2020 (1) TMI 718 - AT - Income Tax

Tribunal dismisses appeal, finding Assessing Officer's order erroneous. Interest on interest not permissible without specific statutory provision.

M/s Small Industries Development Bank of India Versus Pr. Commissioner of Income-tax-3, Mumbai

The Tribunal upheld the Principal Commissioner of Income Tax's order under Section 263, finding the Assessing Officer's order erroneous and prejudicial to ... Revision u/s 263 - allowing of interest on interest u/s 244A - whether the order giving effect dated 11.03.2013 passed by AO in grant of refund which included refund being interest on interest is erroneous and prejudicial to the interest of revenue - whether there is inordinate delay or in an ordinary manner while granting refund ? - HELD THAT:- From the dates and events which is summarised by Ld. PCIT at para 2.1 of his order we find that the Tribunal passed the order on 19-02-2010 and refund was granted on 29-03-2010. Further, the CIT (A) passed the order on 24.12.2012 and order giving effect was passed by AO on 11-03-2013 and accordingly, the refund order was issued. Thus, there is no delay which could be said to be inordinate delay on the part of the revenue in granting refund. We are of the view that the case law in Sandvik Asia Ltd [2006 (1) TMI 55 - SUPREME COURT] is not helpful to the assessee. As we have already held that there was no inordinate delay on the part of the revenue in issuing the refund order, in our view the order giving effect dated 11-03-2013 is not only erroneous but also prejudicial to the interest of revenue. Accordingly, the order passed by ld. PCIT fulfils the twin condition of section 263 of the Act. Therefore, we do not find any merit in the appeal filed by the assessee, which is hereby dismissed. Issues Involved:1. Validity of proceedings initiated under Section 263 of the Income Tax Act, 1961.2. Legality of granting interest on interest under Section 244A of the Income Tax Act, 1961.3. Whether the order dated 11-03-2013 passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of revenue.Issue-wise Detailed Analysis:1. Validity of Proceedings Initiated under Section 263:The appellant challenged the initiation of proceedings under Section 263 of the Income Tax Act, 1961, arguing that the reasons assigned by the Principal Commissioner of Income Tax (PCIT) were wrong and contrary to the facts of the case and the provisions of the Income Tax Act, 1961. The appellant contended that the order passed by the AO was neither erroneous nor prejudicial to the interest of revenue, as it was made after due application of mind and in accordance with the decision of the Supreme Court in Sandvik Asia Ltd vs CIT.2. Legality of Granting Interest on Interest under Section 244A:The appellant argued that the refund granted by the AO, which included interest on interest, was in line with the Supreme Court's decision in Sandvik Asia Ltd vs CIT. The PCIT, however, held that the AO had incorrectly granted excess refund by including interest on interest, which is not allowable under Section 244A. The PCIT distinguished the Sandvik Asia case, noting that it involved an inordinate delay by the department, which was not the case here. The PCIT also referenced the full bench decision in CIT vs Gujarat Flouro Chemicals, which clarified that interest on interest is not payable unless specifically provided by statute.3. Whether the Order Dated 11-03-2013 by the AO was Erroneous and Prejudicial to the Interest of Revenue:The Tribunal examined whether the AO's order granting a refund, including interest on interest, was erroneous and prejudicial to the interest of revenue. The Tribunal noted that there was no inordinate delay by the department in issuing the refund, as the refund was granted promptly after the appellate orders. The Tribunal concluded that the AO's order was indeed erroneous and prejudicial to the interest of revenue, as it incorrectly included interest on interest, which is not supported by the statutory provisions or the Supreme Court's decision in Gujarat Flouro Chemicals.Conclusion:The Tribunal upheld the PCIT's order under Section 263, concluding that the AO's order was erroneous and prejudicial to the interest of revenue. The appeal filed by the assessee was dismissed. The Tribunal emphasized that interest on interest is not allowable under Section 244A unless specifically provided by statute, and the Supreme Court's decision in Sandvik Asia Ltd vs CIT does not support the grant of interest on interest in the absence of inordinate delay by the department.