PURANMAL DELHIWALA,WADALA, MUMBAI vs. ITO WARD 23(2)(6), MUMBAI

In various grounds of appeal, the assessee has basically raised three issues relating to working of interest u/s 244A(1) and 244A(1A) of the Act as stated below: Ground no.(i) With regard to the first issue relating to working of interest u/s 244(1) whole of refundable amount rather than the principal amount only,it is contented that the Learned ADDL/JCIT (A)-2 Chennai, hereinafter referred to as ‘CIT(A)', erred in not following the ratios of the judgements of higher authorities brought to his notice in concluding that as the issue related to grant of interest u/s 244A of the IT Act remains unresolved ....The CIT(A) is duty bound follow ratios of the decisions of the higher judicial authorities on similar facts and accordingly the decision of the CIT(A) is not following the said decisions, requires to be modified as per the ratios laid down by the higher judicial authorities on the subject. Ground no.(ii) Without prejudice to the aforesaid grounds of appeal, it is submitted that, on the facts and in the circumstances of its case, the appellant is entitled for interest u/s 244A of the Act from the date of payment to the date of granting the refund as provided for u/s 244A of the Act. Ground no.(iii)The CIT(A) erred in concluding that the appellant is not entitled to interest u/s 244A(1A) of the IT Act.

With regard to ground no.(i) and (ii),factual matrix reveals that assessment order was passed under section 143(3) determining the total income to be Rs.49,79,670/-. The ld.CIT(A) dismissed the appeal on 04.03.1998. Later, on 27.03.2001, the appellant made a payment of Rs.89,33,579/-.Aggrieved by CIT(A)'s decision, it filed an appeal with the ITAT under ITA No. 5385/Mum/2003 which in its order dated 10.10.2006, remanded the matter back to the AO for fresh consideration. Subsequently, the AO passed order u/s 143(3)/254 of the Act determining the total income to be Rs.38,91,000/- which was later Page 3 A.Y. 1993-94 Puranmal Delhiwala, Mumbai rectified under section 154 on 09.08.2012, resulting in a refund of Rs. 67,18,170/-.However, the assessee again appealed to the CIT(A) against the order who dismissed the appeal. Subsequently, it appealed to the ITAT, which in its order dated 17.05.2017 in ITA No. 4541/Mum/2014, set aside the order dated 30.04.2012 under Section 143(3) read with Section 254. Following this, an order giving effect to the ITAT's decision was passed determining total refund of Rs. 1,04,49,373/-. The AO gave effect to the order of the ITAT on 17.05.2017 and determined refund due to the assessee of Rs 1,04,49,373/-which included interest of Rs 53,54,639/- granted u/s 244A of the Act as against the claim of the assessee that interest u/s 244A(1) works out to Rs 1,07, 00,068/-instead.

1 Aggrieved further, the assessee filed appeal before the ld.CIT(A) who called for a Remand report w.r.t. determination of refund of Rs.1,04,49,373/- as the assessee claimed additional refund of Rs.31,06,061/- upto June 2019, attaching the assessee's version of calculation of interest and additional refund due. However, the AO rejected the calculation by holding that the assessee failed to bifurcate the principal amount and interest amount of refund granted (Rs. 90,18,865/-) and also interest u/s.244A(1) and 244A(1a) is allowable only on the principal part of the refund i.e., Rs. Page 4 A.Y. 1993-94 Puranmal Delhiwala, Mumbai 50,97,734/- (8933579 – 3838845) and not on Rs.90,18,865/- which includes both principle and interest. The assessee in ground no.(i) and (ii) above in the instant appeal has agitated the quantum of interest u/s 244(1) of the Act.

2 With regard to the ground(iii) above, pertaining to interest u/s.244A(1A) inserted by Finance Act, 2016 w.e.f. 01.06.2016, it was stated by the AO that ITAT order was dated 17.05.2017 and the order giving effect of ITAT order was dated 28.08.2017 which is within three months from the end of the month in which order u/s.254 is received by the Pr.CIT. Therefore, the AO held that there was no merit in the contentions of the assessee

In the rejoinder to the Remand report the assessee claimed before the ld.CIT(A) that as regards computing interest u/s 244A(1) of the Act, that the section does not call for any bifurcation of principal and interest embedded in the amount of refund granted to the assessee. Without prejudice to the above, it was submitted that, the assessee in any case is entitled for interest from 01.06.2016 to the date of granting the refund u/s 244A(1A) as provided for under the Act as the said refund still remains to be granted to the assessee. Further, the assessee will be entitled for additional interest at 3% p.a. as provided for u/s 244A(1A) Page 5 A.Y. 1993-94 2553/Del/2013, order dated 31.08.2020, Tata Sons Pvt. Ltd Vs Dy. Commissioner of Income Tax I.T.A. No. 2362/Mum/2023, 15296/2022, order dated 27.02.2024. 5. In the impugned appellate order, the ld.CIT(A) observed that that “the assessee was not entitled to interest under section 244A, unlike section 244, which applies to any refunded amount. Despite citing case law, as the issue remains unresolved and the JAO did not accept the claim for interest on interest, it is my opinion that the JAO's computation is fair and accurate. Nonetheless, the JAO is instructed to provide interest under section 244A(1) up to the refund issuance date, as the interest was calculated until the remand report date."

1 In respect to the claim of additional interest, he agreed with the AO that the assessee was not entitled to interest under section 244A(1A) of the Act.

The ld.DR has relied on the orders of authorities below. Per contra, the ld.AR made oral and also written submission inter alia Page 6 A.Y. 1993-94 Puranmal Delhiwala, Mumbai contending that as per section 244A(1) interest is to be granted to the assessee on “refund of any amount becomes due to the assessee”. The pages 91 and 92 as below: “... The next question which we are required to answer is what is the meaning of the words ‘refund of any amount becomes due to the assessee' in s.244A ? In the present case, as stated above, there are two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of Rs.45,73,528 and tax paid after original assessment of Rs. 1,71,00,320. The Department contends that the words 'any amount' will not include the interest which accrued to the respondent for not refunding Rs. 45,73,528 for 57 months. We see no merit in this argument. The interest component will partake of the character of the 'amount due' under s.244A. It becomes an integral part of Rs.45,73,528 which is not paid for 57 months after the said amount became due and payable. As can be seen from the facts narrated above, this is the case of short payment by the Department and it is in this way that the assessee claims interest under s.244A of the IT Act. Therefore, on both the afore-stated grounds, we are of the view that the assessee was entitled to interest for 57 months on Rs.45,73,528. The principal amount of Rs.45,73,528 has been paid on 31st Dec., 1997 but net of Page 7 Α.Υ. 1993-94 Puranmal Delhiwala, Mumbai interest which, as stated above, partook of the character of ‘amount due' under s.244A. 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 s.244A of the Act. Suppose Revenue is liable to refund Rs.1 lac to an assessee w.e.f. 1st April, 2010, the said amount is refunded along with interest due and payable under s.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 s.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 due 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, s.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 quantified, Revenue would be liable to pay interest under s.244A till payment is made...”.. “Therefore, though one may call it as interest on interest, in reality payment of interest on the unpaid amount occurs because of non-payment of the total amount refundable, which is due and payable to the assessee consisting of the tax, which had to be refunded and the interest accrued on the delayed refund of the tax. The principal amount and the interest due to be added and treated as primary amount and interest becomes due and payable on this primary amount. It will be incorrect to treat it as compounding of interest. If this interpretation or approach is taken it would ensure that the AO/ Revenue refund the entire amount, which is due and payable, including interest payable under s.244A. It discourages part payment.” Page 8 Α.Υ. 1993-94 Puranmal Delhiwala, Mumbai

1 We find that the ld.CIT(A) has not taken any cognizance of the case laws relied upon by the assessee without any reason and agreed with the contentions of the AO as per remand report. In this regard, reliance is placed by the assessee on Mumbai ITAT order dated 06.12.2023 in the case of Tata Sons Pvt. Ltd. v. DCIT in ITA No. 06.12.2023. In the said decision, the Tribunal has referred to earlier orders in the case of Union Bank of India and Grasim Industries Ltd. (para 7). In view thereof, it has been urged by the ld.AR that the assessee may be held to be entitled to interest under section 244A of the Act in respect of the amount of tax of Rs.89,33,579/-. Further, it is also submitted that the present case, interest under section 244A of the Act, has been determined only upto the date on which the order determining the refund was passed. A bare perusal of section 244A of the Act shows that such interest is to be granted upto the date of grant of the refund. Hence, in the present case, the Tribunal may be pleased to direct the AO to compute such interest upto the date of actual payment of such refund. In this regard reliance is placed on judgments of the Hon'ble Juri ictional High Court in CIE Automotive India Ltd. v. ACIT being Order dated 09.052024 in WP (L) no. 13595 of 2024 and in Matrix Publicities and Media India (P.) Ltd. v. DCIT (2023) 155 taxamnn.com 588 (Bombay). It is also contended that the appellate order was passed Page 9 A.Y. 1993-94 Puranmal Delhiwala, Mumbai by the Tribunal on 17.05.2017, where, the order giving effect to its order has been passed by the AO on 28.08.2017. However, refund arising thereon has been actually granted on 26.11.2019. According to the Revenue, interest under section 244A(1A) of the Act is not to be granted in the present case as the order giving effect to the Tribunal's order has been passed within the period as prescribed by section 153(5). In the present case, since there has been considerable delay of almost 27 months after the determination of the refund, it is submitted that the assessee would be entitled to additional interest under section 244A(1A) of the Act upto the date of actual payment of the amount of refund.

We have carefully considered all the relevant facts of the case qua issues involved, provisions of the law, rival submissions and also legal position emerging from cited decisions above. In so far as ground no.(i)/(ii) are concerned, we find that in the case of Tata Sons P.Ltd in ITA No 2362/Mum/2023. We have perused the decision of the ITAT as referred above and find that the similar issue on identical fact has been adjudicated by the ITAT as under: Page 10 A.Y. 1993-94 Puranmal Delhiwala, Mumbai “3. With regard to issue of incorrect adjustment of refund for arriving at interest the ld AR submitted that where the refunds have been issued in parts, the AO while adjusting the refund issued earlier has erred in apportioning amount of earlier refund towards the principal and interest component determined then i.e. without considering the present relief. The AO has reduced interest only to the extent it was determined at the point of issuance of the earlier refunds, thus, leading to larger adjustment of the refund towards the tax component as against the interest component which is further summarised in the table given below:.

The ld AR submitted that in accordance with the principle of equity in terms of the where the amount paid by an assessee towards self- assessment tax falls short of the aggregate amount of tax and interest, then, the amount so paid shall first be adjusted towards interest payable and the balance, if any, shall be adjusted towards tax payable, meaning thereby, the exchequer should never be deprived of its legitimate dues payable by the assessee in time. However, there is no such specific provision u/s. 244A of the Act with respect to adjustment of refund already issued for computing amount of interest payable to the assessee on the amount of refund due. Thus, the law is silent on this issue. Under these circumstances, fairness and justice demands that same principle should be applied while granting the refund as has been applied while collection of tax. The Revenue is not expected to follow double standards while dealing with the tax payers. The fundamental principle of fiscal legislation in any civilised society should be that the state should treat its citizens, (ie, taxpayers in this case) with the same respect, honesty and faimess as it expects from its citizens. It is further noted by us that the hon'ble Delhi High Court has already decided this issue in clear words which has been followed Page 11 A.Y. 1993-94 Puranmal Delhiwala, Mumbai by the Tribunal in assessee's own case in the earlier years. It is further noted by us that assessee is not asking for payment for interest on interest. It is simply requesting for proper method of adjustment of refund and for following the same method which was followed by the Department while making collection of taxes. Under these circumstances, we find that judgment of the hon'ble Supreme Court in the case of Gujarat Fluoro Chemicals (supra) is not applicable on the facts of the case before us and thus the learned Commissioner of Income-tax (Appeals) committed an error in not following the decisions of the Tribunal of earlier years in the assessee's own case as well as the judgment of the hon'ble High Court in the case of India Trade Promotion Organisation (supra).

The ld DR on the other hand relied on the order of the lower authorities.

We heard the parties and perused the material on record. The first grievance of the assessee with regard to calculation of interest under section 244A is the way in which the AO has adjusted the refunds issued. In this regard we notice that the coordinate bench has been consistently holding the AO is required first adjust the interest component and then the taxes for the purpose of calculating interest under section 244A of the Act. The relevant extract from the decision of the coordinate bench in the case of Grasim Industries Ltd vs DCIT (123 taxmann.com 312) is as given below - 7... “6. We find that assessee has raised ground before us stating that refund granted to the assessee is to be first adjusted against the correct amount of interest due on that date and thereafter, the left over portion should be adjusted with the balance tax. We find that in the instant case refund was granted to the assessee vide refund order in October 2013 and it was pleaded by the assessee that the said refund is to be adjusted against the correct amount of interest payable thereof to be computed as per the directions of the Ld. CIT(A) and only the balance amount is to be adjusted against tax paid. Accordingly, unpaid amount is the tax component and therefore, the assessee would be entitled for claiming interest on the tax component remaining unpaid. In our considered opinion, the same would not tantamount to interest on interest as alleged by the Ld. CIT(A) in para 4.2 on his order. Similarly, the refund granted to the assessee in July 2016 is to be adjusted against the correct interest payable on the tax amount remaining unpaid and balance towards tax component. We find that this issue is already settled in favour of the assessee by the following decisions of this Tribunal:- a. Decision in the case of Union Bank of India v. Asstt. CIT (2016) 72 taxmann.com 348/162 ITD 142 (Mum.).b. Decision in the case of Bank of Baroda v. Dy. CIT [IT Appeal No. 646 (Mum) of 2017, dated 20-12-2018)

Accordingly, we direct the ld. AO to compute the correct amount of interest allowable to the assessee as directed by the ld. CIT(A) as on date of giving effect to the Tribunal's order i.e. 6-9-2013 .We further hold that the refund granted on 6-9- Page 12 A.Y. 1993-94 Puranmal Delhiwala, Mumbai 2013 be first appropriated or adjusted against such correct amount of interest and consequently, the short fall of refund is to be regarded as shortfall of tax and that shortfall should then be considered for the purpose of computing further interest payable to the assessee u/s.244A of the Act till the date of grant of such refund. Accordingly, the grounds raised by the assessee in this regard are allowed for both the years."

Seen in the context of the above decisions, we find that the assessee would be entitled for interest on the refund in accordance with the principal laid out in the aforesaid decisions of hon'ble High Courts and Tribunal(supra). The ld. AR during the course of hearing submitted a detailed working of the manner in which the AO has calculated the interest and also the correct way in which the same is to be calculated. We are of the considered opinion that this matter should go back to the file of the Assessing Officer for examining the facts of the assessee in the present appeal and for application of the ratio of above decisions on applicability of the interest u/s 244A(1) of the Act. Accordingly, the AO is directed to calculate the quantum of interest on due examination of the computation of interest as per the claim of the assessee in the light of decisions referred above, after giving a proper opportunity of being heard. Therefore, this ground no. (i) of the appeal is allowed for statistical purposes.

Regarding ground no.(ii) above, pertaining to error in not granting interest U/S 244A of the Act upto the date of refund, we find that similar issue also on identical fact has been adjudicated by the ITAT Page 13 A.Y. 1993-94 Puranmal Delhiwala, Mumbai in Tata Sons(supra). The relevant operating part of the decision is reproduced as under:

On the issue of grant of refund till the date of issue of refund, the ld AR submitted that the issue is squarely covered in favour of the assessee vide the decisions of Hon'ble Bombay High Court in case of CIT vs. Pfizer Limited [1991] 191 ITR 626 (Bom) and in our considered view, the assessee is justified in seeking interest u/s 244A of the Act upto the date of receipt of the refund order, i.e. 18.08.2022. Accordingly, the AO is directed to re- calculate the interest up to the date of actual receipt of refund by the assessee. It is ordered accordingly."

1 Respectfully, following the decision of the ITAT in the case of the assessee itself as referred supra we direct the AO to grant refund u/s 244A of the Act up to the date of receipt of the refund order. Therefore, ground of appeal no. (ii) of the appeal of the assessee is allowed.

With regard to ground no.(iii) also pertaining to additional interest on refund in terms of section 244A(1A) of the Act, we find that the decision of ITAT in the case of Tata Sons P.Ltd(supra) wherein identical issue on similar fact has been adjudicated in favour of the assessee. The relevant part of the decision is reproduced as under:

The next issue contended pertaining to the interest calculation is that additional interest u/s.244A(1A) to be calculated on the total amount of refund including Interest. In this regard the ld AR drew our attention to the provisions of sub-section (1A) of section 244A of the Act, in terms of which, when there is a delay in granting refund due to the assessee as a result of delay in passing an order giving effect to the appellate order or revisional order, the assessee is entitled to the additional interest on such amount of refund at 3% p.a. for the period as mentioned therein. The ld AR submitted that the ITAT order, was passed on 04.02.2015 & 01.01.2016 and the present OGE has been passed on 08.03.2016 and refund was received on 18.08.2022. The provision of Section 244A(1A) came into effect from 01.06.2016 and hence from 01.06.2016 to 31.08.2022 there is a Page 14 A.Y. 1993-94 Puranmal Delhiwala, Mumbai delay of 75 months for which the assessee is entitled for additional 3% interest under section 244A(1A). The ld AR in this regard relied on the decision of the coordinate bench in case of ACIT_v/s Bharat Petroleum Corporation Ltd. (Mumbai ITAT "B" Bench) (30.06.2021) (ITA No. 5231 to 5233 of 2019). The ld AR further submitted that interest u/s 244A(1A) of the Act cannot be held as interest-on-interest as held by the Hon. Supreme Court and followed by High Court(s). In this regard our attention was drawn to the decision of the Hon. Delhi High Court in the case of India Trade Promotion Organization v/s CIT (06.09.2013) 38 taxmann.com 233 wherein by placing reliance on the decision of the Hon. Supreme Court of India in the case of CIT v/s. H.E.G. Ltd. (2010) 324 ITR 331, it is held that the words " refund of any amount becomes due to the assessee" would include in its scope tax as well as interest which has accrued and is payable upto the date of refund. Accordingly, it is further held that when the revenue does not pay full amount of refund but part amount is paid, it will be liable to pay interest on the balance outstanding amount. This does not amount to payment of interest on interest".

We heard the parties and perused the material on record. We notice that the coordinate bench in the case of Bharat Petroleum Corporation Ltd (supra) has considered the applicability of section 244A(1A) for assessment years prior to 01.06.2016 and held that -

From the reading of the above decision, we are of the considered opinion that provisions of section 244A (1A) would apply only prospectively w.e.f 01.06.2016 and hence additional interest would be eligible only from that date and not from 01.04.2016. As the Hon'ble High Court has imposed caveat explaining the circumstances under which the additional interest can be granted u/s.244A[1A] of the Act, we are of the view that this matter should go back to the file of the Assessing Officer for examining the facts of the assessee in the present appeals and for application of the ratio of decision in view of the observations of their lordships on applicability of the additional interest to the present appeals. Thus, we restore this issue to the file Assessing Officer who shall examine the issue afresh in the light of the decision of the Hon'ble Gujarat High Court (supra).

The provisions of sub-section (1A) to section 244A are inserted by the Finance Act, 2016 as a remedial measure to compensate the assessee in cases where there are delays in granting refunds due on account of delay in passing order giving effect to appellate or revisional orders. Applying the ratio laid down by the coordinate bench in the case of Bharat Petroleum Corporation Ltd (supra), we are of the considered view that the provisions of section 244A(1A) would be applicable in assessee's case from 01.06.2016 till the date of actual receipt of refund and accordingly we remit the issue back to the AO to examine the issue afresh and calculate the additional interest under section 244A(1A) in accordance with law." Respectfully, following the decision of the ITAT in the above case, we remit this issue to the AO to examine the issue afresh and calculate the additional interest u/s 244A(1A) in accordance with law as directed in the order of ITAT reproduced as above. Therefore, ground no. (iii) of the assessee is allowed for statistical purposes.

In the result, the appeal is partly allowed. Order pronounced in the open court on 21.05.2025. NARENDER KUMAR CHOUDHRY (न्यायिक सदस्य /JUDICIAL MEMBER) Place: मुंबई/Mumbai दिनांक / Date 21.05.2025 Lubhna Shaikh / Steno PRABHASH SHANKAR (लेखाकार सदस्य/ACCOUNTANT MEMBER) आदेश की प्रतिलिपि अग्रेषित/