Rectification under s.154 cannot withdraw s.244A interest on advance tax; s.234D levy also unsustainable, held for assessee

ITAT Pune allowed the assessee's appeal against a rectification order under s.154 withdrawing interest under s.244A and levying interest under s.234D. It held that where refund arises from advance tax, s.244A mandates payment of interest, and the delay in claiming refund cannot be treated as attributable to the assessee so as to deny such interest. The AO and CIT(A) erred in withdrawing previously granted s.244A interest through s.154 proceedings. ITAT set aside the CIT(A) order and directed the AO to allow credit of advance tax along with interest under s.244A, thereby allowing the assessee's grounds.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in a case where advance tax paid is duly reflected in Form 26AS but was inadvertently not claimed in the return of income, the assessee is entitled to credit of such advance tax and interest on the resulting refund under section 244A.

1.2 Whether the delay in claiming credit of such advance tax, in the above circumstances, can be treated as delay in the proceedings "attributable to the assessee" for the purposes of section 244A(2), so as to deny or reduce interest on refund.

1.3 Whether withdrawal of interest earlier granted under section 244A and consequential levy of interest under section 234D, by invoking section 154, is permissible on the footing that denial of such interest is a "mistake apparent from the record".

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Entitlement to credit of advance tax and interest under section 244A; whether delay is attributable to the assessee under section 244A(2)

Legal framework (as discussed)

2.1 The Tribunal noted that section 244A provides that where any amount becomes due to the assessee as refund, the assessee is entitled to receive such amount along with interest where such refund is out of advance tax. Section 244A(2) provides for exclusion, from the period for which interest is payable, of any period of delay in the proceedings resulting in the refund that is attributable to the assessee.

Interpretation and reasoning

2.2 It was undisputed that the assessee had in fact paid advance tax of Rs. 20,00,000 and that this payment was duly reflected in Form 26AS. The assessee had inadvertently failed to claim the corresponding credit in the return of income.

2.3 On a rectification application, the Assessing Officer initially granted the credit of advance tax along with interest under section 244A. Subsequently, by another rectification order, the Assessing Officer withdrew the interest and levied interest under section 234D, holding that the delay in claiming the refund was attributable to the assessee.

2.4 The Tribunal noted that the Assessing Officer's denial of credit and interest was solely on the ground that the assessee had not claimed the advance tax in the return. In light of the judicial decisions cited by the assessee and CBDT Instruction [F. No. 380/1/2015-IT(B)] dated 24.03.2015 (Central Action Plan) directing grant of credit for prepaid taxes as reflected in Form 26AS, the Tribunal found force in the contention that the credit for advance tax ought to have been allowed by the Assessing Officer on the basis of Form 26AS even if it was not claimed in the return.

2.5 The Tribunal reasoned that, since the advance tax payment was fully evidenced in Form 26AS (a departmental record), and the omission to claim it was only inadvertent, the delay in grant of refund could not be put entirely at the door of the assessee in a manner that justifies denial of interest under section 244A. Rather, the Assessing Officer ought to have allowed the credit and corresponding interest once the payment was evident from the records.

Conclusions

2.6 The Tribunal held that the assessee is entitled to credit of the advance tax of Rs. 20,00,000 and to interest thereon under section 244A. The delay in claiming credit in the return, in the circumstances of the case, could not be treated as a ground to deny such interest.

2.7 The action of the Assessing Officer and the first appellate authority in denying interest under section 244A on the said refund was held to be unsustainable in law.

Issue 3: Validity of rectification under section 154 to withdraw interest under section 244A and levy interest under section 234D

Legal framework (as discussed)

3.1 The Tribunal proceeded on the provisions of section 154, which empower rectification of "mistakes apparent from the record", and on the scheme of section 244A regarding grant of interest on refunds. Reference was also made, in the arguments, to section 244A(2) regarding exclusion of period attributable to the assessee and to CBDT Instruction [F. No. 380/1/2015-IT(B)] mandating credit of taxes reflected in Form 26AS.

Interpretation and reasoning

3.2 The Assessing Officer had firstly passed a rectification order granting credit of advance tax and interest under section 244A, and then, by a subsequent rectification order under section 154, withdrew the interest and levied interest under section 234D on the ground that the delay was attributable to the assessee and that interest under section 244A was wrongly allowed.

3.3 The Tribunal found that, given the clear statutory position that refund out of advance tax carries interest and that the advance tax payment was undisputed and reflected in departmental records (Form 26AS), the Assessing Officer was bound to grant credit and interest. Once such interest had been granted in rectification, its subsequent withdrawal was not supported by the provisions of section 244A read with the CBDT instruction and the judicial views cited.

3.4 The Tribunal held that the denial and withdrawal of interest in the manner done did not constitute a permissible exercise of the rectification power under section 154. The action involved a substantive re-determination of entitlement to interest, which, on the facts and legal position, could not be characterised as correction of a simple, patent mistake apparent from the record.

Conclusions

3.5 The Tribunal concluded that the withdrawal of interest under section 244A by invoking section 154 was "bad in law" and that the interest earlier granted to the assessee could not be subsequently withdrawn by resorting to section 154.

3.6 Consequently, the Tribunal set aside the order of the first appellate authority, directed the Assessing Officer to grant credit for the advance tax of Rs. 20,00,000 along with interest thereon under section 244A as per law, and allowed all grounds raised by the assessee, thereby also negating the consequential levy of interest under section 234D based on such withdrawal.

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