TaxTMI 
TaxTMI 
2021 (7) TMI 1391
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.....2019 . Both the two groups of appeals relate to the same assessment years i. e. 2002 - 03 to 2005 - 06 and the only issue involved, it was common ground, related to allowability of interest on refund u/ s 244 A of the Income Tax Act, 1961 ( in short ' the Act') and the period for which interest is to be allowed respectively in the two groups of appeals. 2. Briefly explaining the background in which the above two sets of appeals arose, the Ld. Counsel for the assessee pointed out that the Ld. CIT( A), in the second round on restoration of certain issues by the ITAT, while adjudicating the issue relating to the treatment of interest received under TUF Subsidy Scheme, whether capital or revenue, held the same to be capital in nature but while holding so gave a direction that the refund generated on account of the claim of the assessee being so allowed, was not entitled to any interest thereon since the delay in the grant of refund was attributable to the assessee as it had originally returned the said interest as revenue in nature and had for the first time made this claim only in appeal before the ITAT. Against this direction of the Ld. CI T( A) the assessee went in appeal bef....
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....sue of interest on refund arose in the case of the assessee as above, the Ld. Counsel for the assessee vehemently opposed the order passed by the Ld. CIT( A) in the present case. The argument of the Ld. Counsel for the assessee was that the assessee was entitled to interest on refund as per the provisions of section 244 A(1) of the Act and there was no delay attributable to the assessee at all so as to attract the provisions of section 244 A(2) of the Act for referring the matter to the Ld. Pr. CIT by the AO as directed by the Ld. CIT( A) in his order. Vis- à- vis his contention that the assessee was entitled to interest on the refund for the entire period of delay as per the provisions of section 244 A(1) of the Act, he pointed out that the law stipulates interest on refund of self assessment tax paid by the assessee also as per the provisions of section 244 A(1)( aa) of the Act and in the facts of the present case wherein the assessee had originally returned the interest on TUF subsidy as its income and paid the taxes thereon, which was subsequently on a plea raised before the ITAT, restored to the Ld. CIT( A) and allowed by him as being capital in nature, the refund arose....
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....s its income and staked his claim for the same to be treated as non taxable, being capital in nature, only in appeal before the I TAT, the delay in refund was not on account of any fault of the Department but was squarely attributable to the assessee for making a delayed claim. He, therefore, contended that the Ld. CIT( A), therefore, had rightly invoked the provisions of section 244 A( 2 ) of the Act by directing the AO to refer the issue to the Ld. Pr. CIT. In this regard, he referred and relied upon the following decisions: 1. Pala Marketing Co- op. Society Ltd. vs CIT, Kottayam (2017) 79 taxmann. com 438 ( Kerala) 2. HHA Tank Terminal ( P) Ltd. vs ACI T ( 2019 ) 112 Taxmann. com 114 ( Kerala). 8. He further distinguished the decisions relied upon by the Ld. Counsel for the assessee before us on facts. The Ld. DR also contended that since the Ld. CIT( A) had directed the AO to make a reference to the Pr. CIT for determining the period to be excluded for payment of interest, the assessee ought to have waited for the decision of the Ld. Pr. CIT before filing the appeal and therefore the present appeals were not maintainable. 9. Both the parties filed detail....
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....on for the period it remained with the Revenue Department. 14. Since both the parties have argued the applicability of different subsections to section 244 A, to adjudicate the issue therefore it is relevant to reproduce the relevant provisions of section 244 A : "244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely :- (a) where the refund is out of any tax collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period,- (i) from the 1st day of April of the assessment year to the date on which the refund is granted, if the return of income has been furnished on or before the due date specified under sub-section (1) of section 139; or (ii) from the date of furnishing of return of income to the date on which th....
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....nsated for the periods from the date of filing of return of income or the date of payment of taxes whichever is later, to the grant of refund. The only caveat or exception is provided in subsection ( 2 ), that where any proceedings of refund are delayed by the assessee, this period is to be excluded from the period for which interest is to be paid. Further it is only the Ld. Pr. CIT who is empowered to decide the period of delay. 16. Thus it is abundantly clear that interest on refunds granted is compensatory in nature. The Hon'ble Apex Court has categorically stated so in the case of Union of India vs Tata Chemicals Ltd( 2014 ) 43 taxmann. com 240 , at para 37 of its order as under: "37.A "tax refund" is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/Income Tax Officer. In the appeal filed against the said order the assessee has succeeded ....
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....s. Any claim allowed to the assessee at any stage whether made for the first time or whether taken up in appeal only underlines the position that no taxes were required to be paid by the assessee on the said claim at all. Therefore, in such circumstances, the refund generated on account of the same, having been retained by the State unlawfully is entitled to be compensated with interest for the entire period for which it is so retained. 19. It is to be remembered that the State is entitled to only taxes due on the correct taxable incomes and it is the duty of the Department to determine the true and correct income and guide the assessee in the process. They are not and cannot be entitled to take the benefit of the ignorance of the assessee and collect undue taxes. Therefore any taxes mistakenly paid and unlawfully retained by the State have to be compensated with interest on refund. 20. The situation envisaged in section 244 A( 2 ) of the Act is that where any proceedings where the claim of the assessee is being adjudicated or determined, the assessee resorts to methods which delay the proceedings thereby increasing period for which interest is to be given, It is such period ....
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.... allowable by the Assessing Officer. In other words, by passing order in appeal, he merely recognized a legal position whereby, the assessee was entitled to claim certain benefits of reduced tax. Surely, the fact that the assessee had filed the appeal which ultimately came to be allowed by the Commissioner, cannot be a reason for delaying the proceedings which can be attributed to the assessee. 17. The Department does not contend that the assessee had needlessly or frivolously delayed the assessment proceedings at the original or appellate stage. In absence of any such foundation, mere fact that the assessee made a claim during the course of the assessment proceedings which was allowed at the appellate stage would not ipso facto imply that the assessee was responsible for causing the delay in the proceedings resulting into refund. We may refer the decision of the Kerala High Court in case of Commissioner of Income- Tax V/s. South Indian Bank Ltd., reported in (2012) 340 ITR (Ker) in which the assessee had raised a belated claim for deduction which was allowed by the Commissioner (Appeals). The Revenue, therefore, contended that for such delay, interest should be declined u....
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....eld there was no delay attributable to the assessee where in the facts before it the claim for an expenditure was made for the first time before the Tribunal who in turn had remanded the matter to the CIT( A) who had allowed the claim resulting in refund to the assessee. The Hon'ble High Court held that there was nothing to suggest that any of the proceedings, before the ITA T or the CIT( A) were in any manner delayed by the assessee. That therefore section 244 A( 2 ) was not applicable. The relevant findings of the Hon' ble High Court at para 4 - 8 of the order are as under: "4.The facts on record would show that the assessee had not claimed certain expenditure before the Assessing Officer but eventually raised such a claim before the Tribunal. Upon which, the Tribunal remanded the proceedings to the CIT(A). As such stage, the additional benefit claimed by the assessee was granted. This resulted in refund and the question of payment of interest on such refund. 5. As is well known, in case of refunds payable to the assessee, interest in terms of sub-section (1) of Section 244A would be payable. Sub-section (2) of Section 244A, however, provides that if the proceed....
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.... cannot be said to be the reasons for delaying the proceedings which can be attributable to the assessee. Mere fact that the claim came to be granted by the Appellate Commissioner, would not change this position. In essence, what the Commissioner (Appeals) did was to allow a claim which in law, in his opinion, was allowable by the Assessing Officer. In other words, by passing order in appeal, he merely recognized a legal position whereby, the assessee was entitled to claim certain benefits of reduced tax. Surely, the fact that the assessee had filed the appeal which ultimately came to be allowed by the Commissioner, cannot be a reason for delaying the proceedings which can be attributed to the assessee. 17. The Department does not contend that the assessee had needlessly or frivolously delayed the assessment proceedings at the original or appellate stage. In absence of any such foundation, mere fact that the assessee made a claim during the course of the assessment proceedings which was allowed at the appellate stage would not ipso facto imply that the assessee was responsible for causing the delay in the proceedings resulting into refund. We may refer the decision of the ....
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....missed." 24. In the case of Chetan N. Shah vs. M. K. Moghe Commissioner of Income Tax (2015 ) 53 taxmann. com 18 , the Hon'ble Bombay high court held that there is no provision for rejecting the claim of interest on account of a mistake by the assessee. That such a proposition would render the section otiose since excess taxes paid originate on account of some mistake either on fact or law on the part of the assessee. That i t is only delay in disposal of proceedings resulting in refund attributable to the assessee which are not to be compensated with interest. The relevant findings at para 13 are as under: "13. The Assessing Officer has been given no discretion in the matter of granting interest. The amount of interest has to be paid to an assessee in terms of Section 244A of the Act. The only limitation provided therein under Section 244A of the Act is under sub-section 2 thereof which mandates that where any refund results to an assessee, while computing the interest payable thereon, the delay which is attributable to the assessee, in obtaining the refund would be excluded. The Act itself does not provide for rejecting the claim for interest on account of a mistake c....