Tribunal overturns adhoc expense disallowance, allows interest refund under Section 244A.

The Tribunal allowed the appeal in favor of the assessee, directing the deletion of the adhoc disallowance of expenses and the allowance of interest on the refund of self-assessment tax under Section 244A.

---

---

Issues Involved:
1. Disallowance of certain business expenses.
2. Non-allowance of interest under Section 244A of the Income Tax Act on the refund of self-assessment tax.

Issue-wise Detailed Analysis:

1. Disallowance of Certain Business Expenses:

The assessee, engaged in the hospitality business, claimed various expenses in the profit and loss account, including business promotion, car expenses and repair, festival expenses, telephone expenses, staff welfare, and general expenses, totaling Rs. 26,44,114. The Assessing Officer (AO) disallowed 1/5th of these expenses on an adhoc basis, amounting to Rs. 5,28,822, citing that some expenses could be personal in nature and certain vouchers and bills were not produced. The CIT(A) reduced this disallowance to 15%.

Upon review, the Tribunal found that the assessee maintained regular books of accounts and provided complete bills and vouchers for the expenses. The Tribunal observed that the absence of a separate ledger for personal expenses does not imply that the expenses are unverifiable or personal. No specific discrepancies or personal expenses were identified by the AO. As such, the Tribunal held that the adhoc disallowance was unsustainable and directed its deletion.

2. Non-allowance of Interest under Section 244A:

The assessee filed a return declaring a net income and paid tax, including TDS and self-assessment tax under Section 140A. The return was later revised, resulting in a refund due to the assessee. The AO issued a refund with interest only on the TDS amount, excluding the self-assessment tax, computed through the IT system. The CIT(A) upheld this computation without considering the correct facts.

The Tribunal referred to Section 244A, which mandates interest on the refund of excess self-assessment tax. Citing the Supreme Court's judgment in CIT, Kolkata vs. Birla Corporation Ltd. and Union of India vs. Tata Chemicals Ltd., the Tribunal emphasized that interest on refunds should be considered liberally in favor of the assessee. Section 244A(1)(b) covers interest on refunds in cases not specified in Section 244A(1)(a), including self-assessment tax.

The Tribunal highlighted the Supreme Court's stance that interest is compensation for the use and retention of money collected unauthorizedly by the department. The Tribunal also referred to the Bombay High Court's decision in Stockholding Corporation of India vs. N.C. Tewari, CIT, which supported interest on refunds of excess self-assessment tax.

Furthermore, the Tribunal noted the Finance Bill 2016's amendment to Section 244A, which provides for interest on refunds of self-assessment tax from the date of payment or filing of return, whichever is later. Although effective from June 1, 2016, the Tribunal deemed this amendment curative and declaratory, thus applicable retrospectively.

In conclusion, the Tribunal directed the AO to allow interest under Section 244A on the refundable amount of self-assessment tax, aligning with principles of fairness and equity.

Conclusion:

The appeal was allowed in favor of the assessee, with the Tribunal directing the deletion of the adhoc disallowance of expenses and the allowance of interest on the refund of self-assessment tax under Section 244A.

Order Pronounced:

The order was pronounced in the open court on October 8, 2021.

---