DY COMMISSIONER OF INCOME TAX- 2(1)(1) MUMBAI, MUMBAI vs. BANK OF BARODA, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, AM AND MS. KAVITHA RAJAGOPAL, JM ITA Nos.5707, 5709, 5710 &5711/Mum/2025 (Assessment Years: 2003-04, 2007-08, 2008-09 & 2009-10)

Deputy Commissioner of Income Tax- Vs. M/s. Bank of Baroda, 2nd Floor, Baroda Corporate Centre, 2(1)(1), 561, 5th Floor, AayakarBhavan, C-26, G Block, M K Road, BandraKurla Complex, Mumbai – 400 020 Bandra (East), Mumbai – 400 051 PAN No.AAACB1534F (Appellant) : (Respondent) Assessee by : Shri S. Ananthan and Ms. R. Lalitha

: Shri Swapnil Choudhari, Sr. AR Respondent by

: 19.05.2026 Date of Hearing Date of Pronouncement : .06.2026

ITA Nos.5659 & 5708/Mum/2025 (Assessment Years: 2016-17 & 2005-06)

Deputy Commissioner of Income Tax- Vs. M/s. Bank of Baroda, 2nd Floor, Baroda Corporate Centre, 2(1)(1), 561, 5th Floor, AayakarBhavan, C-26, G Block, M K Road, BandraKurla Complex, Mumbai – 400 020 Bandra (East), Mumbai – 400 051 PAN No.AAACB1534F (Appellant) : (Respondent) : Shri C. Naresh, AR Assessee by Respondent by : Shri Swapnil Choudhari, Sr. AR

Date of Hearing : 19.05.2026 : 01.07.2026 Date of Pronouncement

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda O R D E R Per Bench:

The captioned appeals are filed by the Revenue, challenging the order of the

Learned Commissioner of Income Tax Appeal, Mumbai (‘ld. CIT(A)’ for short),National

Faceless Appeal Centre (“NFAC” for short) passed u/s 250 of the Income Tax Act, 1961

(‘the Act'), pertaining to the Assessment Years (‘A.Y.’ for short) 2003-04, 2007-08,

2008-09, 2009-10, 2016-17 & 2005-06.

for which the Revenue has filed an application for condoning the said delay. On perusal

of the same, we deem it fit to condone the delay on the ground that there being ‘sufficient

cause’ for the delay as contended by the Ld. Departmental Representatives (“Ld. DRs”

for short). Delay is condoned.

as the facts are identical in all these appeals, we hereby pass a consolidated order by

taking ITA No.5707/M/2025 pertaining to A.Y. 2003-04 as the lead case.

CIT(A) has erred in adjusting the refund amount first against interest payable u/s 244A of

the Act instead of adjusting the same first towards the tax component, where there is no

express provision in the statute stating so.

business of banking and other related financial activities and had filed its return of

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda income for the year under consideration dated 28.11.2003 declaring total income at

“Rs.Nil” under the normal provisions and book profit u/s 115JB of the Act at Rs.94.53

crores. The assessee’s case was selected for scrutiny and assessment was completed u/s

143(3) of the Act vide assessment order dated 16.03.2005where the Learned Assessing

Officer (“the Ld. AO” for short) determined the total income at Rs.529.12 crores under

the normal provisions and Rs.194.85 crores u/s 115JB of the Act. Subsequently, the

assessment order dated 16.03.2005 was rectified vide order dated 31.03.2005 and

12.04.2007 where the total income was determined at Rs.56,19,49,433/-under the normal

provisions as per the rectification order dated 12.04.2007. The assessee had preferred an

appeal challenging the assessment order before the Ld. CIT(A) who passed an order

dated 28.04.2008 and the order giving effect was passed on 17.11.2008 determining the

total income at Rs.31.16 crore under the normal provisions and Rs.194.85 crores u/s

115JB of the Act as book profits.It was also observed that revisionary proceedings were

initiated u/s 263 of the Act and vide order dated 28.03.2011the assessment order u/s

143(3) of the Act was set aside with a direction to the Ld. AO to make addition to the

book profit on account of provisions for NPA and accordingly book profit was calculated

at Rs.419.25 crores. Paralally, the Revenue was in appeal before the Tribunal

challenging the Ld. CIT(A)’s order dated 28.04.2008.

effect u/s 143(3) r.w.s. 254 r.w.s. 263 of the Act was passed on 30.11.2011. The assessee

was also in appeal before the Tribunal against the revisionary order passed u/s 263 of the

Act where the Tribunal vide order dated 10.04.2013 allowed the appeal filed by the

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda assessee. Further, the assessee had filed for rectificationu/s 154 of the Act against the

order giving effect dated 30.11.2011 and rectification order u/s 154 r.w.s. 254 of the Act

was passed on 15.09.2021 where the total income was assessed at “Rs.Nil” after set off of

losses at Rs.3,30,41,092/- for the earlier years and book profit at Rs.98,46,76,120/-along

with the refund of Rs.10,61,24,510/- including interest u/s 244A of the Act was

determined. Pursuant to this, the assessee was entitled to refunds and the Ld. AO adjusted

the said refund against the principal components of the refund duefirst and not the interest

component where the assessee was aggrieved by the same stating that the interest

component should be adjusted first against the refund and only then the principal tax

component should be adjusted. The assessee preferred an appeal before the first appellate

authority challenging the order of the Ld. AO on the ground that the Ld. AO erred in

adjusting the refund against the principal component and not against the interest due.

The Ld. CIT(A) vide order dated 10.03.2025 allowed the appeal filed by the assessee on

the ground that the Tribunal in assessee’s own case directed the Ld. AO to adjust the

interest against refund first before adjusting the tax component by relying on the

assessee’s own case which in turn had relied on the decision of the Hon’ble Delhi High

Court in the case of India Trade PromotionOrganisation vs. CIT (361 ITR 649)and the

assessee’s own case in ITA No.1646/M/2017 and in the case of Union Bank of India in

ITA No.571/M/2013 along with various other cases.

ground that the refund ought to be adjusted first on the tax component and not on the

interest component. The Learned Departmental Representative (‘Ld. DR’ for short)

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda contended that the provisions of section 244A of the Act do not expressly state that the

interest has to be adjusted first out of the refund due before adjusting the tax component

which would result in the revenue paying further interest on unpaid tax component which

will be against the settled principles of charging interest on interest. The Ld. DR further

contended that the Revenue has preferred an appeal before the Hon’ble High Court

challenging the order of the Tribunal on the said issue and relied on the order of the Ld.

AO.

the other hand, controverted the said fact and stated that this issue has been settled by

various decisions of the Tribunal which had inturnrelied on the decisions of the Hon’ble

High Courts and the Hon’ble Apex Court. The Ld. ARs further stated that this issue was

also decided in favour of the assessee by the Tribunal in assessee’s own case and as a

matter of consistency the same ought to be followed with no change in facts and

circumstances. The Ld. ARs relied on a catena of decisions which are stated herein under

for the said proposition.

SI. No. Name of the assessee Case Ref Number 1 Deposit Insurance and ITA No. 1074/Mum/2024 - Order Credit Guarantee dated 08-11-2024 Corporation 2 Bank of India ITA No. 1397 & 1549/Mum/2023 - Order dated 23-1 2-2025 3 IDBI Bank ITA No. 4318, 4319 & 4320/Mum/2023 -Order dated 06-09- 2024 4 Reliance Industries ITA No. 159 & 3057/Mum/2024 - Limited Order dated 30-08-2024 5 State Bank of India ITA No. 1 194/Mum/2023 - Order dated 26-02-2024

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda 6 Tata Sons Limited ITA No. 2362/Mum/2023 - Order dated 06-12-2023 7 State Bank of India ITA No. 277 & 280/Mum/2022, 410, 41 1 & 365/Mum/2022 - Order dated 20-09-2022

record. The moot issue that requires adjudication is whether in case of any refund due to

the assessee the Ld. AO has to adjust the said refund first against the interest as claimed

by the assessee bank or against the tax component as alleged by the Revenue.When the

refund due to the assessee comprises of tax and interest and when the Revenue

refundsonly part amount, the adjustment, if made first towards the tax component then

the interest due to the assessee will not increase as there should not be interest on interest

and if in case the refund is adjusted towards the interest due to the assessee, the

subsequent payment towards tax component would attract further interest till the same is

paid to the assessee in full. We are conscious of the fact that there are no express

provisions which enumerates as to which component has to be adjusted first towards the

refund due, whether the tax component or the resultant interest component. The

provision relevant to interest on refunds is governed by section 244A of the Act which

provides for simple interest to the assessee payable by the Revenue towards any refund

amount due to the assessee which is to be calculated in the manner specified by the Act.

The relevant provision is cited herein under for ease of reference:

“244A. 92 (1) 93[Where refund 94 of any amount becomes due to the assessee 94 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 :- 95[(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 96 comprised in the

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda 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 the refund is granted, in a case not covered under sub-clause (i): 97[Providedthat where refund arises as a result of an order passed by the Assessing Officer in consequence of an application made by the assessee under sub-section (20) of section 155, 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 date of such application to the date on which the refund is granted;] (aa) where the refund is out of any tax paid under section 140A, 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 date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted: Provided that no interest under clause (a) or clause (aa) 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 143 or on regular assessment;] (b) in any other case, such interest shall be calculated at the rate of 98[one-half per cent] for every month 99 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 99tax 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 1. 2[(1A) In a case where a refund arises as a result of giving effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 2 64, 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:] 3[Provided that where proceedings for assessment or reassessment are pending in respect of an assessee, in computing the period for determining the additional interest payable to such assessee under this sub-section, the period beginning from the date on which such refund is withheld by the Assessing Officer in accordance with and subject to provisions of sub-section (2) of section 245 and ending 4[with the date up to which such refund is withheld], shall be excluded.] 5[(1B) Where refund of any amount becomes due to the deductor in respect of any amount paid to the credit of the Central Government under Chapter XVII-B, such deductor shall be entitled to receive, in addition to the said amount, simple interest thereon calculated at the rate of one-half per cent for every month or part of a month comprised in the period, from the date on which- (a) claim for refund is made in the prescribed form; or (b) tax is paid, where refund arises on account of giving effect to an order under section 250 or section 254 or section 260 or section 262,

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda to the date on which the refund is granted.] (2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee 5[or the deductor, as the case may be,] whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable 6[under sub-section (1) or (1A)] 7[or (1B)], and where any question arises as to the period to be excluded, it shall be decided by the 8[Principal Chief Commissioner or] Chief Commissioner or 8[Principal Commissioner or] Commissioner whose decision thereon shall be final. (3) Where, as a result of an order under 9[sub-section (3) of section 115WE or section 115WF or section 115WG or] 10[sub-section (3) of section 143 or section 144 or] section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly. (4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years :] 11[Provided that in respect of assessment of fringe benefits, the provisions of this sub- section shall have effect as if for the figures “1989”, the figures “2006” had been substituted.]”

assessee on refunds which are delayed, but for the reasons attributable to the assessee and

also provides for increase in the interest, when the tax component refundable also

increases in consequence of any order passed by the Ld. AO or the appellate authority or

settlement commission etc. or in such cases to reduce the interest depending upon the

quantum of the refund determined by such order. It is clear that the legislaturein its

wisdomhas introduced the said provision for facilitating the Revenue to pay interest on

the refund due to the assessee in order to mitigate the hardship caused to the assessee in

case of excess payment of the tax component. This, no doubt, is to ensure that the

Revenue refunds the amount due to the assessee at the earliest, failing which interest is to

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda be charged on the same till it is refunded to the assessee. This is nothing but a liability

casted upon the Revenue to comply with refundingthe amount, if any, becomes due to the

assessee, within the stipulated time. It is also a settled proposition of law that the

determination of interest towards any amount refundable to the assessee was dealt with

by the Hon’ble Apex Court and the Hon’ble High Courts in a liberal manner taking into

consideration the interest of the assessee coupled with the liability on the Revenue to

adhere to the timeline for refund of the amount due.The Hon’ble High Court of Delhi in

the case ofIndia Trade PromotionOrganisation (supra) relied upon by the respective Ld.

ARs for the assessee has interpreted, the words “any amount” and “said amount” used in

the provision of section 244A of the Act to mean to include not just the “tax paid” but

also the interest element which is accrued and payable on the date of refund, thereby

giving a wider and broader interpretation. Further, it held that when the issue arises

where the Revenue pays only part amount and not the full amount due, then its liability to

pay interest on the outstanding balance amount would arise till full and final payment is

settled. It has also relied on the decision of Hon’ble Apex Court in the case of Sandvik

Asia Ltd. (2006) 150 taxman 591 (SC) wherein the Hon’ble Apex Court came down

heavilyon the Revenue for delayed payment of refund along with interest due, where it

was held to be unjustifiable on the part of the Revenue to withhold the refund due to the

assessee without any rhyme or reason. It further held that if there was a situation where

the Revenue will have to charge interest from the assessee then it would first adjust

theamount payable towards interest and then towards the principal amount, which would

remain outstanding so that further interest could be charged till the entire outstanding

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda payment is recovered, whereas in case of the department’s refund the taxes are first

adjusted towards tax component and the remaining towards interest, for the reasons that

the Department claims that they are liable to pay interest only till the date of refund of

taxes without any further liability to pay interest on interest. This, according to the

Hon’ble Apex Court, was discriminatory, causing undue hardships by depriving the

assessee of its lawful claim resulting in failure of administration of justice and rule of

law. The relevant extract of the said decision is cited herein under for ease of reference:

“38. The facts and the law referred to in paragraph (supra) would clearly go to show that the appellant was undisputably entitled to interest under sections 214 and 244 of the Act as held by the various High Courts and also of this Court. In the instant case, the appellant's money had been unjustifiably withheld by the Department for 17 years without any rhyme or reason. The interest was paid only at the instance and the intervention of this Court in Civil Appeal No. 1887 of 1992 dated 30-4-1997. Interest on delayed payment of refund was not paid to the appellant on 27-3-1981 and 30-4-1986 due to the erroneous view that had been taken by the officials of the respondents. Interest on refund was granted to the appellant after a substantial lapse of time and hence it should be entitled to compensation for this period of delay. The High Court has failed to appreciate that while charging interest from the assessees, the Department first adjusts the amount paid towards interest so that the principle amount of tax payable remain outstanding and they are entitled to charge interest till the entire outstanding is paid. But when it comes to granting of interest on refund of taxes, the refunds are first adjusted towards the taxes and then the balance towards interest. Hence as per the stand that the Department takes they are liable to pay interest only up to the date of refund of tax while they take the benefit of assessees funds by delaying the payment of interest on refunds without incurring any further liability to pay interest. This stand taken by the respondents is discriminatory in nature and thereby causing great prejudice to the lakhs and lakhs of assessees. Very large number of assessees are adversely affected inasmuch as the Income-tax Department can now, simply refuse to pay to the assessees amounts of interest lawfully and admittedly due to that as has happened in the instant case. It is a case of the appellant as set out above in the instant case for the assessment year 1978-79, it has been deprived of an amount of Rs.40 lakhs for no fault of its own and exclusively because of the admittedly unlawful actions of the Income-tax Department for periods ranging up to 17 years without any compensation whatsoever from the Department. Such actions and consequences, in our opinion, seriously affected the administration of justice and the rule of law.”

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda 11. Further, the Hon’ble Delhi High Court had also relied on the decision of Hon’ble

Apex Court in the case of Narendra Doshi(2002) 122 taxman 717 (SC) where it was

held that the Revenue was even liable to pay interest on the amount of interest, which

was due to the assessee, which inturnrelied on the decision of Hon’ble Gujarat High

Court in the case of DJ Works vs. Dy. CIT (1992) 195 ITR 227 and Chimanlal S. Patel

vs. CIT (1994) 210 ITR 419. Further, it is observed that the decision of the Hon’ble

Supreme Court in the case of CIT vs. HEG Ltd. (2010) 324 ITR 331 was also considered in

the said decision where it was further reiterated that “refund of any amount due to the assessee”

as per section 244A of the Act would include both the tax paid as well as the interest accrued to

the assessee and the same does not tantamount to interest on interest, where the classification of

“amount due” would alsoinclude the tax paid in excess and the interest amount as well. It was

further interpreted that the interest which is due to the assessee is not interest on the tax to be

paid but includes the amount which is unpaid inclusive of the interest element. There are a

plethora of decisions in support of the assessee’s contention on this issue where even in the

absence of an express statutory provision for payment of interest, the obligation towards the

Revenue to reimburse the lawful money along with the accrued interest is to be paid to the

assessee in order to keep a check and balance on undue retention of such amount which is

lawfully payable by the Revenue. The very purpose of the insertion of section 244A of the Act

was to cast an onus on the Revenue, where the assesse is entitled to payment of interest for any

amount remaining with the Exchequer as being a lawful right to interest by adhering to the

principles of the latinmaxim Ex aequo et bono meaning “according to what is equitable and

good”.

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda 12. On the above observation, we deem it fit to hold that the Revenue ought to adjust the

interest component first before appropriating the principal tax amount while crediting refunds to

the assessee, which approach would align with the established principles of equitable treatment,

as the interest due to the assessee is nothing but a compensation for the time value of money that

the assessee was deprived of due to excess tax payment or delayed refund. The sequential

adjustment of interest followed by principal would ensure that the assessee receives full

compensation for both undue retention of funds and temporal loss suffered. We are conscious of

the fact that any contrary approach would only result in unjust enrichment to the Revenue

thereby defeating the very purpose of the statutory provisions intending to pay interest on

refunds and this would not only honour the legislative intent but also upholds the constitutional

mandate of fairness in tax administration. We also hold that any adjustment mechanism which

dilutes this entitlement would be violative of both the statutory scheme and constitutional

jurisprudence governing the taxation issues. We, therefore, deem it fit to dismiss the grounds of

appeal raised by the Revenue on the above observation.

mutandis to other appeals filed by the Revenue i.e. ITA Nos.5709, 5710 &

5711/Mum/2025 and ITA Nos.5659 & 5708/Mum/2025as well and hence the

same are also hereby dismissed.

ITA Nos.5707, 5709, 5710 & 5711/Mum/2025&Ors. M/s. Bank of Baroda 15. In the result, all the appeals filed by the Revenue aredismissed.

Order pronounced in the open court on 01.07.2026

Sd/- Sd/- (OM PRAKASH KANT) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 01.07.2026 *Kishore, Sr. PS

Copy of the Order forwarded to:

(Dy./Asstt.Registrar) ITAT, Mumbai