COMMISSIONER OF INCOME TAX vs. MIHIR TEXTILES LTD.

Facts

The Income Tax Appellate Tribunal (ITAT) directed the Assessing Officer (AO) to grant interest under Section 214 of the Income Tax Act, 1961, up to the date of the Commissioner of Income Tax (Appeals) [CIT(A)] order. The AO had not granted this interest while giving effect to the CIT(A)'s order. The revenue appealed to the ITAT, which, relying on a Full Bench decision of the Gujarat High Court in Bardolia Textile Mills Ltd., confirmed the CIT(A)'s direction and dismissed the revenue's appeal. The Supreme Court then directed the ITAT to refer a question of law to the Gujarat High Court. The assessment year in question is 1984-85. The amount in dispute is not specified.

Held

The High Court held that the issue is no longer res integra in light of the Supreme Court's decision in Modi Industries Ltd. and Others vs. Commissioner of Income Tax and Another ([1995] 216 ITR 759) and the Gujarat High Court's decision in Commissioner of Income Tax vs. Mihir Textiles Ltd ([2000] 243 616). The Apex Court in Modi Industries observed that any balance remaining to the assessee's credit after adjusting advance tax at the time of regular assessment is treated as excess advance tax, which must be refunded with interest under Section 214 up to the date of regular assessment. The Gujarat High Court, in Mihir Textiles, relying on Modi Industries, also held that interest is admissible up to the date of regular assessment. Therefore, the High Court answered the question in the negative, in favour of the revenue. The assessee is entitled to interest on refund amounts only up to the date of regular assessment. The impugned judgment and order of the ITAT was modified.

Key Issues

1. Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to grant interest u/s 214 while giving appeal effect to the CIT(A) order? Assessee's Contention: The judgment does not record any specific contentions made by the assessee before the High Court. However, the Tribunal's decision, which was upheld by the High Court in the first instance, was that the assessee is entitled to interest up to the date of the CIT(A)'s order. Revenue's Contention: The revenue argued that the Tribunal erred in directing the AO to grant interest under Section 214 up to the date of the CIT(A)'s order. The revenue relied on the Supreme Court decision in Modi Industries Ltd. and Others vs. Commissioner of Income Tax and Another ([1995] 216 ITR 759) and a Gujarat High Court decision in Commissioner of Income Tax vs. Mihir Textiles Ltd ([2000] 243 616), stating that these decisions hold that interest on refund amounts is admissible only up to the date of regular assessment.