2013 (11) TMI 1437 - HC - Income Tax

High Court denies interest under Section 244(1A) of Income Tax Act, upholding revenue department's position.

The High Court ruled in favor of the revenue department, holding that the assessee was not entitled to interest under Section 244(1A) of the Income Tax ... Whether Withdrawal of refund u/s 244(1A) can be made by rectification u/s 154 – Held that:- The excess amount of tax paid under sub-section (1A) of Section 244 must be calculated by treating the amount of tax deducted at source and the amount of advance tax which were adjusted against the assessee's liability to pay tax as well as the amount of tax paid directly upon the assessment under Chapter XVII of the Income Tax Act – Following Leader Engineering Works [1989 (2) TMI 92 - PUNJAB AND HARYANA High Court] - The amount which was retained by the Income Tax Officer and adjusted against the tax demand must be treated as payment of tax pursuant to the assessment order by the assessee - On the day the advance tax amount is paid there is no assessment and, hence, it cannot be said to have been paid 'in pursuance of any order of assessment'. The provisions in the Income Tax Act allowing interest on refund have to be strictly construed - The AO did not commit any error of law in issuing notice under Section 154 and making an order by which the interest on refund was not clearly allowable – Decided in favour of Revenue. Issues Involved:1. Legality of withdrawing refund allowed under Section 244(1A) of the Income Tax Act, 1961 via Section 154 of the Act.2. Conditions for allowance of interest under Section 244(1A) of the Income Tax Act.3. Jurisdiction of the Assessing Officer (AO) under Section 154 to rectify the mistake.4. Applicability of the doctrine of finality to the orders passed by the Income Tax Appellate Tribunal (ITAT).Issue-wise Detailed Analysis:1. Legality of Withdrawing Refund under Section 244(1A) via Section 154:The primary question was whether the Income Tax Appellate Tribunal (ITAT) was legally justified in holding that the withdrawal of refund allowed under Section 244(1A) could not be made under Section 154. The Tribunal had allowed the refund and interest to the assessee, but the AO later issued a notice under Section 154 to withdraw the interest, arguing that the interest was not payable as per Section 244(1A). The Tribunal held that such a rectification was not permissible under Section 154 as the issue was debatable and not a mistake apparent on the record.2. Conditions for Allowance of Interest under Section 244(1A):The Tribunal and the CIT(A) examined whether the conditions for interest under Section 244(1A) were met:- The payment must have been made as a result of an order of assessment or penalty.- Such payment must have been made on or after 1.4.1975.- The refund resulted from an order passed in an appeal or other proceedings.The Tribunal found that the payment of tax under Section 140-A was considered as payment towards regular assessment, thus meeting the first two conditions. However, the CIT(A) held that the refund was due to the assessment being time-barred, not due to an order in appeal, thus not meeting the conditions.3. Jurisdiction of AO under Section 154:The Tribunal held that the AO could not rectify the order under Section 154 as the issue was debatable and not a clear mistake apparent on the record. The Tribunal relied on the Supreme Court's decision in T.S. Balaram vs. Volkart Bros, which stated that a mistake apparent on the record must be obvious and not something requiring a long process of reasoning. The Tribunal concluded that since the matter involved a debatable point of law, it was outside the purview of Section 154.4. Applicability of Doctrine of Finality:The Tribunal observed that the order dated 17.3.1994 had attained finality as the revenue did not contest it further. The Tribunal cited the case of Seshayee Paper and Boards Ltd v. I.A.C., which held that even a wrong order, if final, cannot be disturbed except by a process known to law. Thus, the AO could not use Section 154 to alter the effect of a final order.Conclusion:The High Court concluded that the assessee was not entitled to any interest under Section 244(1A) as the conditions were not satisfied. The tax was paid voluntarily by way of self-assessment and not in pursuance of any order of assessment or penalty. The High Court held that the provisions of Section 244(1A) must be strictly construed and found that the AO did not commit any error in issuing the notice under Section 154. The Tribunal's order was not sustainable as the rectification of the mistake was apparent from the record and did not involve a debatable point.Judgment:The question of law was decided in favor of the revenue and against the respondent-assessee. The reference was answered in favor of the department, allowing them to proceed accordingly.