DCIT, CIR-3(3)(1), MUMBAI vs. SICOM LIMITED, MUMBAI CITY

Appellant/Respondentby Shri. Rameshar Meena.Sr.DR Respondent/Appellantby Shri.Nikhil Tiwari.AR Date of Hearing 12.10.2023 Date of Pronouncement 16.10.2023 आदेश / O R D E R PER BENCH:

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 2 - These appeals are filed by the Revenue and the cross objections by the Assessee against the different orders of the National Faceless Appeal Centre, (NFAC), Delhi / CIT(A) passed u/sec 154 and- U/sec 250 of the Income Tax Act, 1961.

1.Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in law in directing Assessing officer to allow the short grant of interest u/s 21 of the Interest Tax Act r.w.s 244A(1) of the Act as per law by applying the same principle & rationale as held in decision of Hon'ble Delhi High Court in the case of India Trade Promotion Organization (ITPO) vs CIT despite the fact that Hon'ble Division Bench of Delhi High Court in CIT vs Indian Farmer Fertilizer Co-operative case [2016] 71 taxmann.com 37 (Delhi) held that the law declared in decision of the Supreme Court in Commissioner of Income Tax v Gujarat Fluoro Chemicals [2013] 358 ITR 291/[2014] 222 Taxman 349/42 taxmann.com 1 is binding and permits no deviation?

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2. Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in law in directing Assessing officer to allow the short grant of interest u/s 21 of the Interest Tax Act r.w.s 244A(1) of the Act as per law by applying the same principle & rationale as held in decision of Hon'ble Delhi High Court in the case of India Trade Promotion Organization (ITPO) vs CIT despite the fact that Hon'ble Supreme Court in Commissioner of Income Tax v. Gujarat Fluoro Chemicals [2013] 358 ITR 291/[2014] 222 Taxman 349/42 taxmann.com 1 categorically clarified that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest?

4. Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in not appreciating that in the decision in the case of ITPO vs CIT 361 ITR 66, the Hon'ble Delhi High Court had only held that if interest due was not granted along with refund earlier granted, that interest amount was eligible for interest u/s. 244A(1) while in the assessee's case, t is not that refund earlier due was granted without interest u/s. 244A(1)?

5. "Whether on the facts and in the circumstances of the case and in law, the LdCIT(A) was right in granting interest u/s 244A up to the date of receipt of refund order by the assessee without appreciating the fact that the provisions of the Income Tax Act, 1961 provide for grant of interest u/s 244A upto the ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 4 - date of grant of refund and not upto the date on which refund was actually received by the assessee? 6. The appellant craves leave to add, amend and/ or vary the grounds of Appeal

before or during the course of hearing

3. The Brief facts of the case are that, the assessee is a non-banking finance company (NBFC) engaged in the business of project finance, leasing, merchant banking, investment and trading in shares, financial services and advisory business. The assessment was completed u/s 143(3) of the Act with additions including disallowance of depreciation on lease transactions. Subsequently the assessee has challenged the additions before the CIT(A) and partial relief was granted by allowing the normal lease transaction depreciation and with respect on sale & lease back transaction, depreciation was allowed on certain transaction and the CIT(A) has partly allowed the assessee appeal. Against the order of the CIT(A), the revenue and the assessee has filed cross appeal before the Hon’ble Tribunal. Whereas the Hon’ble Tribunal vide order dated in ITA No. 2237. 3194, 4719 & 5094/Mum/2005 dated 22.05.2013 has granted relief by deleting the disallowance made by the AO and depreciation on the normal lease transaction was allowed. Whereas with respect to depreciation on sale and lease back, the Honble Tribunal

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 5 - has restored the matter to the file of the Assessing Officer to decide the issue afresh in view of Hon’ble Supreme Court decision and Delhi High Court decision.The revenue has challenged the order of the Honble Tribunal raising various grounds including depreciation on sale & lease back transaction before the Honble High Court of Bombay and was dismissed and the Honble Tribunal order was upheld.

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 6 - 3194/Mum/2005 dated 22/05/2013 and allowed depreciation on assets acquired under sale and lease back transaction. Further the A,O has granted interest U/sec244A of the Act on the quantified consequential refund and passed the rectification order u/s 154 of the Act revising the total income of Rs.33,58,77,785/- vide order 27.09.2018.

5. Aggrieved by the rectification order U/sec154 of the Act, the assessee has filed an appeal with the CIT(A) challenging the action of the Assessing officer on short grant of Interest U/sec244A of the Act and claiming Interest U/sec244A(1A) of the act. In the appellate proceedings, the assessee has filed the detailed submissions substantiating the claim referred at Page 5 Para 4B of the order as under:

“Appellant's submissions Ground 1-4: Short grant of interest under section 244A(1) of the Act 1. While computing the above interest under section 244A(1) of the Act, the learned AO, in its computation has adjusted the granted refund by adjusting principal against the principal component and interest against interest component which has resulted in grant of short interest and refund thereof to the Appellant.

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1. In this regard, Appellant would like to submit as under:

1. Law applicable while payment of taxes should also apply while granting refund

1. As per Explanation 1 to Section 140A of the Act, where any amount is paid by the taxpayer towards outstanding tax demand, the payment made is first adjusted against the interest payable by the taxpayer and the balance, if any, is adjusted against the principal tax amount. The relevant extract of the said Explanation is reproduced as under:

Explanation: Where the amount paid by the assessee under this sub-section falls short of the aggregate of the tax, interest and fee as aforesaid, the amount so paid shall first be adjusted towards the fee payable and thereafter towards] the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable

1. The above provides that in case of partial payments by the taxpayers towards the outstanding demand, the amount shall first be adjusted against the interest and the balance, if any, should be adjusted against the principal component. This would lead to computation of higher interest on the unpaid principal component.

1. Section 244A( 1) of the Act provides that 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.

1. Applying the principles stated in Para 14 & 15 above to the interest computation for Section 244A, any partial refund issued to the Appellant should be first adjusted against the interest and the balance amount should be adjusted principal amount of refund.

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1. Therefore, same principle and rationale should be applicable while granting refund to the appellant.

1Reliance in this regard is placed on the Hon'ble Delhi High Court judgment in case of India Trade Promotion Organization vs CIT (38 taxmann.com 233) wherein it was held that the tax department ought to follow the same procedure and rules while collecting tax and while issuing refunds.

1. Hon'ble Mumbai Income-tax Appellate Tribunal ('ITAT') in case of Union Bank of India vs. Assistant Commissioner of Income-tax (72 Taxmann.com 348) has upheld that the amount of interest received earlier should first be adjusted against the interest component of the earlier refund and thereafter the balance amount should be adjusted against the principal component of tax. The relevant extracts of the ruling are as under:

"Thus, since the statute itself has already prescribed a particular method of adjustment in explanation to section 140A(1), then justice, fairness, equity and good conscience demands that same method should be followed while making adjustment for refund of taxes, especially when no contrary provision has been provided. Under these circumstances and aforesaid discussion, we find that the judicial proprietary demands that order of the Tribunal of earlier years must be followed and therefore we direct the AO to re-compute the amount of interest u/s. 244A by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component. Thus, with these directions, the appeal of the assessee is allowed.

1.. Reliance is also placed on the following decisions:

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 9 - HEG Ltd. (324 ITR 331) (SC)

Bank of Baroda (ITA No. 1646/M/2017)IMENT! Trib)

Peerless General Finance and Investment Co. Ltd (57 ITR(T) 536) (Kol)

1. Following the above judicial precedents and methodology stated in Explanation 1 to section 140A, the refund already issued to the Appellant shall first be adjusted against the interest and then towards the principal amount.

1. Further, it is pertinent to note that AO while granting refund for AY 2002-03 has followed the rationale/law laid by the Courts/Tribunals and have granted interest u/s 244A(1) by first adjusting against the interest and the balance amount adjusting against the principal amount.

1. Further, the Hon'ble CIT(A) in Appellant 's own case for AY 2000-01 has directed the AO to recomputed the interest under Section 244A after duly considering the judgment relied by AO in case of Union Bank of India (72 taxmann.com 348) (Mumbai Trib.). The relevant extract of the aforesaid CIT(A) order is reproduced as under (Copy enclosed at Sr. No. 8 of Paper Book):

Accordingly the AO is directed to revisit the entire computation of interest under Section 244A in this case by passing a detailed and speaking order and after duly considering the above or any other judgment on this subject. These grounds of appeal are therefore technically allowed.

1. In view of the above, the Appellant is eligible for interest under section 244A amounting to Rs 4,76,80,515 as against interest computed by Ld. AO amounting to Rs 3,92,77,818.

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 10 - Accordingly, the interest computed under section 244A(1) of the Act by the Ld. AO is short by an amount of Rs. 84,02,697 (computed till February 2020).

Interest should be granted till the actual date of refund

1. As per the provisions of section 244A, interest has to be granted till the date of grant of refund Accordingly, the interest computed under section 244A(1) of the Act upto February 2020 Accordingly, we request your Honours to direct the learned AO to grant the refund till the a actual date of grant of refund.

1.. In this regards also the Hon'ble CIT(A) in the Appellants own case for AY 2000-01 has directed the AO to verify the contentions of the Appellant and to calculate interest in accordance in law. The relevant extract of the aforesaid CIT(A) order is reproduced as under (Copy enclosed at Sr. No. 8 of Paper Book):

The Appellant has also contended that the interest u/s 244A was short by Rs. 1, 46, 28, 7351 as it was not calculated till the actual date of refund The AO is directed to verify the contentions of the Appellant and to calculate interest in accordance in law in consequence of this order by passing a speaking and a detailed order. This ground of appeal is allowed for technical purposes.

1.. We request your Honour to kindly grant appropriate relief to the Appellant and issue necessary directions to the AO for re- computation of interest under section 244A(1) of the Act in light of the above.

Ground 5 & 6 - Non-granting of interest under section 244A(1A) of the Act 1.. Section 244A(1A) was inserted vide Finance Act 2016 which is applicable from 01 June 2016. This section was introduced

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 11 - to provide additional interest where a refund arises out of appeal effect being delayed beyond the time prescribed under sub-section (5) of section 153, an additional interest on such refund amount calculated at the rate of three per cent per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted.

1. The relevant extracts of section 244A(1A) of the Act are reproduced below for your Honour's reference:

(1A) In a case where a refund arises as a result of g1vmg effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264, wholly or partly, otherwise than by making a fresh assessment or reassessment, the assessee shall be entitled to receive, in addition to the interest payable under sub section (1)an additional interest on such amount of refund calculated at the rate of three per cent per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted.

1. The time limit for passing the order giving effect order was 31st March 2015 however, the order giving effect was passed in April 2018 which was further rectified in September 2018 and therefore, assessee should be eligible for interest from 01 June 2016 (i.e. the date on which section into effect) till the date of actual grant of refund.

1. However, AO while computing the income and refund due to the assessee, has not granted interest u/s 244A(1A) even though the order giving effect order was passed in April 2018 (first time) and rectified in September 2018 (i.e. after 1 June 2016, when section was brought into statute) time limit for passing order giving effect was 31st March 2015.

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1. Further, Hon'ble Supreme Court has dismissed the SLP filed by the Department in SLP No. 2851/2019)

1. Further, the Hon'ble CIT(A) in the Appellants own case for AY 2000-01 has directed the AO to re-compute and grant the same in accordance with law and the facts as being claimed by the Appellant if founds correct after verification. The relevant extract of the aforesaid CIT(A) order is reproduced as under (Copy enclosed at Sr. No. 8 of Paper Book):

"These grounds of appeal pertain to non-granting of interest u/s. 244A(1A) of the Act The appellant has also contended that interest should be calculated till the actual grant of refund. The Assessing Officer is directed to re-compute and grant the same in accordance with law and the facts as being claimed by the assessee company if found correct after verification. These grounds of appeal are allowed for statistical purposes.

1. In view of the above, assessee would be entitled to an additional interest under section 244A(1A) for not passing the order giving effect order within stipulated time amounting to Rs. 31,91,415 (computed till February 2020).

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 13 - Interest should be granted till the actual date of refund 1. As per the provisions of section 244A, interest has to be granted till the date of grant of refund. Accordingly, the interest under section 244A(1A) of the Act should be computed upto the date of actual grant of refund. Accordingly, we request your Honours to direct the learned AO to grant interest till the actual date of grant of refund.

1. We request you to kindly grant appropriate relief to the Appellant and issue necessary directions to the AO for computation of interest under section 244A(1A) of the Act in light of the above."

6. Whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee and findings of the AO and dealt extensively on the facts, provisions of the Act, and judicial decisions and directed the Assessing officer to allow the short grant of Interest U/sec244A(1) of the Act and also the A.O should recompute and grant additional interest U/sec244(1A) of the Act till the date of disbursement of refund and allowed the assessee appeal for statistical purposes. Aggrieved by the CIT(A) order, the revenue has filed an appeal before the Honble Tribunal.

7. At the time of hearing, the Ld.DR submitted that the CIT(A) has erred in directing the Assessing officer to allow the short grant of Interest U/sec244A(1) of the Act overlooking the facts that no interest shall be payable

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 14 - other than provided under the provisions of the Act. Further CIT(A) overlooked the methodology of granting refund and adjustments permitted and not justified in issuing the directions to the AO to grant additional interest on refund u/s 244A(1A) of the Act and relied on the order of the Assessing officer on the computation of interest on refund and prayed for allowing the revenue appeal.

8. Per Contra, the Ld. AR has submitted that the AO has not fallowed the due process of the provisions of Act in adjustment of refund and resulted in short grant of refund and also interest has to be granted till actual date of refund. Whereas the CIT(A) has considered the facts, provisions of the Act, and judicial decisions and directed the Assessing officer to grant interest. The Ld. AR has made elaborate submissions on the law and facts and supported the order of the CIT(A) and substantiated the submissions relying on the judicial decisions and the factual paper book and prayed for dismissal of the revenue appeal.

9. We heard the rival submissions and perused the material on record. The grievances envisaged by the Ld.DR that the CIT(A) has erred in directing the Assessing officer to allow

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 15 - the short grant of Interest U/sec244A(1) of the Act overlooking the facts that no interest shall be payable other than provided under the provisions of the Act. Further CIT(A) erred in not adopting the methodology of granting refund and adjustments permitted and is not justified in issuing the directions to the AO to grant additional interest on refund u/s 244A(1A) of the Act. The Ld.AR submitted that the A.O in the rectification order U/sec154 of the Act, while computing the interest has adjusted partial refund granted against the tax/principal component and interest against the interest component and thus resulted in short grant of refund and interest. Whereas the A.O has failed to fallow the methodology under the provisions of section 244A of the act. The CIT(A) has rightly considered the provisions and procedures and issued the directions to the Assessing officer relying on the judicial decisions to grant short grant of interest under section 244A(1) of the Act, Further the CIT(A) has considered the factual aspects of date of payment of refund and relied on the assessee own case for A.Y 2000-01 and directed the A.O to calculate and grant additional interest U/sec244A(1A) of the Act till the actual date of disbursement. At this juncture, we considered it

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 16 - appropriate to refer to the observations of the CIT(A) in granting the relief dealt at Page 11 of the order, read as under:

Decision:

Ground 1-4:Short grant of interest under section 244A(1) of the Act

5. The Appellant has contended that the AO has adjusted the refund by adjusting principal against the principal component and interest against the interest component which has resulted in grant of short interest and refund thereon to the appellant. Further, the appellant has contended that as per explanation 1 to section 140A, the refund already issued to the appellant shall first be adjusted against the interest and then, towards the principal amount, which was followed by the AO in A.Y.2002-03. The Appellant has also relied pronouncements as per submission detailed in above paras. Detailed upon various judicial In the case of CIT Vs IFFCO, 56 taxmann.com 453 (High Court of Delhi) (2015), the following relevant extract, reproduced as under, gives an analysis on section 244A:-

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 17 - reliance upon the decision of the Supreme Court in CIT v. Gujarat Fluoro Chemicals [2013] 358 ITR 291/[2014] 222 Taxman 349/42 taxmann.com 1. In that judgment, the Court noticed Sandvik Asia Ltd. (supra) and held pertinently as follows:

"7. As we have already noticed, in Sandvik case (supra) this Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period. In the facts of that case, this Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest.

8. Further it is brought to our notice that the. Legislature by the Act No. 4 of 1988 (w.e.f. 01.04.1989) has inserted Section 244A to the Act which provides for interest on refunds under various contingencies. We clarify that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest."

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 18 - 646/[2013] 38 taxmann.com 233 (Delhi). In India Trade Promotion Organization (supra) it was held - after consideration of HEG Ltd. (supra) that "15. A reading of the aforesaid passage from the decision of the Supreme Court in HEG Ltd. (supra) indicates that it would be incorrect and improper to regard payment of interest when part payment is made as interest on interest. What has been elucidated and clarified by the Supreme Court is that when refund order is issued, the same should include the interest payable on the amount, which is refunded. If the refund does not include interest due and payable on the amount refunded, the Revenue would be liable to pay interest on the shortfall This does not amount to payment of interest on interest.

An example will clarify the situation and help us to understand what is due and payable under Section 244A of the Act. Suppose Revenue is liable to refund Rs. 1 lac to an assessee with effect from 1st April, 2010, the said amount is refunded along with interest due and payable under Section 244A on 31st March, 2013, then no further interest is payable. However, if only Rs. 1 lac is refunded by the Revenue on 31st March, 2013 and the interest accrued on Rs. 1 lac under Section 244A is not refunded, the Revenue would be liable to pay interest on the amount due and payable but not refunded. Interest will not be duc and payable on the amount refunded but only on the amount which remains unpaid, i.e, the interest element, which should have been refunded but is not paid. In another situation where part payment is made, Section 244A would be still applicable in the same manner. For example, if Rs.60,000/- was paid on 31st March, 2013, Revenue would be liable to pay interest on Rs. 1 lac from 1st April, 2010 till 31st March, 2013 and thereafter on Rs.40,000/-. Further, interest payable on Rs.60,000/-, which stands paid, will be quantified on 31st March, 2013 and on this amount, i.e., interest amount

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 19 - quantified, Revenue would be liable to pay interest under Section 244A till payment is made."

'244A. Interest on refunds.- (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 paid under section 115WJ or 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 (a) 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 from the 1st day of April of the assessment year to the date on which the refund is granted:

Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment; (b )in any other case, 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 or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted.

Explanation. For the purposes of this clause, "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.'

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 20 -

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 21 -

6. Thus, from above decision wrt Section 244A(1), it is seen that it is only that interest provided for under the statute, which may be claimed by an assessee from the Revenue, and no other interest, on such statutory interest.

Now moving further, in the case of Tata Communication vs DCIT 108 taxmann.com 200 (Bom HC) (2019), the following relevant extracts are worth mentioning:-

The Tribunal by an order dated 16th June, 2017 gave certain directions to the Assessing Officer to compute and pay such interest. Relevant portion of this order reads as under:-

"4Under this issue the contention of the assessee is that the interest u/s. 244A of the Act was not properly calculated and refunded in accordance with law settled in by the Hon'ble Supreme Court in case titled as CIT v. H.E.G. Ltd. 324 ITR 331 and Hon'ble Delhi High Court in case titled as India Trade Promotion Organization v. CIT 361 ITR 646. Therefore necessary direction should be given in this regard. However, on the other hand learned Departmental Representative has refuted the said contention. The contention of the assessee is that the interest u/s 244A of the Act on refund issued was not granted in accordance with law. Therefore, the same is required to be in view of the law settled by the Hon'ble Supreme Court in case titled as CIT v. H.E.G. Ltd. 324 ITR 331 and Hon'ble Delhi High Court in case titled as India Trade Promotion Organization v. CIT 361 ITR 646. Since the interest is payable on the refund no doubt the same is liable to be payable in view of the law settled by the Hon'ble Supreme Court in case titled as CIT v. H.E.G. Ltd. 324 ITR 331 and Hon'ble Delhi High Court in case titled as India Trade Promotion Organization v. CIT 361 ITR 646. Therefore, in the said circumstances we set aside the finding of the CIT (A) on this issue and direct the Assessing Officer to calculate the interest u/s 244 A of the Act on refund payable to the assessee in view of the law settled in Hon'ble Supreme Court in case titled as CIT vH.E.G.Ltd. 324 ITR 331 and Hon'ble Delhi High Court in case titled as India Trade Promotion Organization v.

ITA.No.2034&2035/Mum/2023 CO.No72&73/Mum/2023. M/s. Sicom Ltd. Mumbai. - 22 - CIT 361 ITR 646. Accordingly, this issue is even decided in favour of the assessee against the revenue.