2009 (7) TMI 872 - AT - Income Tax

Tribunal restores interest under Section 244A, denies interest on interest.

The Tribunal held that the AO's initial order granting interest under Section 244A was correct and the subsequent withdrawal of interest was not ... Rectification of mistakes - Interest on refund of self assessment tax - as per the Explanation as well as the decision in Modi Industries Ltd (1995 -TMI - 5478 - SUPREME Court). by the Supreme Court, the tax paid as self-assessment tax becomes a payment of tax pursuant to a notice of demand issued on adjustment against demand on assessment and accordingly the interest on the refund to an assessee out of self-assessment tax is to be granted under s. 244A of the Act - issue will be taken as debatable one on that ground and, therefore, the AO had no jurisdiction to rectify his earlier order dt. 7th June, 1999 in exercise of powers vested under s. 154 of the Act. - the notice under s. 154 issued by the AO on 6th June, 2000 proposing to withdraw the interest allowed as per order under s. 154 of the Act dt. 7th June, 1999 was illegal and bad in law.Regarding interest on interest on delayed refund - Sec. 244A grants interest only on that amount of refund that is out of the tax paid by the assessee or collected from him and not on the amount due to the assessee but withheld by the Revenue, such as interest due which though included in the amount of refund under s. 240 of the Act by virtue of certain decisions referred to above - it is held that assessee was not entitled to any interest on interest as it was not a case of the refund of amount out of any tax paid by or collected from the assessee nor it has a date of payment by the assessee from which it can run. Issues Involved:1. Legality of the order passed under Section 154 of the IT Act withdrawing interest under Section 244A on the refund due from self-assessment tax.2. Entitlement of the assessee to interest on interest on delayed refund.Issue-wise Detailed Analysis:1. Legality of the Order Passed under Section 154 of the IT Act:The primary issue revolves around whether the AO's order withdrawing the interest under Section 244A on the refund due from self-assessment tax under Section 140A of the IT Act was legally sustainable. The assessee contended that the CIT(A) erred in confirming the withdrawal of interest under Section 244A, arguing that this was a debatable issue and therefore not rectifiable under Section 154.Findings and Reasoning:- The assessee filed its return for AY 1996-97, including a self-assessment tax payment of Rs. 75 lakhs. The return was processed, and a refund of Rs. 1,32,65,511 was granted without interest under Section 244A.- The assessee applied for rectification under Section 154, seeking interest on the refund, which was initially granted by the AO but later withdrawn.- The CIT(A) upheld the withdrawal, citing that the issue was debatable and thus not rectifiable under Section 154. The AO's subsequent rectification order was challenged by the assessee.Judicial Precedents and Legal Provisions:- The Tribunal considered various judicial precedents, including the Supreme Court's decision in Modi Industries Ltd. vs. CIT, which held that interest under Section 244A is payable on refunds irrespective of the nature of payment.- The Tribunal also considered the Board's Circular No. 549, which explained the provisions of Section 244A.- The Tribunal concluded that the non-granting of interest on the refund was a mistake apparent from the records and rectifiable under Section 154.Conclusion:The Tribunal held that the AO's initial order granting interest under Section 244A was correct and that the subsequent withdrawal of interest was not sustainable. The Tribunal set aside the AO's order dated 16th March 2000 and restored the interest granted under Section 244A.2. Entitlement of the Assessee to Interest on Interest on Delayed Refund:The second issue pertained to whether the assessee was entitled to interest on the interest due to the delayed payment of the refund.Findings and Reasoning:- The assessee raised an additional ground claiming interest on interest, which was admitted by the Tribunal.- The Tribunal considered various judicial precedents, including the Supreme Court's decision in Sandvik Asia Ltd. vs. CIT, which held that the Revenue must compensate the assessee for delays in refund payments.Judicial Precedents and Legal Provisions:- The Tribunal noted that the provisions of Section 244A do not explicitly provide for interest on interest.- The Tribunal referred to the decision of the Ahmedabad Bench in Gujarat State Fertilizers & Chemicals Ltd. vs. CIT, which held that no interest on interest is allowable under the Act.Conclusion:The Tribunal concluded that the assessee was not entitled to interest on interest, as the provisions of Section 244A do not provide for such compensation. The Tribunal decided this issue against the assessee.Final Outcome:- The Tribunal set aside the AO's order withdrawing the interest granted under Section 244A on the refund due from self-assessment tax.- The Tribunal held that the assessee was not entitled to interest on interest for the delayed refund.Majority Opinion:- The Third Member (Shri R.P. Garg, Senior Vice President) agreed with the view taken by the learned JM regarding the legality of the withdrawal of interest under Section 244A.- The Third Member agreed with the view taken by the learned AM regarding the issue of interest on interest.Final Order:- The appeal of the assessee was partly allowed, with the order of the AO withdrawing interest under Section 244A being set aside.- The issue of interest on interest was decided against the assessee.