2019 (6) TMI 1707 - AT - Income Tax

Refund adjustments under section 244A must be applied first against interest then tax component

The ITAT Mumbai held that when computing interest on refunds under section 244A, there is no requirement to segregate refunds into tax and interest ... Computation of the interest on refund u/s 244A - Adjustment of part of the refunds granted, first against tax portion of the refund due and then against the interest portion of the refund due, reducing the eligibility of the assessee to claim further interest on the left over portion of the tax refund due - HELD THAT:- There is no need to segregate the refunds granted into tax portion and interest portion and subsequently reduce the tax portion of the refund alone from the refund originally granted for calculation of interest u/s 244A of the Act for the period subsequent to 4.7.1997. This action of the ld AO in our considered opinion, is against the spirit of the provisions of the scheme of taxation. The provisions of section 140A of the Act specifically provides that any part payment of self assessment tax paid by the assessee would first be appropriated towards the interest portion thereon and thereafter remaining would get adjusted towards the tax portion, meaning thereby, the exchequer should never be deprived of its legitimate dues payable by the assessee in time. The same analogy would equally apply when the refund is to be granted to the assessee with interest u/s 244A / In the instant case, the entire confusion had arose due to the fact that the 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 As decided in Union Bank of India .[2016 (8) TMI 688 - ITAT MUMBAI] wherein held that since the statute itself has already prescribed a particular method of adjustment in explanation to section 140A(1), then justice, fairness, equity and good conscience demands that same method should be followed while making adjustment for refund of taxes, especially when no contrary provision has been provided - direct the AO to re-compute the amount of interest u/s. 244A by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component. Decided in favour of assessee. Issues Involved:- Adjustment of refunds against tax and interest portions.- Calculation of interest on refunds under Section 244A of the Income Tax Act.Issue-wise Detailed Analysis:1. Adjustment of Refunds:The primary issue in this appeal was the method of adjustment of refunds by the Assessing Officer (AO). The AO adjusted the refunds first against the tax portion and then against the interest portion, which reduced the eligibility of the assessee to claim further interest on the remaining tax refund. The Commissioner of Income Tax (Appeals) [CIT(A)] granted relief to the assessee, directing the AO to calculate the interest correctly as per law.2. Calculation of Interest on Refunds:The CIT(A) had directed the AO to grant correct interest under Section 244A of the Income Tax Act, following the decision of the Hon’ble Delhi High Court in the case of India Trade Promotion Organisation vs CIT. The AO calculated the interest on the refund originally determined but only granted a partial refund to the assessee, leading to a dispute over the calculation of interest for subsequent periods.Tribunal's Findings and Directions:- The Tribunal noted that the CIT(A) had directed the AO to calculate the interest correctly but did not delve into the dispute. Both the assessee and the revenue appealed against this action.- The Tribunal held that the remaining amount of Rs. 52.09 crores (from the original refund of Rs. 200.87 crores) should be treated as the principal portion, on which the assessee is eligible for interest.- The Tribunal emphasized that there is no need to segregate the refunds into tax and interest portions for calculating interest under Section 244A for periods after 4.7.1997. This approach aligns with the provisions of Section 140A of the Act, which prioritize the adjustment of payments towards interest before tax.- The Tribunal referenced its own decision in the case of Union Bank of India vs ACIT, where it was held that partial refunds should first be adjusted against the interest component and then against the tax component. This ensures that the assessee is not deprived of interest on the unpaid refund amount.- The Tribunal cited the Hon’ble Delhi High Court’s judgment in India Trade Promotion Organisation, which supports the principle that interest should be paid on the unpaid refund amount, not on the refunded amount, thereby avoiding the payment of interest on interest.- The Tribunal also referred to the Hon’ble Supreme Court’s judgment in the case of Tata Chemicals Ltd., which underlined the obligation of the revenue to refund excess tax collected with interest, treating it as a debt owed to the assessee.Conclusion:The Tribunal directed the AO to compute the interest on the refund under Section 244A as per the assessee’s plea, following the principles laid out in the Union Bank of India case. The Tribunal dismissed the revenue’s appeal and allowed the assessee’s appeal, ensuring that the interest on the unpaid refund amount is calculated correctly.Final Order:The appeal of the revenue was dismissed, and the Tribunal’s decision was pronounced in the open court on 19/06/2019.