Interest First: Tribunal Upholds CIT-A's Order to Adjust Refunds Prioritizing Interest Before Tax u/s 244A.

The ITAT dismissed the AO's appeal, affirming the CIT-A's directive to adjust refunds by prioritizing interest amounts before tax amounts under Section 244A of the Income Tax Act. The Tribunal emphasized that the Department's practices must align with statutory provisions, requiring the AO to verify and recompute interest claims accordingly.

---

---

Issues involved:
The judgment involves the issue of adjustment of refund towards interest amount and tax amount, interpretation of Section 244A of the Income Tax Act regarding payment of interest on refunds, and the dispute between the revenue and the assessee regarding the calculation of interest under Section 244A.

Issue 1: Adjustment of refund towards interest and tax amount
The appeal was filed by the Assistant Commissioner of Income Tax against the appellate order passed by the National Faceless Appeal Centre for the assessment year 2015-16. The dispute arose when the learned CIT-A directed the AO to adjust the refund granted first towards interest amount refundable and then consider the balance amount of tax refundable. The AO contended that this adjustment would lead to an excess grant of interest contrary to the Department's practice and legislative intent.

Issue 2: Interpretation of Section 244A of the Income Tax Act
The case involved the State Bank of Bikaner and Jaipur, which later merged with the State Bank of India. The assessee claimed entitlement to interest under Section 244A, arguing that interest should be granted by first adjusting the refund towards the interest component and then towards the tax component. The learned CIT-A directed the AO to verify the tax payment details submitted by the assessee and recompute the interest under Section 244A until the date of granting the refund.

Issue 3: Dispute over calculation of interest under Section 244A
The revenue contended that taxes already refunded should be reduced from the tax amount eligible for interest under Section 244A. In contrast, the assessee argued that tax refunds should not be reduced from the tax amount eligible for interest, resulting in a higher interest payout. The Tribunal found no merit in the AO's appeal, as the AO was directed to verify the assessee's claim in accordance with the law and the Department's practice should align with the provisions of the Income Tax Act.

The judgment dismissed the appeal of the learned Assessing Officer, emphasizing the need for the Department's practice to be consistent with the statutory provisions.

---