2021 (7) TMI 1391 - AT - Income Tax

Assessee entitled to full interest on tax refund under Income Tax Act.

The Tribunal held that the assessee was entitled to interest on the refund for the entire period as per section 244A(1)(b) of the Income Tax Act, 1961. It ... Allowability of interest on refund u/s 244A - delay attributable to the assessee - period for which interest is to be allowed - refund in relation to interest reimbursement under TUFS ( Technology Upgradation Fund Scheme) - contention of the assessee is there is no delay attributable to the assessee at all and that the only delay recognized by section 244A(2) of the Act relates to delay in proceedings attributable to the assessee - HELD THAT:- In the case of Chetan N. Shah vs. M. K. Moghe Commissioner of Income Tax [2014 (9) TMI 1177 - BOMBAY HIGH COURT] the Hon’ble Bombay high court held that there is no provision for rejecting the claim of interest on account of a mistake by the assessee. That such a proposition would render the section otiose since excess taxes paid originate on account of some mistake either on fact or law on the part of the assessee. That it is only delay in disposal of proceedings resulting in refund attributable to the assessee which are not to be compensated with interest. The delayed claim of the assessee therefore cannot be said to tantamount to delay in proceedings resulting in refund attributable to the assessee. In the case of HHA Tank Terminal( P) ( ltd) [2019 (2) TMI 1515 - KERALA HIGH COURT] the assessee had already been granted refund on processing of its return u/ s 143 ( 1 ) of the Act and subsequently it had filed a revised return claiming further refund. In this backdrop of facts the Hon’ble court held that the later refund could only relate back to the filing of revised return. We have no hesitation in holding that the assessee was entitled to interest on the refund generated for the entire period of delay as envisaged under the provisions of section 244 A (1) (b) of the Act that there was no delay attributable to the assessee in the proceedings resulting in refund and, therefore, the provisions of section 244 A( 2 ) of the Act were not attracted in the present case. The order of the Ld. CIT( A) holding so is held to be not in accordance with law. Argument of the assessee that the Ld. CIT( A) had no power to restore the matter to the AO, we do not find any merit in the same since the Ld. CIT( A) has only given a direction to the AO to refer the matter to the Ld. Pr. CIT, which surely does not tantamount to restoring the issue to the AO. This argument of the Ld. Counsel for the assessee is therefore dismissed. Contention of the Ld. DR that since the Ld. CI T( A) had not adjudicated the issue, having directed the AO to refer the matter to the Ld. Pr. CIT, no appeal lay against this order, we do not find any merit in the same. The limited scope of the power with the Ld. Pr. CIT, as per sub section (2) of section 244 A, is determination of period of delay attributable to the assessee. He has no power to decide the entitlement of grant of refund. The direction of the Ld. CIT( A) to the AO to make a reference is only to this limited extent, which arises and could have arisen only while holding the assessee not entitled to grant of interest for the entire period of delay. I t is this order of the Ld. CIT( A) which has been challenged before us. The argument of the Ld. DR therefore that the order of the Ld. CIT( A) could not have been challenged is clearly devoid of any merits and is thus dismissed. Assessee appeal allowed. Issues Involved:1. Allowability of interest on refund under section 244A of the Income Tax Act, 1961.2. Period for which interest is to be allowed.Issue-Wise Detailed Analysis:1. Allowability of Interest on Refund under Section 244A of the Income Tax Act, 1961:The appeals revolve around the entitlement of the assessee to interest on refunds generated due to the reclassification of interest received under the Technology Upgradation Fund Scheme (TUF) from revenue to capital in nature. The initial claim was made by the assessee only during the appeal before the ITAT, which was subsequently restored to the CIT(A) and allowed, resulting in a refund.The assessee argued that there was no delay attributable to it and that it was entitled to interest on the refund for the entire period as per section 244A(1) of the Act. The assessee contended that the provisions of section 244A(2) were only applicable where there was a delay in the proceedings resulting in the refund, which was not the case here. The Revenue, on the other hand, argued that the delay in the refund was attributable to the assessee as the claim was made belatedly.The Tribunal noted that the provision for interest on refunds is compensatory in nature, as established by the Supreme Court in the case of Union of India vs Tata Chemicals Ltd. The Tribunal held that any claim allowed at any stage resulting in a refund only recognizes that the assessee was never required to pay taxes on that portion of income. Therefore, the refund generated must be compensated with interest for the entire period it was retained by the State.The Tribunal further cited various judicial decisions, including Ajanta Manufacturing Ltd. vs. DCIT and CIT vs. Melstar Information Technology Ltd., which supported the view that a belated claim by the assessee does not amount to delay in proceedings attributable to the assessee.2. Period for Which Interest is to be Allowed:The Tribunal examined the relevant provisions of section 244A, which stipulate that interest on refunds is to be calculated from the first day of the assessment year or the date of payment of tax, whichever is later, to the date on which the refund is granted. The only exception is provided in section 244A(2), which excludes the period of delay attributable to the assessee from the calculation of interest.The Tribunal held that the act of making a claim belatedly does not amount to delay in proceedings resulting in a refund. The Tribunal emphasized that the entire process of assessments and appeals is a continuous process of determining the true and correct income of the assessee. Any refund generated due to a claim allowed at any stage must be compensated with interest for the entire period it was retained by the State.The Tribunal distinguished the case laws relied upon by the Revenue, such as Pala Marketing Co-op Society Ltd. vs CIT and HHA Tank Terminal (P) Ltd. vs ACIT, on the grounds that they involved different factual scenarios where the delay was directly attributable to the assessee.Conclusion:The Tribunal concluded that the assessee was entitled to interest on the refund for the entire period of delay as per section 244A(1)(b) of the Act. The Tribunal held that there was no delay attributable to the assessee in the proceedings resulting in the refund, and therefore, the provisions of section 244A(2) were not applicable. The Tribunal set aside the order of the CIT(A) holding otherwise.The Tribunal also dismissed the argument that the CIT(A) had no power to restore the matter to the AO, clarifying that the CIT(A) had only directed the AO to refer the matter to the Principal CIT, which did not amount to restoring the issue to the AO.The appeals in ITA Nos. 1264 to 1267/Chd/2019 were allowed, and the appeals in ITA Nos. 103 to 106/Chd/2020 were dismissed as non-maintainable.