2018 (6) TMI 1686 - AT - Income Tax

Tax Tribunal Allows Interest Set-Off: Assessee Can Offset Refund Interest Against Tax Interest Paid.

ACIT-LTU, Mumbai Versus Lupin Ltd.

The Tribunal dismissed the revenue's appeal, allowing the assessee to set off interest received on income tax refunds against interest paid to the income ... Netting off interest received u/s 244A - Interest received on refund of taxes u/s 244A - taxable income as against an amount offered by the assessee which was after netting of the interest paid to the Department u/S 220(2) and 234B - HELD THAT:- As decided in case of Bank of America NT and SA [2014 (12) TMI 551 - BOMBAY HIGH COURT] The Assessee sought to set off the interest paid against the interest received and offered the net interest received to tax - in the case of the Assessee simply because the exercise carried out by it does not result in loss of revenue and there could not be any prohibition for the same, allowed it - assessee claimed that this was business expenditure and this should have been allowed - the Tribunal in permitting this exercise not violated any of the provisions of the Income Tax Act, 1961 - the Tribunal has followed the similar exercise in the case of very Assessee on the prior occasion as well – thus, as such no substantial question of law. - Decided in favour of the assessee Issues Involved:- Disallowance of set off interest on income tax refund- Interpretation of the judgment of the Hon'ble High Court of Bombay regarding setting off interest received on income tax refund against interest paid to the income tax departmentIssue 1: Disallowance of set off interest on income tax refundThe appeal filed by the revenue was against the order passed by the CIT-(LTU), Mumbai, which arose from the order passed by the A.O under Sec.143(3) of the Income Tax Act, 1961. The assessee, engaged in the business of manufacturing pharmaceutical products, had e-filed its return of income for A.Y. 2007-08. The case was taken up for scrutiny assessment under Sec. 143(2) of the Act. The assessee had received interest on income tax refunds and claimed set off against the interest paid to the income tax department for late payment of tax for various years. The A.O declined the set off claim, citing lack of nexus between the interest paid and received. On appeal, the CIT(A) allowed the set off, but the Tribunal initially restored the A.O's order. However, upon a miscellaneous application by the assessee, the Tribunal recalled its order.Issue 2: Interpretation of the judgment of the Hon'ble High Court of BombayThe authorized representative for the assessee argued that the issue was covered by the judgment of the Hon'ble High Court of Bombay in a specific case, allowing the netting of interest received on tax refunds against interest paid on taxes. The representative cited various cases supporting this contention. The Departmental Representative relied on the A.O's order. The Tribunal, after hearing both parties, found that the assessee had the right to set off interest received on income tax refunds against interest paid to the income tax department, as per the judgment of the Hon'ble High Court of Bombay. The Tribunal referred to the specific observations made by the High Court and directed the A.O to allow the claim of the assessee for setting off the interest on income tax refund against the interest paid to the income tax department.In conclusion, the appeal of the revenue was dismissed based on the Tribunal's observations and the judgment of the Hon'ble High Court of Bombay, allowing the set off of interest received on income tax refund against interest paid to the income tax department.