D.C.I.T CIR - 6,KOLKATA, KOLKATA vs. M/S UNITED BANK OF INDIA, KOLKATA

As can be seen from the above computation of refund, the interest on refund of any amount which was required to be given in terms of Sec.244A of the Income Tax Act, 1961 (Act), was calculated at Rs. 5,56,60,893/-by the AO in the aforesaid order dated 31.3.2009. (Rs.5,56,60,893 is the sum total of the three interest figure of Rs.64,17,369 + Rs.4,28,97,804 + Rs.63,45,720 shown in bold letters in the computation given in the earlier paragraph).

By an order dated 15.9.2009 passed u/s.154 of the Act, the AO reduced the interest which he had calculated as interest u/s. 244A of the Act amounting to Rs. 5,56,60,893/- in the order dated 31.3.2009 to Rs. 5,36,62,849/-. The difference in the interest granted u/s.244A of the Act arose due to the following reasons: (a) In the said order dated 15.09.2009, the AO calculated interest for the period April '91 to Sept '91 @1% (although according to the Assessee for the said period the interest rate was 1.5% u/s. 244A of the Act) thereby reducing interest to the extent of Rs. 2,83,474/-. (b) The AO calculated interest u/s 244A of the Act on TDS refundable to the assessee by keeping interest part refundable to the assessee separately whenever refund was issued by the department. The A.O. adjusted entire amount of refund whenever issued, with the principal amount i.e. TDS, keeping interest amount remaining unpaid although he has ascertained the same on the same date. According to the Assessee unpaid interest if not paid, should attract interest for the delayed period of payment at prescribed rate, which had not been given by the assessing officer in the order dated 15.9.2009.

Before CIT(A), the Assessee pointed out that in the order u/s. 154 the A. O. has wrongly calculated interest u/s.244A of the Act and that no interest on interest was calculated in the order dated 31.3.2009. The Assessee further submitted that the calculation of interest as done by the AO in the order dated 31.3.2009 was as per the decision of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd. vs. C.I. T reported in 280 ITR 643(SC) and Hon 'ble I. T.A. T, Kolkata Bench in the case of M/s. United Bank of India A.Y.1991-92 3 JCIT (OSD) vs. M/S. ITC Hotels Ltd. (Merged with ITC Ltd) relating to assessment years 1996-97 to 1998-99 in I.T Appeal No. : 243 to 245/K/2012 dated 29th June, 2012. The Assessee also pointed out that in Assesse’s own case CIT (Appeals) has decided in favour of the assessee bank on similar issues in relation to A. Y 1997-98 vide order dated 4.03.2010 and A. Y 2003- 04 vide order dated 25.03.2010. The Assessee also contended that the A.O. has changed the method of calculation of interest u/s. 244A of the Act and doing so in a proceeding u/s.154 of the Act is not permissible as the issue was debatable and relied on the decision of the Hon 'ble Supreme Court in the case of T S Balaram vs. Volkart Brothers reported in 82 ITR 50 (SC).

The CIT(A) cancelled the order of the AO u/s.154 of the Act for the reason that the issue was debatable and therefore jurisdiction u/s.154 of the Act ought not to have been invoked by the AO. The CIT(A) also held that the calculation of interest done by the AO in the order dated 31.3.2009 was as per the decision of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd. (supra) wherein it was held that the Government is liable to pay interest, at the rate applicable to the excess amount refunded to the assessee on the interest amount which becomes due u/s.214(1). Once the interest becomes due, it takes the same colour as the excess amount of tax which is refundable on regular assessment. Interest is payable on the amount to be refunded u/s. 244(1) within three months from the decision of the appellate or other authority specified in Section 240. The expression "amount" in the earlier period of Section 244(1A) refers not only to the tax but al so to the interest; it is a neutral expression and it cannot be limited to the tax paid in pursuant of the order of assessment. Therefore, following the decision of Supreme Court, order passed by the A.O. u/s.154 was held by the CIT(A) to be unjustified.

Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. We have heard the rival submissions. To appreciate the stand taken by the Assessee, the method of calculation of interest as done by the AO in the order dated 31.3.2009 M/s. United Bank of India A.Y.1991-92 4 has to be seen. Firstly the rate of interest u/s.244A of the Act applicable for the period April, 1991 to September, 1991 was 1.5% and not 1% as was adopted by the AO in the order u/s.154 of the Act. With regard to the method of calculation of interest, it can be seen from the computation of interest by the AO in the order dated 31.3.2009 that the AO has not granted interest on interest, as has been assumed by the AO while passing the order dated 15.9.2009.

An analysis of the order dated 31.3.2009 will show that the 1st refund as per the aforesaid order was granted in Aril, 1992. This refund was by way of adjustment of demand for AY 1988-89 against the amount refundable in AY 1991-91. In April, 1992 the amount collected by way of TDS found refundable was Rs.4,27,82,459/-. On this sum interest at 244A of the Act was granted for the period from 1.4.1991 to 31.3.1992 of a sum of Rs.64,17,369. This interest was calculated only on the tax paid and there was no interest payable and therefore it cannot be said that at this point of refund, interest on interest was paid by the Assessee. The amount refundable thus came to Rs.4,91,99,828/-. A sum of Rs.4,51,91.816 was adjusted from this sum refundable towards demand of taxes of the Assessee for AY 1988-89. Thus the sum of Rs.40,08,012 was only refundable to the Assessee.

Thereafter the 2nd refund was issued in August, 2002 Rs.1,80,34,020/-. At this point of time interest on refund had to be calculated. In September, 1998 the Assessee became entitled to a refund of Rs.9,98,08,757/- which was of taxes paid and not any interest. This was added to the refund already due of Rs.40,08,012 resulting in a figure of Rs.10,38,16,769/- refundable in September, 2002. At this point of At this oint of time the interest u/s.244A of the Act was calculated from October, 1998 till August, 2002 on only Rs.9,98,08,757/- which was refund of taxes. It cannot be said that at this point of time also interest on interest was paid by the Revenue. After this interest calculation the amount refundable was Rs.14,67,14,573/-. After reducing the refund of Rs.1,80,34,020 refunded the sum still refundable was Rs.12,86,80,553/-.

The 3rd refund was issued in September, 2003 of Rs.9,92,29,951/-. At this juncture interest u/s.244A was calculated on Rs.8,17,74,737/- which was arrived at in the following manner:

Therefore it is clear from the calculations that the AO while passing the order dated 31.3.2009 has not allowed any interest on interest as has been assumed by the AO while passing the order u/s.154 of the Act. Factually, the order of the CIT(A) is correct and therefore the order u/s.154 of the Act was rightly cancelled by the CIT(A). We are therefore of the view that the CIT(A) was fully justified in cancelling the order u/s.154 of the Act on the ground that the order of the AO did not suffer from any error apparent on the face of the record and even otherwise the issue was highly debatable M/s. United Bank of India A.Y.1991-92 6 and therefore jurisdiction u/s.154 of the Act, could not have been invoked by the AO. We therefore dismiss the appeal of the Revenue.

In the result, the appeal by the revenue is dismissed.