2018 (12) TMI 1836 - AT - Income Tax

Tribunal Orders Recalculation of Interest on Tax Refunds, Emphasizing Fairness and Rejecting Interest on Interest Claims.

The Tribunal allowed the assessee's appeal, directing the AO to recompute interest on the refund under Section 244A of the Income Tax Act, adhering to ... Method of computation of interest on refund u/s 244A - interest on the unpaid refunds - CIT-A had merely directed the ld AO to calculate the interest u/s 244A of the Act correctly as per law without really getting into the dispute - HELD THAT:- Full amount of refund as determined by the ld AO was not actually granted to the assessee, thereby making the assessee eligible for further interest for the future periods. We find that this aspect had been duly dealt with by the co-ordinate bench of this tribunal elaborately in the case of Union Bank of India vs ACIT [2016 (8) TMI 688 - ITAT MUMBAI] wherein the solitary ground taken up by the assessee before this tribunal was with regard to granting lesser amount of interest u/s 244A while computing refund arising as a result of passing impugned order for giving effect to CIT(A)’s order (i.e appeal effect order) was decided in favour of assessee. We are inclined to accept the plea of the assessee. Hence we hold that the assessee would be entitled for interest on the unpaid refunds in accordance with the principle laid out in the aforesaid decision of Mumbai Tribunal in the case of Union Bank of India supra. The ld AO is hereby directed to compute the interest on refund u/s 244A of the Act as per the plea of the assessee. Accordingly, the grounds raised by the assessee are allowed and that of the revenue are dismissed. Issues Involved:Method of computation of interest on refund under Section 244A of the Income Tax Act.Issue-wise Detailed Analysis:1. Background and Facts:The appeal by the assessee challenges the order of the CIT(A) regarding the computation of interest on refund under Section 244A for the assessment year 1995-96. The CIT(A) had directed the AO to pass a speaking order and grant correct interest in light of the Delhi High Court's decision in India Trade Promotion Organisation vs CIT.2. Computation by AO:The AO, following the CIT(A)'s direction, calculated interest on the refund amount of Rs. 200,87,14,868 for the period from 1.4.95 to 4.7.97, arriving at Rs. 56,24,40,163. However, only a partial refund of Rs. 148,78,12,496 was granted, comprising Rs. 120,06,40,310 as tax and Rs. 28,71,72,186 as interest. The AO's method of calculating interest on subsequent periods by reducing only the tax portion from the original refund amount was objected to by the assessee.3. CIT(A)'s Direction:The CIT(A) merely directed the AO to calculate the interest correctly as per law without resolving the dispute. Both the assessee and the revenue appealed against this action.4. Tribunal's Analysis:The Tribunal found that the AO's calculation method was against the spirit of the taxation scheme. The correct approach should not segregate the refund into tax and interest portions for calculating subsequent interest. The Tribunal referred to Section 140A, which prioritizes interest payment before tax, and applied the same logic to refunds under Section 244A.5. Precedent from Union Bank of India Case:The Tribunal cited its earlier decision in Union Bank of India vs ACIT, which dealt with a similar issue. The principle established was that refund amounts should first adjust towards interest, and the balance towards tax, ensuring the assessee receives interest on any unpaid refund amount.6. Application of Legal Principles:The Tribunal emphasized that the revenue should follow the same fairness in refunding as it does in collecting taxes. The Delhi High Court's decision in India Trade Promotion Organisation and the Supreme Court's judgment in HEG Ltd. supported this approach, clarifying that interest on unpaid refunds does not equate to interest on interest.7. Conclusion:The Tribunal directed the AO to recompute the interest on the refund as per the assessee's plea, following the principles from the Union Bank of India case. The appeal by the assessee was allowed, and the revenue's appeal was dismissed.Order Pronounced:The decision was pronounced in the open court on 20th December 2018.