2024 (9) TMI 483 - AT - Income Tax

Interest on partial refunds must be adjusted against outstanding interest first, then tax under section 244A(1)

The ITAT Mumbai upheld the CIT(A)'s decision regarding interest calculation under section 244A(1). The tribunal ruled that when partial refunds are ... Short grant of interest u/s. 244A(1) - as per CIT(A) while calculating interest u/s. 244A(1), the refund earlier granted should be adjusted against the interest component and balance if any, should be adjusted against the principal refund amount without any methodology - HELD THAT:- As decided in own case [2024 (5) TMI 492 - ITAT MUMBAI] for A.Y. 2004-05 it is not the case of the assessee to claim interest on interest or claim of any interest which is not provided in the act. Assessee is merely saying that when out of the total refund due comprising of interest and the tax, if part of the amount is refunded, it should be adjusted in a similar manner in which when part taxes paid are adjusted by revenue against tax and interest. We find that when part taxes are paid by the assessee, it is first adjusted against the interest payable and then against tax due, similarly when the part refund is granted to the assessee, it should be first adjusted towards the outstanding interest and then against the tax payable. CIT(A), in first appeal has rightly allowed the claim of the assessee in directing the assessing officer to examine the computation of refund including interest u/s. 244A. No fault or any infirmity is found in the impugned order. The impugned order is sustained. The aforesaid points are accordingly determined against the appellant revenue and in favour of the respondent assessee. The appeal is thus, liable to be dismissed. Issues Involved:1. Whether the CIT(A) is justified in directing the assessing officer to allow the short grant of interest under Section 244A(1) of the Income-tax Act, 1961.2. Whether the CIT(A) is justified in allowing the assessee's ground that for calculating interest under Section 244A(1), the refund earlier granted should be adjusted against the interest component first and then the principal refund amount.Issue-wise Detailed Analysis:1. Justification of CIT(A) in Directing the Assessing Officer to Allow Short Grant of Interest under Section 244A(1):The revenue appealed against the CIT(A)'s order, which directed the assessing officer to allow the short grant of interest under Section 244A(1) of the Income-tax Act. The CIT(A) relied on the decision of the ITAT in the case of Bank of Baroda, which was contested by the revenue citing the Delhi High Court's decision in the case of CIT v. Indian Farmer Fertilizer Co-operative and the Supreme Court's decision in Commissioner of Income Tax v. Gujarat Fluoro Chemicals. The revenue argued that these decisions clarified that only the interest provided under the statute could be claimed by the assessee, and no other interest on such statutory interest is permissible.The Tribunal, however, upheld the CIT(A)'s decision, stating that the methodology for adjusting refunds should be in line with the principles laid down in the case of Bank of Baroda and the Delhi High Court's decision in India Trade Promotion Organization vs. CIT. The Tribunal emphasized that the CIT(A) correctly directed the assessing officer to grant interest under Section 244A(1) by following the appropriate methodology for adjustment of refunds, as no contrary specific provision was present under the Act.2. Justification of CIT(A) in Allowing Assessee's Ground for Methodology of Adjusting Refunds:The CIT(A) allowed the assessee's ground that for calculating interest under Section 244A(1), the refund earlier granted should be adjusted first against the interest component and then against the principal refund amount. The revenue contended that no such methodology was laid down in any of the decisions relied upon by the ITAT in the case of Bank of Baroda.The Tribunal supported the CIT(A)'s approach, referencing the explanation to Section 140A of the Act, which provides a specific chronology for the adjustment of payments made by the assessee towards tax, interest, and fees. The Tribunal noted that the same methodology and chronology should apply to refunds due to the assessee in the absence of any contrary specific provision under the Act. The Tribunal cited the Delhi High Court's decision in India Trade Promotion Organization vs. CIT, which elucidated that the interest due on refunds should be calculated in a manner that discourages part payments and ensures the entire amount, including interest, is refunded promptly.The Tribunal concluded that the CIT(A) rightly allowed the assessee's claim and directed the assessing officer to examine the computation of refund, including interest under Section 244A. The Tribunal found no fault or infirmity in the CIT(A)'s order and sustained it, determining the points against the appellant revenue and in favor of the respondent assessee.Conclusion:The Tribunal dismissed the revenue's appeals (ITA No. 4318/MUM/2023, ITA No. 4319/MUM/2023, and ITA No. 4320/MUM/2023) and confirmed the impugned orders dated 18.07.2023 and 07.08.2023. The Tribunal's order emphasized that the CIT(A)'s directions were in accordance with the law and the principles laid down in relevant judicial precedents. The appeals were thus dismissed, and the orders of the CIT(A) were upheld.