DCIT vs. M/S SYNDICATE BANK,

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE

BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER and SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER

ITA Nos.1700 to 1704/Bang/2013 (Assessment years: 1990-91, 2004-05 to 2007-08)

Asst. Commissioner of Income-tax, Circle-1, Udupi. … Appellant Vs. M/s.Syndicate Bank, H.O. Manipal. … Respondent PAN: AACCS 4699E

Appellant by: Shri Farhat Hussain Qureshi, CIT(DR) Respondent by: Smt. Lalitha Rameswaran.

Date of hearing : 10/06/2015. Date of pronouncement: 30/06/2015.

O R D E R Per BENCH :

All these are revenue’s appeals for the assessment years 1990-91, 2004-05 to 2007-08 respectively. Since the issues involved are common, all the appeals are heard together and this common and consolidated order is passed hereunder for the sake of convenience.

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 2 of 23 issue of applicability of provisions of sec.115J and the ITAT had restored the appeal to the file of the CIT(A). The assessee while accepting that the provisions of sec.115J are applicable to it, had contended that for the purpose of computation of book profits, the recasted profit and loss account submitted by it should be the basis which was accepted by the CIT(A). The Assessing Officer (AO), while giving effect to the said order of CIT(A) had made various adjustments against which the present appeal has been filed. The various issues involved in this appeal are discussed as under.

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 3 of 23 value of an asset. However, AO added the same to the book profits u/s 115J of the Act against which the assessee preferred an appeal before the CIT(A) stating that the same cannot be added back to the book profit, as there is no provision in the explanation requiring such addition. The assessee relied upon the judgment of the Hon’ble Apex Court in the case of HCL Comnet Systems and Services Ltd. (305 ITR 409). It was further contended that without prejudice to the above contention, the amount of provision is reduced from the amount of advances in the balance sheet and accordingly, it amounts to actual write off. For this proposition, the assessee relied upon the judgment of the Hon’ble Karnataka High Court in the case of CIT vs. Yokogawa India Ltd. (in ITA No1062 of 2008 dated 29/8/2011) reported in (2012) 204 Taxman 305.

“3.2 I have carefully considered the facts of the case and the submissions made by the appellant. As submitted by the AR, the Hon’ble Supreme Court in the case of HCL Comnet Systems and Services Ltd. (supra) had held that the provision made towards bad and doubtful debts cannot be added back in computing the book profits. Even though an amendment was made by Finance (No.2) Act, 2009, with retrospective effect from 01/04/2001, that the provision made for diminution in the value of an asset will not be allowed as deduction, the said amendment has been made in section 115JA and 115JB and not in section 115J. In the

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 4 of 23 present case we are concerned with section 115J. In the absence of any amendment to the said section, I am of the considered opinion, that the provision made for bad and doubtful debts cannot be added back in computing the book profits. Accordingly, respectfully following the decision of the Hon’ble Supreme Court in the case of HCL Comnet Ltd. (supra), this ground of appeal is allowed.”

Against the relief given by the CIT(A), the revenue is in appeal before us.

“3. The appeal was admitted to consider the substantial question of law raised in the memorandum of appeal. However, the substantial question of law which arises for consideration in this appeal is as under: ‘Whether the provision for doubtful debts of Rs.8,73,11,283/- and the provision for loss of assets of Rs.1,20,00,000/- is required to be added back to the book profit as required under section 115JA of the Act in terms of Explanation to section 115JA of the Act, in particular clauses (c) and (g)’ 4. This Court had an occasion to consider the said question in the case of Commissioner of Income-tax –vs- Yokogawa India Ltd., reported in (2012) 204 Taxman 305 wherein it was held as under:-

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 5 of 23 “In the present case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore it was held that Item (c) of the Explanation is not attracted to the facts of the case. Item (c) in s. 115JA and 115JB(1) are identical. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in Item (c) of the Explanation, It is the amount or amounts set aside as provisions made for meeting the liability other than the ascertained liabilities. In the instant case also the bad and doubtful debt for which a provision is made which is in the nature of diminution in the value of any asset would not fall within item (c) of Explanation (i). It is in that context the CIT(A) as well as the Tribunal has granted relief to the assessee, Realizing the fatality of the said argument, it is contended now that Item (i) cannot amount to satisfaction as provision for diminishing in the value of assets is substituted, in case of the assessee falls under Item (c). In meeting the aforesaid case, the learned counsel for the assessee brought to our notice the judgment of the apex Court in the case of Vijaya Bank vs. CIT (supra) where the apex Court had an occasion to consider his explanation. It accepted the argument on behalf of the Revenue to the effect that the explanation makes it very clear that there Is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other, A mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the explanation stood Inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under s. 36(1)(vii) of the 1961 Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The apex Court accepted the said legal position. However it was clarified that besides debiting the P&L a/c and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and, consequentially, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 6 of 23 the provision for the impugned bad debt. Then the said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the P&L as/c but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to s. 115JA or JB is not at all attracted. In that context even if amendment which is made retrospective the benefit given by the Tribunal and the CIT(A) to the assessee is in no way affected. In that view of the matter, we do not see any merit in this appeal. From the aforesaid judgment it is clear if the bad debt or doubtful debt is reduced from the loss and advances from the debtors on the assets side of the balance sheet, the Explanation to section 115JA or 115JB of the Act is not at all attracted. If it is not reduced, section 115JA of the Act is attracted. It is purely a question of fact. From the material on record it is not possible to make out whether the aforesaid bad and doubtful debts are reduced from the loss and advances of the debtors from the assets side of the balance sheet. Without ascertaining the said fact it is not possible to answer the substantial question of law one way or the other. Therefore, the proper thing to do is to set aside the impugned orders and remit the matter back to the First Appellate Authority with a direction to the Authority to look into the records and then record a finding one way or the other in the light of the aforesaid judgment. That would meet the ends of justice. Therefore, the substantial question of law is not answered. 5. Accordingly, we pass the following ORDER i) Appeal is partly allowed. ii) Impugned orders passed by both the Appellate Authorities are set aside and the matter is remitted back to the First Appellate Authority for fresh consideration in the light of the judgment and pass appropriate orders.”

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 7 of 23 We find that the CIT(A) had followed the judgment of the Hon’ble Supreme Court in the case of HCL Comnet Systems & Services Ltd.(305 ITR 409) to hold that the provision made for bad and doubtful debts cannot be added back in computing book profits u/s 115J of the Act. The Hon’ble High Court in the assessee’s own case for the assessment year 1999-2000 has only considered the decision of the jurisdictional High Court in the case of CIT vs. Yokogawa India Ltd. reported in (2012) 204 Taxman 305 to come to the conclusion that the Explanation to sec.115J was not attracted to a provision made for bad and doubtful debts. We find that even in the present case, the facts need verification in the light of the judgment of the Hon’ble jurisdictional High Court in the assessee’s own case for the earlier assessment year. Therefore, respectfully following the decision of the jurisdictional High Court in the assessee’s own case, we set aside the issue to the file of the AO for verification of the accounts and for re-computation in accordance with the directions of the Hon’ble High Court of Karnataka. It is further observed that the ground raised by the revenue is that the assessee itself has added the said sum in its computation sheet. According to us this is not relevant as the assessee had added the said amount in the regular computation and not under the computation u/s 115J of the Act. The ground of appeal No.2 is accordingly treated as allowed for statistical purposes.

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 8 of 23 6. As regards ground No.3, the AO, while giving effect to the order of the CIT(A), had added an amount of Rs.5 lakhs being ‘provision for exchange fluctuation’, while computing book profits. Before the CIT(A), assessee had submitted that the said amount represented exchange loss on account of exchange fluctuation relating to the assets and liabilities of its London branch and therefore the above loss has been incurred in the normal course of carrying on business and further that in the absence of any provision in the Explanation to sec.115J, the same cannot be added in computing the book profits. The CIT(A) holding that the addition can be made only of the items provided for under the Explanations (a) to (f) to sec.115J of the Act and that the exchange fluctuation is not provided under the Explanation, held that the same cannot be added back. Aggrieved by the relief given by the CIT(A), the revenue is in appeal before us.

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 9 of 23 115J of the Act. We find that the decision of the jurisdictional High Court in the assessee’s own case applies to this ground also. Therefore, for the reasons given above, this issue also is set aside to the file of the AO for verification as directed the jurisdictional High Court and the ground of appeal No.3 is treated as allowed for statistical purposes.

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 10 of 23 favour of the assessee in CIT(A)/s order in ITA 47/UDP/CIT(A)/MNG/11-12 dated 20/12/2012. It was thus contended that the AO had granted interest for the months in which the tax was paid/adjusted or refund granted which also had resulted in the difference in interest. It was submitted that as per the clear provisions of rule 119A, the AO ought to have granted interest for the month of payment/adjustment of tax/granting of refund also. The AR also submitted that this issue was decided in favour of the assessee in CIT(A)’s order in 47/UDP/CIT(A)/MNG/11-12 dated 20/12/2012.

“ 6.3 I have carefully considered the facts of the case and the submissions made by the appellant. As submitted by the AR, I had in my order cited supra, respectfully following the decision of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd. (supra) held that the Department has to grant interest by first adjusting the refund granted against the interest due and thereafter against the tax refund due. Accordingly, the AO is directed to rework the interest due to the appellant by first adjusting the refund granted against interest and thereafter against the tax refund due. The AO for this purpose may take into consideration the working furnished by the appellant along with the grounds of appeal and a copy of which may be furnished by the appellant to the AO. 6.4 With regard to the contention of the appellant that interest is to be granted for the month of payment/adjustment of tax/granting of refund. I had in my order cited supra held that as per the provisions of Rule 119A, interest is to be granted for the month of payment/refund of tax. The AO is accordingly directed to compute the interest. This ground of appeal is accordingly allowed.”

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 11 of 23 8. Aggrieved by the relief given by the CIT(A), the revenue is in appeal before us. It is the case of the learned Departmental Representative that the assessee had sought interest on refund u/s 244A and that the CIT(A) granted relief by placing reliance on the judgment of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd., reported in 280 ITR 643 and that this reliance is erroneous in view of the subsequent judgment of the Apex Court in the case of CIT vs. Gujarat Fluoro Chemicals reported in 358 ITR 291 (SC). The learned counsel for the assessee, on the other hand, submitted that the judgment of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd., (cited supra) was on sec.214 and not on sec.244A of the Act. He therefore submitted that the said judgment may not be applicable to the facts of the case before us. However, he relied upon the judgment of the Hon’ble Supreme Court in the case of CIT vs. HEG Ltd., (2010) 324 ITR 331 (SC) wherein it was held that the meaning of the words “refund of any amount becomes due to the assessee” in sec.244A includes the interest component u/s 244A. A copy of the said order is filed before us which has been followed by the co-ordinate bench of the Tribunal at Mumbai in the case of Bank of India and Central Bank of India in ITA Nos.5444 to 5446/Mum/2013 dated 22/12/2014 and ITA No.5431 to 5435/Mum/2013 dated 31/12/2014 respectively. Copies of the said orders are also filed before us. The earned counsel for the assessee has also filed copies of the orders giving

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 12 of 23 effect to the order of the CIT(A) wherein we find that the AO has granted relief to the assessee.

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 13 of 23 adjustment of the tax refund first to the interest due and thereafter to the tax refund. He, therefore, had submitted that assessee’s as well as CIT(A)’s reliance on Sandvik Asia Ltd., (cited supra) was misplaced. We agree with the above contention of the assessee. Now, the learned counsel for the assessee had placed reliance upon the judgment of the Apex Court in the case of HEG Ltd. (cited supra). Before applying the said judgment to the case before us, the provision of sec.244A is reproduced hereunder for ready reference:

“244A. (1) Where refund of any amount becomes due to the assessee 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:- (a) where the refund is out of any tax paid under section 115WJ or 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 comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted: Provided that no interest 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 115WE or sub-section (1) of section 143 or on regular assessment; ......................................... ” It can be seen that the sub-section starts with the phrase ‘where refund of any amount becomes due to the assessee’. Therefore, it is necessary to understand the ‘amount due to the assessee’. The Hon’ble Apex Court in HEG Ltd. (cited supra) has considered the meaning of the above words and has held as under:

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 14 of 23 “5. In the synopsis to the civil appeal arising out of SLP (C) No. 18045 of 2009, the question raised by the Department is whether the assessee was entitled to claim interest on interest under the provisions of s. 244A of the IT Act, 1961. In our view, on facts, the question framed was totally erroneous. 6. Annexure P-1 is income-tax computation in civil appeal arising from SLP (C) No. 18045 of 2009. On going through the computation, we find that during the asst. yr. 1993-94, the amount paid by the assessee towards TDS was Rs. 45,73,528. The tax paid after original assessment was Rs. 1,71,00,320. The total of TDS amounting to Rs. 45,73,528 plus tax paid after original assessment of Rs. 1,71,00,320 stood at Rs. 2,16,73,848. In other words, the total tax paid had two components, viz., TDS + tax paid after original assessment. The respondent was entitled to the refund of Rs. 2,16,73,848 (consisting of Rs. 1,71,00,320 and Rs. 45,73,523 which payment was made after 57 months and which is the only item in dispute). 7. The assessee claimed statutory interest for delayed refund of Rs. 45,73,528 for 57 months between 1st April, 1993 and 31st Dec., 1997 in terms of s. 244A of the IT Act. 8. Therefore, this is not a case where the assessee is claiming compound interest or interest on interest as is sought to be made out in the civil appeals filed by the Department. 9. 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. 45,73,523 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 aforestated 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

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 15 of 23 interest which, as stated above, partook the character of "amount due" under s. 244A. 10. For the aforestated reasons, the civil appeal arising out of SLP (C) No. 18045 of 2008 filed by the Department fails and is dismissed, with no order as to costs. ” We find that the above judgment as well as the judgments in the case of Sandvik Asia Ltd., (cited supra) and Gujarat Fluoro Chemicals (cited supra) was considered by the Hon’ble Delhi High Court in the case of India Trade Promotion Organisation vs. CIT (2014) 361 ITR 0646(Delhi) and it was held as under:

“7. The question really is in case the Revenue does not make payment of interest element, which had accrued and had become payable on the date when the tax amount is refunded, whether they would be liable to pay interest under Section 244A on the said amount. One can casually or loosely call it as interest on interest but in reality payment of interest on the said amount occurs because of non-payment of the total amount refundable, which is due and payable to the assessee, inter alia, consisting of the tax, which had to be refunded and the interest accrued on the delayed refund of the tax. It is not uncommon and in the commercial world and even in civil suits while computing interest under Section 34 of the Code of Civil Procedure, 1908 the principal amount and the interest due are added and treated as the primary amount in the decree drawn. Interest becomes due and payable on this primary amount. In other words, interest stands capitalised. We further note that it is not a case of compounding of interest as understood except once, i.e., on the date when it is quantified, i.e., when part refund payment is made by the Revenue. Therefore, it will be wrong to call it and treat it as compounding of interest. 8. It will be now relevant to refer to the provisions of the Act relating to refund and examine whether under the Act, interest is payable. Section 244A with effect from 1st April, 1989 reads as under:- “ Interest on refunds. 244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 16 of 23 addition to the said amount, simple interest thereon calculated in the following manner, namely:- (a) where the refund is out of any tax paid under section 115WJ or 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 comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted: Provided that no interest 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 115WE or sub-section (1) of section 143 or on regular assessment; (b) in any other case, 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 or periods from the date or, as the case may be, dates of payment of the tax 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. (2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, 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, and where any question arises as to the period to be excluded, it shall be decided by the Chief Commissioner or Commissioner whose decision thereon shall be final. (3) Where, as a result of an order under sub- section (3) of section 115WE or section 115WF or section 115WG or 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

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 17 of 23 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: 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.” 9. The words used in the Section 244A are “where refund of any amount becomes due and payable to the assessee under the Act”, the assessee shall be entitled to receive in addition to the said amount simple interest calculated in the manner stipulated. The Legislature has not used the words “tax paid” or “the principal amount of tax paid”. The words used by the Legislature are “any amount” and “said amount”. The words are, therefore, much wider and broader than the tax amount, which is to be refunded. The words “any amount” would include within its scope and ambit the interest element, which has accrued and is payable on the date of the refund. Thus, when the Revenue does not pay full amount of refund but part amount is paid, they will be liable to pay interest on the balance outstanding amount. The balance outstanding amount may consist of the tax paid or the interest, which is payable till the payment of the part amount and interest payable on the principal amount, which remained outstanding thereafter. 10. The Delhi High Court in the case of Commissioner of Income Tax versus Goodyear India Limited, 2001 (249) ITR 527 (Delhi) had occasion to examine the earlier provisions of refund under Sections 240 and 244 of the Act and had observed as under:- “Section 244 deals with interest on refund where no claim is needed. Sub-section (2), inter alia, provides that where a refund is due to the assessee, "in pursuance of an order referred to in Section 240" and the Assessing Officer does not grant the refund within the stipulated time, the Central Government is required

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 18 of 23 to pay simple interest at the stipulated rate. Section 240 deals with refund on appeal, etc. This provision clearly lays down that where as a result of any order passed in appeal or other proceedings under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessed without his having to make any claim in that behalf. The crucial expressions in Section 240 are "any amount which becomes due to the assessee as a result of any order passed in any appeal or other proceedings under the Act" and the "amount becomes due to the assessee". Section 244 refers to the liability fastened on the Central Government in case of failure to grant refund within the stipulated time in a case where refund is due to the assessee in pursuance of an order referred to in Section 240. A combined reading of both the provisions makes the position crystal clear that it is any amount which becomes due to the assessee and not necessarily the tax component. Undisputedly, a sum of Rs. 1,90,499 which qualifies for interest became payable to the assessee on the basis of an order passed under Section 240 of the Act. Merely because this was inclusive of an amount which was payable under Section 214 of the Act, that would not make the position any different. It is an amount which became due to the assessee on the basis of the appellate order. Therefore, the assessee was entitled to interest in terms of Section 244 of the Act. A similar view has been taken by the Gujarat High Court in D. J. Works v. Deputy CIT (1992) 195 ITR 227and Chiman Lal S. Patel v. CIT (1994) 210 ITR 419 though with different conclusions. Above being the position, we answer the question in the affirmative, in favor of the assessee and against the Revenue.” 11. In R.K. Jain and Sons versus Commissioner of Income Tax, 2005 (142) Taxman 445 (Delhi) reference was made to several judgments passed by Gujarat High Court and decision of the Supreme Court in CIT versus Narender Doshi, (2002) 245 ITR 606 and it was held that interest should be awarded on the interest component of the unpaid refund. Recently in Motor and General Finance Limited versus Commissioner of Income Tax and other cases reported in (2010) 320 ITR 88 (Delhi) reference was made to the decision of the Supreme Court in Sandvik Asia Limited versus CIT, (2006) 280 ITR 643 (SC) and Narendra Doshi (supra) and it was observed as under:- “20. It is, thus, manifest that at both the stages, namely, while passing intimation under Section 143(1)(a) of the Act, refund along with interest under

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 19 of 23 Section 244A was given of the excess TDS and advance tax. Again, after the orders of the Tribunal were passed and the refund became payable as a consequence thereof, the excess amount of tax was refunded along with interest payable thereupon under Section 244A of the Act. Thus, the calculations are not disputed, as observed by the Tribunal also. 21. When the refund of tax becomes payable as a result of orders passed in appeal or other proceedings under the Act, this refund is to be given along with interest, which is to be calculated as per Section 244 of the Act. If that interest is paid along with the excess tax, no further payment is to be made. It is only when the excess amount of tax is refunded but the interest is not refunded along therewith, the retention of interest amount would become unjustified and interest on interest would also become payable. The reason is simple. It is the tax which was paid in excess by the assessee which became refundable. The assessee would be compensated by paying interest thereupon. It is only when the interest is not refunded along with excess tax that the withholding of the said interest becomes unjustified and it becomes an amount due to the assessee on which the assessee can claim further interest. Such a situation has not happened in the present case as the amount of interest is calculated and refunded along with the refundable tax amount.” 12. Same view has been taken by Punjab and Haryana High Court in Roadmaster Industries of India Private Limited versus Commissioner of Income Tax and Another, (2010) 329 ITR 69 (P&H) and Gujarat High Court in Commissioner of Income Tax versus Hynoup Food and Oil Industries Limited, (2010) 320 ITR 365 (Guj.) and Gujarat Flourochemicals Limited versus Commissioner of Income Tax and Others, (2008) 300 ITR 328 (Guj.). The said cases refer to the principle of compensation when money, which is due and payable and refundable, is not paid. 13. Madhya Pradesh High Court had the occasion to deal with the similar issue in their decision in Commissioner of Income Tax versus HEG Limited, (2009) 310 ITR 341 (MP). The facts of the said case may be noticed. The assessee became entitled to refund along with interest under Section 244A. Referring to Section 240 of the Act, the High Court observed that the term used was “refund of any amount becomes due to the assessee”. The same words were also used in Section 244A. Reference was made to the decision of the Delhi High Court in Goodyear India Limited (supra) and decisions of the Supreme Court in Narender Doshi (supra) and Sandvik Asia Limited (supra). Decision of the

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 20 of 23 Madras High Court in CIT versus Needle Industries Private Limited, (1998) 233 ITR 370 (Mad) reflected upon and it was held that the words or the phrase “any amount” would include the amount refundable plus the interest due and payable on the tax amount refunded. Thus, in view of the express provisions of Section 244A, interest was directed to be paid by the Revenue. 14. Matter was taken by the Revenue before the Supreme Court in the case of HEG Limited and the SLP was granted and civil appeal was registered. The Supreme Court thereupon answered the question against the Revenue in the following words:- “Therefore, this is not a case where the assessee is claiming compound interest or interest on interest as is sought to be made out in the civil appeals filed by the Department. 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 Section 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 Section 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 Section 244A of the Income-Tax 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 December 31, 1997 but net of interest which, as stated above, partook of the character of “amount due” under Section 244A.” 15. A reading of the aforesaid passage from the decision of the Supreme Court in HEG Limited (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

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 21 of 23 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 Section 244A of the Act. Suppose Revenue is liable to refund Rs.1 lac to an assessee with effect from 1st April, 2010, the said amount is refunded along with interest due and payable under Section 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 Section 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, Section 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 Section 244A till payment is made. 16. The aforesaid manner of computation is not only applicable to cases where Revenue has to pay interest on refund, but is equally applied when an assessee is in default and interest is payable under Section 220(2) of the Act. Interest payable under Section 234B and 234C become part of the demand notice issued under Section 156 and it is on this amount, i.e., the tax payable plus interest payable under Sections 234B and 234C that interest under Section 220(2) is calculated from the date mentioned in the notice of demand till the date of actual payment. Under Explanation to Section 140A(1), it is stipulated where the amount paid by an assessee under self-assessment falls short of the aggregate amount of tax and interest aforesaid, the amount paid shall first be adjusted towards the interest payable and the balance, if any, shall be adjusted towards the tax payable. The interpretation given by us follows the same principle, when Revenue defaults and makes part payment of the amount refundable. The aforesaid interpretation also ensures that the Assessing Officer/Revenue refund the entire amount, which is due and payable, including interest payable under Section 244A. It discourages part payment. There is no other provision under the Act under which an Assessing Officer/Revenue can be made liable to pay interest when

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 22 of 23 part payment is made and the entire amount, which is refundable is not paid to the assessee. Otherwise the Assessing Officer/Revenue can refund the principal amount and not pay the interest component under Section 244A for an unlimited period with impunity and without any sanction, which would amount to granting premium to a non- compliance of law. In the present case, the interest component was withheld for the period ranging between 9 to 13 years. 17. In view of the aforesaid discussion, we answer the questions of law in favour of the appellant and against the Revenue. The appeals are disposed of. No costs. We find that the facts and circumstances before us are similar to the case before the Hon’ble Delhi High Court (cited supra). We find that the AO has given effect to the order of the CIT(A) in accordance with the above judgment and therefore we do not see any reason to interfere with the order of the CIT(A).

ITA Nos.1700 to 1704/Bang/2013 Syndicate Bank Page 23 of 23 directions of the CIT(A) at para.7.2 of his order wherein the CIT(A) had only directed the AO to verify excess refund granted, if any, and then levy interest thereon u/s 234D, if any, arises. It is stated by the learned counsel for the assessee that the CIT(A) has not granted any relief to the assessee and therefore the ground raised is misplaced.

Pronounced in the open court on 30th June, 2015.

sd/- sd/- (Abraham P George) (Smt. P.Madhavi Devi) ACCOUNTANT MEMBER JUDICIAL MEMBER eksrinivasulu Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore