TMI Blog2015 (9) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee - ITA No.6817 & 6823/Mum/2012, ITA No.6818 & 6824/Mum/2012 - - - Dated:- 31-8-2015 - Sh. A.D. Jain and Rajendra, JJ. For The Assessee : Shri C. Naresh (AR) For The Revenue : Shri Manjunatha Swamy(CIT-DR) ORDER PER RAJENDRA, AM Challenging the orders dated of the CITMumbai, the assessee had raised following grounds of appeal for the above mentioned two Assessment Years(AY.s.): ITA No.6817 6823/M/12 (2001-02): 1. The Ld CIT(A) erred in confirming the order of the AO disentitling interest u/s. 244A and thereby confirming the action of the AO in granting the same at ₹ 1 09.32 crore as against ₹ 384.69 crore contrary to law and facts and circumstances of the case. The difference in interest had arisen on account of AO not granting the same on the refund arising for interest accrued but not due from 01/04/2001 on the contention that the claim in respect of the same was only made in the notes forming part of the return of income. 2. The Ld CIT(A) failed to appreciate that a sum of ₹ 878.63 crore had become refundable to the assessee vide order u/s. 143(3) rws 250 dated 06/06/2011 and said refund is entitled to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The Ld CIT(A) ought to have appreciated that a refund arising on account of order of CIT(A) is also squarely covered by the expression Where refund of any amount becomes due to the assessee under this Act , as appearing in sec 244A(1) and hence entailed interest under said provision. The distinction sought to be made by Ld CIT(A) is artificial and unwarranted. 4. The Ld CIT(A) erred in stating that the provisions of 244A(3) are not applicable without appreciating the fact that the said provisions are applicable as the refund was increased consequent on the order of CIT (A). 5. Without prejudice to above, the Ld CIT(A) ought not to have justified the stand of AO in not letting the matter viz determining the period to be excluded from the period for which interest is payable be decided by CIT as required in sub sec 2 to sec 244A. The reasoning by Ld CIT(A) that as no interest was payable at the first instance, the question of reference to CIT would not arise is incorrect and unwarranted. 6. The Ld CIT(A) ought to have appreciated that the unilateral withholding of interest by AO on the perceived delay attributable to assessee is beyond the power conferred in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA). The FAA held that the assessee had offered interest accrued but not due on securities as taxable income in its return of income and had paid taxes accordingly,that the AO accepted the fact and there was no refund of any amount due on this account on passing order u/s.143(1) and order u/s.143(3) of the Act. Referring to the provisions of sub section 3 of the section 244A of the Act,the FAA held that the amount of refund became due for the first time because of order of the appellate authority,that it was not a case of enhancement or reduction of the refund amount,that the reliance placed by the assessee on the provisions of sub section 3 to the Section 244A was misplaced,that the provision of subsection( 3) of the section 244A of the Act would be applicable only when refund of any amount was increased or reduced by the appellate authorities,that where refund of any amount did not become due to the assessee under subsection( 1)there was no question of increasing or reducing the same as mentioned in subsection( 3),that the assessee had offered interest accrued but not due on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no finding of delay was given by the CIT or CCIT. He referred to the judgment of Larson and Toubro Ltd(330ITR340)State Bank of Travancore (2013TIOLII20HCKeralaIT) and ACC Ltd.(ITA Nos.6262 6263/2010/Mum/(9091 9192dt. 21.12.2011). The Departmental Representative(DR)supported the order of the FAA and relied upon the case of Assam Roofings Ltd.(supra) 5. W e have perused the material before us. We find that the assessee had offered interest accrued but not due on securities as interest income on accrual basis in its return of income and had paid taxes accordingly,that later on it was claimed that the portion of interest income which had not become due to the bank as on 31.03.2001 should not be taxed during the year under consideration,that a note in that regard was inserted to the Return of Income,that the assessee had paid tax on accrual basis,that the AO while passing the order u/s 143(3) did not allow the claim made by it,that in the appellate proceedings,the FAA allowed the claim of the assessee and allowed relief,that while giving effect of order of the FAA and while computing the interest due to the appellant u/s 244A, the AO computed the interest by excluding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex aequo et bono ought to be refunded,the right to interest follows, as a matter of course . Interest is a kind of compensation for use and retention of money collected unauthorisedly by the Department. A general right exists in the State to retain any tax collected for its purpose, and a corresponding obligation exists to refund to individuals any sum paid by them as taxes which are found to have been wrongfully exacted or are believed to be, for any reason, inequitable. The statutory obligation to refund carries with it the right to interest also. This is true in the case of assessees under the Act. When the collection is illegal, there is a corresponding obligation on the Revenue to refund such amount with interest inasmuch as it had retained and enjoyed the money deposited. 5.2. B road principles culled out from various judgments of the Hon ble Courts can be summarised as under: i. Provisions of Section 244A(1)and(2) of the Act govern the award of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund is granted .Refund is granted the moment the concerned officer has signed the order regarding payment of the interest under section 244A. Interest has to be granted till the date when the order regarding payment of interest has been signed. vi. T here is no difference between :(i) the tax paid under section 115WJ, which deals with advance tax in respect of fringe benefits or (ii) the tax collected at source under section 206C;or (iii) any tax paid by way of advance tax or any tax treated as paid under section 199, which deals with credit for tax deducted,which are provided under section 244A(1)(a). vii. No interest is payable if the amount of refund is less than 10 % on regular assessment with regard to the refund of advance tax paid under section 115WJ in respect of fringe benefits (ii)the tax collected at source under section 206C and (iii)advance tax or any tax treated as paid under section 199, but with respect to other tax under section 244A(1)(b), the interest shall be payable even if the amount is less than 10 % of the tax as determined under section 143(1)or on regular assessment, because there is no proviso to section 244A(1)(b) as provided under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The Explanation appended to clause (b) of the subsection clarifies that the date of payment of tax or penalty would mean the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand. x. T he assesses are entitled not only to the refund of tax deposited u/s.195(2) of the Act,but also to interest from the date of payment of such tax. xi. T he moment the return is processed u/s. 143(1)(a) and refund is issued on the basis of intimation under section 143(1)(a),an enforceable legal right is created in favour of the assessee under section 244A and simultaneously the AO is under legal obligation to grant the interest.Merely because the quantum of such interest may vary on assessment made u/s.143(3),it cannot be said that the legal right was not acquired on the date of refund. The effect of assessment under section 143(3) would be that interest on refund under section 244A would get substituted in terms of subsection (3) of section 244A without affecting the right already accrued. Income can be said to accrue on the date of refund itself. If the interest is varied under subsection (3) of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deposit for the period. 5.3. Now,we would like to test the decisions of the FAA on the touchstone of above referred principles. The assessee had filed the return of income in time and the AO or the FAA has not alleged that belated return was filed for the year under consideration. Therefore,it cannot be held that there was delay on part of the assessee. It is observed that the assessee had in the notes, accompanying the return,had mentioned that in the past Bank s claim for taxing on securities on due basis was allowed up to AY.199091, that this year also interest on securities should be taxed on due basis. While completing the assessment the AO ignored the said note,but he took note about the broken period interest(note 13)and accordingly taxed it. The selective approach of the AO is beyond comprehension. As a representative of the Sovereign,he has collect due taxes onlyhe is not a mere tax gatherer. It was his duty to consider both the notes whatever would have been the result. But,he conveniently overlooked the note that would have gone against him. If he had considered the facts about broken period,he should have deliberated upon claim made by the assessee for taxing on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the amount in relation to this ground was quantified for the first time during giving effect to the FAA. The assessee filed a detailed reply to the observations made by the AO. The CIT decided the application as under: On going through the grievance petition I am of the opinion that there is considerable merit in the arguments of the assessee relating to short grant of interest u/s. 244A. Accordingly the assessing officer is directed to recompute the interest u/s. 244A for both the assessment years after giving adequate opportunity to the assessee. We are not able to find any reasons as to what prompted the AO to ignore the directions of the CIT. Inspite of the clear directions of the superior officer,he did not recomputed the interest that was due to the assessee. The behaviour of the AOi. e.claiming that the amount of refund was less than 10% of the tax determined and ignoring the direction of the CITproves that he had decided that the assessee should not given interest even if it was due to it. The approach of the AO is against the provision of the Act and cannot be endorsed. Coming to the delay on part of the assessee,we hold that deciding the issue of period i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to decline interest to the assessee for the period up to the date on which the claim of deduction of bad debts is allowed by the Commissioner of Income-tax (Appeals). According to the standing counsel, the Tribunal did not consider even the scope of sub-section (2) of section 244A which led to granting the relief to the assessee in terms of their claim. Counsel for the assessee, on the other hand, contend that interest under section 244A is mandatory and the same is payable from the beginning of the assessment year to the date of grant of refund. What we find from sub-clause (1) is that interest is payable at the rate prescribed therein on the refund ordered to the assessee which is obviously excess tax paid. The period for which interest is payable will depend on the nature of payment of tax which is refunded to the assessee. In the case of payments covered by clause (a) of section 244A(1) interest is payable from the beginning of the relevant assessment year till the date of grant of refund. However, in the case of payments of tax in any of the forms other than those referred to in clause (a) interest is provided in clause (b) of section 244A(1) from the dates of payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on January 10, 2001, which was rejected by the Assessing Officer for failure to establish the claim by the assessee. The, Commissioner of Income-tax (Appeals) in the appeal filed against the assessment allowed the claim and remanded the matter to the Assessing Officer. Refund is granted to the assessee while issuing the revised order based on order in appeal filed by the assessee. The question to be considered is whether belated claim for deduction which when allowed entitled the assessee for refund is a situation covered by sub-section (2) of section 244A of the Act. The situation covered by sub-section (2) is only delay in completion of proceedings granting refund that is attributable to the assessee. Obviously, refund is issued as a result of assessment whether original or revised. If the assessee causes any delay in completion of such proceedings under which the refund is granted, then certainly the period of delay attributable to the assessee only is the period for which the assessee is not entitled to interest. In this case, the Assessing Officer has not established that the assessee has caused any delay in issuing the refund order. Of course, if the assessment is delayed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 244A limiting interest payment on the refund claim in the original return, the assessee is entitled to interest on excess tax refunded in terms of clauses (a) and (b) of section 244A(1) of the Act subject to the limitation contained in subsection (2) discussed above. We would also like to refer to the case of ACC Ltd.(supra). Facts of the case were that the assessee had not made certain claims before the AO in the course of original assessment or before the FAA. It raised additional grounds before the ITAT on inclusion and exclusion of certain amounts for deduction under section 80HHC and 80I. The Tribunal after admission of additional grounds restored the issues to the file of the AO for fresh consideration. While giving effect to the orders of the ITAT,he allowed certain claims resulting in refund to the assessee due to redetermination of total income. It was the assessee s contention that the interest u/s.244A was not allowed on such refund on the reason that the assessee has not made claims originally under section 244A (2) and any delay on the part of the assessee should be excluded. The FAA agreed with the above contention stating that since the assessee had not claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vs. South Indian Bank Ltd (2011) 237 CTR 74 (Ker) that the belated claim of deduction by the assessee will not justify the denial of interest and refund arising out of such claims otherwise eligible under section 244A(l), in this case the refund arose consequent to the orders of the ITAT under section 254. Therefore, in our view the provisions of section 244A(3) will apply which is as under: xxxxx There is no denying the fact that the assessee was allowed interest under section 244A(1) earlier in the original assessment proceedings. Therefore, as a result of orders under section 254 which the Assessing Officer has passed now, the interest under section 244A(1) will have to be increased or reduced accordingly and the Assessing Officer has no option to vary the period on interpretation of provisions of section 244A(2). Provisions of section 244A(2) does not apply in these facts of the case, as the assessee was already been granted interest under section 244A(1) and the period for such refund has already been determined. If consequent to the orders under section 254 the resultant order gives rise to further refund, the Assessing Officer has to increase the interest on the enhanced r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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