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Facts
The assessee, a Gujarat government entity, filed a Nil return for AY 2015-16. During assessment, it was found that the assessee received interest of Rs. 27,67,422/- u/s. 244A as a refund, which was not disclosed or offered for tax, claiming it was adjusted against prior outstanding demands and not actually received. The AO made an addition, and the subsequent rectification application u/s. 154 was rejected, a decision upheld by the CIT(A).
Held
The Tribunal held that interest received u/s. 244A on an income tax refund is income of the assessee, taxable under "income from other sources," irrespective of whether it was adjusted against outstanding demands. The ownership of the interest lay with the assessee, and the issue of taxability is debatable, thus not constituting a 'mistake apparent from record' for rectification u/s. 154. The assessee should have filed a regular appeal against the assessment order.
Key Issues
Whether interest received u/s. 244A on an income tax refund is taxable income of the assessee, and if the non-taxability of such interest can be considered a 'mistake apparent from record' to be rectified u/s. 154 of the Act.
Sections Cited
154, 244A, 143(2), 143(3), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “ SMC” BENCH, AHMEDABAD
Before: Ms SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA
आदेश/O R D E R
PER NARENDRA PRASAD SINHA, AM:
This appeal is filed by the assessee against the order passed by the Additional/Joint Commissioner of Income Tax (Appeals-10) Mumbai, dated 20.01.2025 (in short “the Addl. CIT(A)”) for the Assessment Year 2015-16, in the proceedings u/s.154 of the Income Tax Act, 1961 (in short “the Act”).
2 2. The brief facts of the case are that the assessee had filed return of income for AY 2015-16, declaring “Nil” income. The case was selected for complete scrutiny and a notice u/s. 143(2) of the Act was issued on 25.07.2016. The assessee is 100 % Government of Gujarat entity with the main object to undertake construction/maintenance/repairs of residential/non-residential buildings for Police/Jail/ Home Guard Department, as per the directive of the Government of Gujarat. In the course of assessment, the AO found that the assessee was paid interest of Rs.27,67,422/- u/s. 244A of the Act in respect of refund for AY 2010-11 paid on 11.01.2015. However, this interest was not disclosed in the profit & loss accounts of the assessee-company and was not offered to tax. It was explained by the assessee that the refund was adjusted against outstanding demand for AYs 2011-12 and 2012-13 and interest amount was not actually received by the assessee. However, the AO did not agree with the explanation of the assessee and addition of Rs.27,67,422/- was made in respect of interest received u/s.244A of the Act. Thereafter, the assessee had filed a rectification application u/s.154 of the Act on 11.04.2019 with a request to rectify the mistake in the Assessment Order u/s.143(3) of the Act dated 24.11.2017 in respect of addition of Rs.27,67,422/- on account of interest u/s.244A of the Act. The AO vide order u/s.154 of the Act dated 30.04.2019 had rejected the application of the assessee.
Aggrieved with the Order u/s.154 of the Act, dated 30.04.2019 passed by the AO, the assessee had filed appeal before the First Appellate Authority which was decided vide the impugned order and the appeal of the assessee was dismissed.
3 4. Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:
1.1 The order passed u/s.250 on 20.01.2025 for A.Y.2015-16 by Addl./JT.CIT(A), Mumbai (for short CIT(A) upholding addition towards interest income of Rs.27,67,420/- on the refund of TDS is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant. The impugned order being a non-speaking order, it is liable to be quashed and set aside. 2.1 The Ld CIT(A) has grievously erred in law and or on facts in upholding that the interest income of Rs.27,67,420/- on the investment of funds not belonging to the Appellant Corporation was chargeable to tax in the hands of the appellant though the refund of tax did not belong to the appellant. 2.2 That in the facts and circumstances of the case as well as in law, the Id. CIT(A) ought not to have held that the refund of income tax belongs to the appellant and as such corresponding income had accrued to him. 2.3 The Ld CIT(A) has grievously erred in law and or on facts in upholding that since no appeal was filed against the assessment order, no application for rectification of concluded issue could be made.
Shri S N Divetia, Ld. AR appearing for the assessee explained that the assessee is a wholly owned Government Company and acting as Nodal Agency for carrying out various types of construction, maintenance and repair work for Home Department, Government of Gujarat. He explained that the assessee has been working on no-profit no-loss basis, as the ultimate ownership of the buildings constructed remains with the Government of Gujarat. It was regular and consistent accounting practice of the assessee to transfer the entire income and cost to either work-in-progress or work completed. The Ld. AR explained that the fund received for construction activities from the Government was kept with Gujarat State Finance Corporation Limited and the interest generated thereon was re-paid and deposited in Government account. Thus, the interest accrued to the assessee
4 was not the income of the assessee and this fact was decided in favour of the assessee by the Co-ordinate Bench of this Tribunal in dated 18.07.2014 and also by Hon’ble Gujarat High Court in Tax Appeal No.63 of 2015 dated 06.04.2015. In view of this fact, the addition made by the AO in respect of interest u/s.244A of the Act was not correct and, therefore, the order u/s.154 of the Act rejecting the rectification application was also not correct.
Per Contra Shri Hargovind Singh, Ld. Sr. DR submitted that the interest received u/s.244A of the Act was income of the assessee and was required to be disclosed in the Income-tax return, as income earned from “other sources”. He submitted that this interest was paid on the tax paid by the assessee/TDS made on behalf of the assessee and, therefore, the AO was correct in treating the same as income of the assessee. He further submitted that the taxability of interest u/s.244A of the Act cannot be considered as mistake apparent from the record as it was a debatable issue. Therefore, the AO had rightly rejected the rectification application of the assessee.
We have carefully considered the rival submissions. There is no dispute to the fact that the assessee had received interest of Rs.27,67,422/- u/s.244A of the Act during the year. Further, the interest received on income tax refund is liable to tax under the head “income from other sources” and accordingly the assessee was required to disclose this interest in the income tax return for AY 2015-16, as the refund along with the interest was received in this year only. Merely because the refund was adjusted with the outstanding demands of the assessee for AYs 2011-12 and 2012-13, this cannot be a ground for non-disclosure of interest income
5 received during the year u/s.244A of the Act. The interest on refund paid u/s.244A of the Act was in respect of excess tax paid by the assessee or excess tax collected on behalf of the assessee. Therefore, the assessee cannot take a plea that this interest income does not belong to it. The interest received u/s.244 of the Act cannot be equated with the interest on surplus fund received from the Government and deposited with Gujarat State Finance Corporation Ltd. The decision of the Tribunal and the High Court, relied upon by the assessee, was in respect of interest income earned on fixed deposit made on temporary basis out of the grant received from the Government. In that case, the fund belonged to the Government which was temporarily deposited with the Corporation and interest earned thereon was held as belonging to the Government of Gujarat and not to the assessee. The same principle cannot be applied to the interest received by the assessee u/s.244A of the Act. This interest was received on the excess tax deposited/collected on behalf of the assessee. Further, the interest received by the assessee was adjusted with the outstanding tax liability of the assessee itself for the AY 2011-12 and 2012-13. The ownership of the interest received u/s.244A of the Act on the excess tax paid, was squarely with the assessee and not with the Govt. of Gujarat. The assessee has not contended that it was not liable to pay any tax on the interest earned by it or that its income was not taxable at all.
Be that as it may, the fact remains that ownership of the interest u/s.244A of the Act was with the assessee and not with the Government of Gujarat. Further, as rightly pointed by the Revenue, whether the interest u/s.244A of the Act was liable to tax in the hands of the assessee or not, required application of mind and this cannot be considered as mistake
6 apparent from the record. Therefore, the AO had correctly rejected the rectification application of the assessee and we do not find anything wrong with the rejection of the appeal by the Ld. Addl. CIT(A) on this issue. As rightly held by Ld. Addl. CIT(A), if the assessee wanted to challenge this matter, it should have been done by filing a regular appeal against the assessment order and not in the proceedings u/s.154 of the Act. Accordingly, the order of the Ld. Addl. CIT(A) is upheld and the appeal of the assessee is dismissed.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the Open Court on 09th July, 2025 at Ahmedabad.