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2015 (9) TMI 797 - ITAT MUMBAI

2015 (9) TMI 797 - ITAT MUMBAI - TMI - Entitlement to interest u/s. 244A(1) - non granting of interest u/s.244A - 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 - Held that:- Assessee had filed its return in time,that the refund amount exceeded 10% of the tax demand, that the AO had not followed the directions of the C .....

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t from first day of April of the AY. and that the AO was not justified in restricting it to the date from the order of the FAA.- Decided in favour of the 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 m .....

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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 interest u/s. 244A(1). 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 .....

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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 conferre .....

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44A and thereby confirming the action of the AO in granting the same at ₹ 23.91 crore as against ₹ 179.42 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 o .....

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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 .....

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th the department and as these amounts were with the department interest ought to have been granted. Your Appellant craves leave to add amend and or vary grounds of Appeal before or during the course of hearing. Assessee,bank filed its return of income on 31.10.2001 declaring total income of ₹ 14, 66,97, 81,957/. The AO competed the assessment on 13.2.04 u/s. 133 of the Act determing the income of assessee at ₹ 26,35,49,42,360/ 2. Effective ground of appeal is about not granting of i .....

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crual basis. The AO while passing the order,u/s 143(3)of the Act,did not allow the claim made by it. Aggreived by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA),in the appellate proceedings,the FAA allowed the claim of the assessee with regard to interest accrued but not due on securities and allowed relief. 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 excludi .....

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made by the assessee appeared to be genuine. As the AO refused to grant refund,as stated earlier,in response to the application filed by the assessee u/s.154 of the Act,so,the assessee filed an appeal before the FAA. 3. Aggrieved 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 .....

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isplaced,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 securities as taxable income in its return of income and had paid taxes according .....

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ring before us,Authorised Representative(AR)stated that the AO had ignored the specific direction issued by CIT,that the stand taken by the AO was contrary to the decisions of south India Bank Ltd. (340 ITR 574), ACC Ltd. (2012TIOL120ITATMum) and Union Bank of India (ITA/No.2522/Mum/2011). With regard to decision,relied upon the FAA i.e. Assam Roofing Ltd.(supra) the AR stated that the above mentioned decision was distinguishable, in that case assessee had voluntarily paid tax on subsidy, that t .....

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e. He referred to the Circular No. 549 dt.1.10.89 and stated that the Circular provided for automatic revision of amount on refund where the amount of varied refund as a result or order of reassessment/ rectification/appeal/ revision/settlement. He further argued that interest was compensatory in nature, that when the AO would make reassessment or rectification to his original order either based on judicial decision or by retrospective amendment, the income would be reassessed, that in such case .....

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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. We 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 .....

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by excluding the refund arising on account of interest accrued but not due on securities , that the CIT in his order u/s.264 of the Act held that the claim of the assessee appeared to be genuine prima facie,that the assessee filed an application before the AO in that regard,that the AO disposed off the 154application holding that even if the assessee got relief from the appellate authority,it could not get 244A interest,that delay was on part of the assessee for making claim,that the claim was n .....

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the Act,contains various provisions relating to refund of the amount of tax paid by an assessee.Section 244A of the Act has specifically been made effective from the AY.198990. It is only from that AY.that the right, to get interest on the tax deducted at source if it is refunded or refundable,was recognised. Circular No.549, 31.10.1989,clarifies the purpose and object of introducing section 244A of the Act to replace sections 214,243 and 244 of the Act as providing for payment of interest by t .....

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ed by fiscal legislation to ensure that the amount of tax which has been duly paid in prescribed time and provisions in that behalf forms part of the recovery machinery provided in a taxing statute. Refund due and payable to the assessee is a debt owed and payable by the Revenue. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and r .....

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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. Broad principles culled out from various judgments of the Hon ble Co .....

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Act has provided that when the amount is refunded it should carry interest as a matter of course and that if the payment of tax made by an assessee is in excess and the has to refund the excess tax to the depositor,interest is required to be paid on such refund. ii.Section 244A of the Act,would spring into action only in the event of refund of excess amount of tax,penalty,tax collected at source or paid as advance tax,or treated as paid u/s.199 of the Act. The liability of the Revenue to pay in .....

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essee under the Act,the assessee shall be entitled to receive in addition to the amount simple interest calculated in the manner stipulated. The Legislature has not used the words tax paid or the principal amount of tax paid. The words used by the Legislature are any amount and said amount. The words, are, therefore, much wider and broader than the tax amount, which is to be refunded. The words any amount would include within their scope and ambit the interest element, which has accrued and is p .....

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s 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. There 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, w .....

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ss 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 244A(1)(a) of the Act. viii.Under the Explanation to section 140A(1),it is stipulated where the amount paid by an assessee under selfassessment falls short of the aggregate amount of tax and interest aforesaid, the amount paid shall first be adjusted towards the interest payable and the balance,if any,shall be adjusted towards the tax pay .....

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ssessee.Otherwise,the AO/Revenue can refund the principal amount and not pay the interest component under section 244A for an unlimited period with impunity and without any sanction,which would amount to allowing a premium on noncompliance with the law. When a refund order is issued, it should include the interest payable on the amount which is refunded. If the refund does not include interest due and payable on the amount refunded,the Revenue would be liable to pay interest on the shortfall. Th .....

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from the first day of the AY.to the date of the grant of refund. Clause (b) of subsection (1) of section 244A opens with the words in any other case that means in any case other than the amounts paid under clause (a) of subsection (1) of section 244A .Under this clause,the rate of interest is to be calculated at the rate of one and a half % per month or a part of a month comprised in the period or the periods from the date or, as the case may be,either the dates of payment of the tax or the pen .....

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ocessed 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 s .....

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od, i.e.,from the first day of the AY.till the date of granting refund. However,when a return is filed with delay,the return cannot be acted upon until the delay is condoned by the statutory authority. As and when the delay was condoned, the entire period of delay from the date of filing returns till the date of condonation of delay has to be treated as attributable to the assessee while determining the eligible interest in terms of section 244A(2)of the Act. In other words,if an assessee is res .....

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right to receive interest on the amount of refund does not depend on the submission of the application by the assessee.Rather,it follows as a natural corollary to the assessee s right to receive refund.So,the mere fact that the application filed by the petitioner was decided expeditiously cannot be made a ground for declining the prayer for award of interest. xiv.Once the AO allows the interest from a particular date,valuable rights accrues to the assessee. If he wants to take a different view, .....

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ility,then no interest is payable u/s. 244A of the Act on the excess amount held in the hands of the Revenue as 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 .....

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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 securities on due basis. We would like to discuss the application filed by the assessee u/s.264 of the Act,before the CIT. In his order dated 05.08.2011 the CIT2, Mumbai, has mentioned that while .....

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for both the AY.s. He called for a report from the AO. In his reply dated 15.7.2011,the AO stated that interest u/s. 244A had been correctly computed and the assessee has not claimed interest on due basis, for AY.s.200102 and 200203. On going through the report of the AO,the computation of interest u/s. 244A and also the facts mentioned by the assessee in the grievance petition,he held that the AO had not considered some of the important aspects while computing the interest u/s. 244A,that one o .....

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he contrary was factually incorrect. He further held that the AO had granted lesser amount as interest u/s.244A on the basis of the following reasons namely the assessee had not put this claim while filing the return of income,that the assessment order had no mention of giving assessee interest on due basis as the assessee has all along claimed it on accrual basis,that it had made the claim for the first time before the FAA and that the amount in relation to this ground was quantified for the fi .....

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ot 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 .....

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acts that could distinguish the facts of the case as compared to the facts of earlier AY.s.i.e. AY.s.up to 199001. Without considering the relevant facts he should not rejected the claim made by the assessee. As far as the order of the FAA is concerned we would like to mention that he had referred to the provisions of sub section 3 of the section 244A of the Act and had relied upon the case of Assam Roofing (supra). Here,we would like to discuss the matter of South Indian Bank Limited(supra). In .....

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that it was attributable to an additional claim of deduction of provision for bad debt which was allowed by the FAA. However, the FAA held that the assessee was entitled to interest under section 244A from 10.01.2001, and not from 01.04.1999, as claimed by the assessee in terms of section 244A(1)(a) of the Act. The reason behind limiting the interest from) was that the assessee did not claim any deduction of provision for bad debt in the original return but in the course of assessment. According .....

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artment is entitled 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 f .....

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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 of such tax or penalty till the date of grant of refund. This case is obviously covered by clause (a) and so much so the assessee is entitled to interest on excess refund from the beginning of the assessment year till the date of grant of refund which is granted by the Tribunal. However, .....

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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 for 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 Commissi .....

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g interest to the assessee in terms of section 244A(1)(a) of the Act. 7. The next question to be examined is whether there is any substance in the contention of the standing counsel for the Revenue that belated claim of deduction of provision for bad debt under section 36(1)(vii)(a) will disentitle the assessee from getting interest on refund up to the date of making claim. Admittedly, the assessee did not make any claim for deduction of provision for bad debt in the original return filed. Howev .....

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n 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 grante .....

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r interest for such period under sub-section (2) of the above Act. In this case, assessment was taken up in the usual course and before completion of assessment, the assessee made the claim which was considered and rejected by the Assessing Officer. However, in appeal the claim was allowed and based on the Commissioner of Income-tax (Appeals) order the Assessing Officer granted refund. We do not find any material to hold that the delay in establishing the claim with documents that led to refund .....

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ute in the above provision because the situation that arose in this case is not contemplated therein. The Department could contend that if all claims of deduction were made in the original return and higher amount of refund was claimed in such return, the officer could have granted refund under section 143(1) of the Act itself thereby avoiding interest on refund in regular assessment for longer period. Return was in fact processed under section 143(1) and based on claims in the original return, .....

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riginal return filed and not on excess refund later claimed or happened to be claimed based on belated claims of deduction, exemption, etc. However, in the absence of any such provision under section 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 t .....

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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 the amounts originally,the AO was correct in not allowing interest under section 244A to the appellant co .....

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ssessing Officer has not followed the provisions of section 244A(2) and declined interest under section 244A(2) without referring the matter to CCIT or CIT and therefore, the Assessing Officer s action cannot be justified following the principles laid down by the ITAT in the cases of OCIT vs. Videocon International Ltd 6 SOT 227 (Mum) 2006-TIOL-90- ITAT-MUM) and Artist Tree Pvt. Ltd vs. Income Tax Officer (2005) 93 ITO 603 (Mum). It was also submitted that giving effect to the orders of the ITAT .....

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ntial proceeding only and had the assessee made the claims at the time of filing the return, the Revenue would have issued refund without any interest liability at the earliest possible time and therefore, the Assessing Officer was correct in denying the interest on the delay attributable to the assessee under section 244A(2). The Ld. DR relied on CIT Vs Assam Roofing Ltd, 330 ITR 87 (Gau) for the proposition that appellate proceedings has to be included in the expression proceeding as appearing .....

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4A(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 according .....

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ying the period for which interest was granted earlier. 4.5 The case of revenue is supported by judgment of Hon ble Gauhati High Court in the case of CIT Vs Assam Roofing Ltd, 330 ITR 87(Gau) but in that case interest u/s 244A (1) was granted for the first time after the order of CIT(A) in which claim was made. Moreover the Hon ble Kerala High Court in the case of South Indian Bank (supra) held against revenue and in favor of assessee. No jurisdictional High Court judgment was brought to our not .....

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cordingly. 4.6 Since the Assessing Officer also has not referred the matter to the Chief Commissioner or CIT where any question arises as to the period to be excluded, the action of the Assessing Officer in excluding certain period is also not acceptable. Respectfully following the principles laid down by the ITAT in the case of DCIT vs. Videocon International Ltd (2006)6 SOT 247 (Mum) assessee (2006-TIOL-90-ITAT-MUM) and Artist Tree Pvt Ltd vs. Income Tax Officer (2005) 93ITD 603 (Mum), Assessi .....

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