AO incorrectly adjusted refunds when calculating interest under section 244A, refund amounts should first adjust towards interest component

ITAT Mumbai held that AO incorrectly adjusted refunds when calculating interest under section 244A. The tribunal ruled that refund amounts should first be adjusted towards interest component, with any balance towards tax component. AO was directed to recalculate interest up to actual receipt date and compute additional interest under section 244A(1A) from June 1, 2016 onwards, following precedents from Pfizer Limited and K.E.C International cases.

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Issues Involved:
1. Incorrect adjustment of earlier refunds.
2. Calculation of interest for the interim period.
3. Calculation of interest under section 244A(1A).
4. Grant of interest on interest due to inordinate delay.
5. Remanding the matter to the Assessing Officer.

Summary:

1. Incorrect Adjustment of Earlier Refunds:
The assessee contended that the Assessing Officer (AO) erred in adjusting earlier refunds without considering the present relief, leading to a larger adjustment of the refund towards the tax component instead of the interest component. The Tribunal referred to the principle of equity and the decision in Union Bank of India v/s ACIT, emphasizing that the AO should first adjust the refund towards the interest component and then the tax component. The Tribunal directed the AO to compute the correct amount of interest under section 244A as per the assessee's claim after giving a proper opportunity of being heard.

2. Calculation of Interest for the Interim Period:
The assessee argued that the AO did not calculate interest for the period from the date the order giving effect (OGE) was passed (08.03.2016) to the actual receipt of the refund (18.08.2022). The Tribunal, following precedents from the Hon'ble Bombay High Court and other cases, directed the AO to re-calculate the interest up to the date of actual receipt of the refund by the assessee.

3. Calculation of Interest under Section 244A(1A):
The assessee claimed additional interest under section 244A(1A) due to the delay in granting the refund. The Tribunal noted that the provisions of section 244A(1A) apply prospectively from 01.06.2016 and directed the AO to examine the issue afresh and calculate the additional interest accordingly, referencing the decision in Bharat Petroleum Corporation Ltd.

4. Grant of Interest on Interest Due to Inordinate Delay:
The Tribunal did not specifically address this issue in the summary provided, as it was intertwined with the other issues regarding the calculation and adjustment of interest.

5. Remanding the Matter to the Assessing Officer:
The Tribunal did not adjudicate on the issue of remanding the matter to the AO, as no arguments were presented by the assessee's representative regarding this ground.

Conclusion:
The appeal of the assessee was partly allowed, with directions to the AO to re-calculate the interest and additional interest as per the Tribunal's findings and the principles laid out in relevant judicial precedents. The order was pronounced in the open court on 06-12-2023.

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