) TMI 875 - ITAT MUMBAI is directly applicable to this case. Tribunal held that the refund should be first adjusted against the interest component. While holding so the Tribunal emphasised that when an assessee pays a tax demand, the amount is first adjusted towards any interest due, and only the remaining balance, if any, is applied towards the tax payable. It also stated that there is no specific provision in Section 244A regarding the adjustment of a previously issued refund for calculating the interest owed by the revenue to the assessee on the refund due. Since the law is silent on this issue, the tribunal opined that fairness requires applying the same principles to refunds as are applied when collecting taxes. The assessee is not asking for interest on interest but merely for a fair method of adjusting refunds. This tribunal in the case of Nirma Ltd. 2024 (4) TMI 258 - ITAT AHMEDABAD also ruled in favour of the assessee emphasizing the need for consistent and fair treatment by the revenue in tax matters, particularly concerning the adjustment and calculation of interest on refunds. We direct the AO to re-compute the interest under section 244A of the Act by first adjusting the refund against the interest component and thereafter against the tax component. The AO is also directed to grant additional interest u/s 244A(1A) of the Act for the period from 01.06.2016 to 05.07.2017 - AO is directed to re-compute the interest and refund due to the assessee - Appeal filed by the assessee is partly allowed.

Summary

Issues:
Grant of interest under section 244A of the Income Tax Act for delayed refund and adjustment of refund against interest component before tax component.

Analysis:
The appeal concerned the order of the Commissioner of Income Tax (Appeals) against the order passed by the Assistant Commissioner of Income Tax for the assessment year 1992-93. The primary issue was the grant of interest under section 244A of the Act, specifically regarding additional interest claimed by the assessee for delayed refund. The assessee filed rectification applications seeking compensation for delayed refund, which were rejected by the authorities citing no provision for such compensation under the Act.

The assessee contended that the refund should first be adjusted against the interest component before the tax component, based on principles of equity and fairness. The chronology of events leading to the appeal showed multiple rectification applications and orders passed over the years regarding the refund and interest payments. The AR argued that the provisions of section 244A(1A) applied to the case and relied on relevant case laws to support the claim for additional interest.

The Departmental Representative argued that the AO had correctly calculated the interest and that there was no provision for additional compensation. The Department contended that section 244A(1A) does not apply retrospectively. The CIT(A) had concluded that the provisions did not apply to the appellant's case due to the timing of the order giving effect to the earlier order.

The Tribunal held that the assessee was entitled to additional interest under section 244A(1A) for the period in question and directed the AO to re-compute the interest by adjusting the refund against the interest component before the tax component. The Tribunal emphasized the need for fair treatment by the revenue in tax matters and criticized potential double standards in refund adjustments. The decision was based on the principles of fairness and consistency in granting interest on delayed refunds.

In conclusion, the Tribunal partly allowed the appeal, directing the AO to re-compute the interest and refund due to the assessee in accordance with the directions provided, including granting additional interest under section 244A(1A) for the relevant period.