2025 (6) TMI 970 - AT - Income Tax

Non grant of interest u/s 244A - assessee contented that while passing the OGE the assessing officer wrongly calculated interest u/s.244A though the entire TDS credit was given - HELD THAT - The amount of interest u/s.244A is to be calculated by first adjusting the amount of refund already granted towards the interest component and the balance left if any shall be adjusted towards the tax component. We therefore do not support the computation mechanism adopted by the Ld.AO. The assessee at the time of hearing filed a chart showing the computation difference as per the OGE and as per the assessee which is enclosed here with Annexure A. AO is directed to verify the computation of the assessee in the chart having regards to the documents in support and to compute the interest u/s.244A in accordance with law based on the discussion here in above. As consequence of the above computation the additional interest u/s.244A(1A) of the Act will also under go change. AO is directed to compute the interest u/s.244A(1A) of the Act in accordance with law. Grounds raised by the assessee stands allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the Assessing Officer (AO) erred in the method of computing interest under section 244A of the Income-Tax Act, 1961, specifically in adjusting the refund already granted first towards the principal amount rather than the interest component.
• Whether the assessee is entitled to additional interest under section 244A(1A) of the Act for the delay in granting the refund beyond the prescribed time limit under section 153(5) of the Act.
• Whether the AO was justified in restricting the claim of interest to a lower amount than claimed by the assessee, and in not considering additional submissions filed by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Method of Computation of Interest under Section 244A of the Act

Relevant Legal Framework and Precedents: Section 244A of the Income-Tax Act prescribes payment of interest by the Revenue to the assessee on delayed refunds. However, the statute does not explicitly provide a mechanism for adjustment of amounts already refunded in computing the interest payable. The assessee relied on section 140A read with section 220(2) of the Act, which govern adjustment of payments by the assessee towards interest first and then principal tax, to argue for a similar principle to be applied in refund computations.

Coordinate Bench decisions were cited, notably Union Bank of India vs. ACIT (2016) 72 taxmann.com 348, where it was held that fairness and justice demand that the Revenue apply the same principle in refund adjustments as in tax collections: that is, the refund already granted should first be adjusted against the interest component due to the assessee, and any balance thereafter against the principal amount. The Tribunal emphasized the fundamental principle of fiscal legislation that the state must treat taxpayers with fairness and consistency.

Further reliance was placed on the decision in Tata Sons Pvt. Ltd. vs. DCIT (2023) 157 taxmann.com 329, where the Tribunal held that the AO's method of adjusting refund first against principal was incorrect. The Tribunal directed recalculation of interest under section 244A by first adjusting the refund against the interest component and then the tax component.

Court's Interpretation and Reasoning: The Tribunal observed that the statute is silent on the specific sequence of adjustment of refund amounts for interest computation. In absence of explicit statutory guidance, principles of fairness and consistency with other provisions of the Act must govern. The Tribunal rejected the AO's approach of adjusting refund first against principal, which was inconsistent with the treatment of payments under sections 140A and 220(2).

The Tribunal further noted that the assessee was not claiming interest on interest but only the correct method of adjustment. The Tribunal also referred to the principle that the Revenue should not apply double standards in dealing with taxpayers.

Key Evidence and Findings: The assessee submitted a detailed computation chart showing the difference between the AO's method and the correct method as per the Tribunal's precedents. The Tribunal directed the AO to verify these computations with supporting documents and recompute interest accordingly.

Application of Law to Facts: The Tribunal applied the legal principles from the cited precedents and statutory provisions to the facts that the AO had computed interest incorrectly by adjusting refund amounts first against principal. The Tribunal found merit in the assessee's contention and directed recalculation of interest under section 244A in accordance with law.

Treatment of Competing Arguments: The Revenue relied on the orders of the authorities below and contended that the AO's method was correct. The Tribunal, however, found the Revenue's approach inconsistent with the principles established by earlier decisions and statutory provisions governing adjustment of payments and refunds.

Conclusion: The Tribunal held that the AO's computation method was incorrect and directed recalculation of interest under section 244A by first adjusting refund amounts against the interest component and thereafter against the principal amount.

Issue 2: Entitlement to Additional Interest under Section 244A(1A) of the Act

Relevant Legal Framework and Precedents: Section 244A(1A) provides for additional interest if the refund is not granted within the prescribed time limit. Section 153(5) mandates that the order granting refund should be passed within three months from the date of receipt of the appellate order.

The assessee contended that the AO passed the order granting refund (OGE) beyond the prescribed timeline, resulting in delayed refund and consequent entitlement to additional interest. The Tribunal referred to precedents from the Hon'ble Bombay High Court and other decisions (e.g., CIT v. Pfizer Ltd., City Bank NA v. CIT, CIT v. K.E.C International) that support the grant of interest up to the date of actual receipt of refund by the assessee.

Court's Interpretation and Reasoning: The Tribunal accepted the assessee's submission that the OGE was passed belatedly and that the assessee was entitled to interest under section 244A(1A) for the period of delay. The Tribunal observed that the additional interest would be affected by the recalculation of interest under section 244A and thus directed the AO to recompute additional interest accordingly.

Key Evidence and Findings: The timeline of the appellate order and the date of passing the OGE were examined. The Tribunal noted that the OGE was passed on 6/12/2023 but served online only on 22/06/2024, which delayed the refund process. The delay exceeded the prescribed three-month period under section 153(5).

Application of Law to Facts: Applying the statutory timelines and judicial precedents, the Tribunal found that the assessee was entitled to additional interest for the delay beyond the prescribed period.

Treatment of Competing Arguments: The Revenue did not contest the entitlement to additional interest but relied on the orders below. The Tribunal found that the orders below had not granted the full entitlement and thus directed recomputation.

Conclusion: The Tribunal directed recomputation of additional interest under section 244A(1A) in accordance with law and the corrected interest computation under section 244A.

Issue 3: Consideration of Additional Submissions and Restriction of Interest Claim

The assessee contended that the AO erred in not considering additional submissions filed on 5 December 2024 and in restricting the interest claim to Rs. 16,97,762 instead of Rs. 45,41,792 claimed.

The Tribunal did not explicitly address the procedural aspect of non-consideration of additional submissions but by directing the AO to verify the assessee's computation chart and recompute interest, implicitly mandated consideration of all relevant submissions and documents supporting the claim.

3. SIGNIFICANT HOLDINGS

The Tribunal crystallized the following core principles and final determinations:

• "The amount of interest u/s.244A is to be calculated by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component."
• "Fairness and justice demands that same principle should be applied while granting the refund as has been applied while collecting amount of tax. The Revenue is not expected to follow double standards while dealing with the taxpayers."
• The AO's method of adjusting refund first against principal was held to be incorrect and the AO was directed to recompute interest accordingly.
• The assessee is entitled to additional interest under section 244A(1A) for the delay in granting refund beyond the prescribed timeline under section 153(5), and the AO was directed to recompute this interest in light of the corrected interest computation under section 244A.
• The AO was directed to consider the detailed computations and supporting documents submitted by the assessee and to grant interest in accordance with law.