HDFC BANK LTD,MUMBAI vs. ASST CIT 2(3), MUMBAI

The present appeal has been preferred by the assessee against the order of Commissioner of Income Tax (Appeals) (in short ‘CIT(A)’) dt. 8.5.2014. The controversy involved in this appeal is regarding the interpretation of the directions/orders given by the Hon'ble Bombay High Court in the case of the assessee while deciding the Writ Petition No. 770/2013 of the assessee vide order dt. 4.4.2013.

The brief facts of the case as brought out from the orders of the lower authorities are that the assessee is engaged in the business of banking. The assessee filed its e-return of income on 15.10.2010 declaring total income of Rs.3986,33,64,380/-. The AO, however, assessed the total income of the assessee in assessment proceedings carried out u/s. 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) at Rs.7861,05,37,140/- and thus computed the tax demand at Rs.1719,65,43,130/-. The assessee filed an appeal before the ld. CIT(A) challenging the said addition. The assessee, in the meanwhile, also moved an application to the AO for staying recovery of the tax demand based on the impugned addition. The AO, however, rejected the stay application of the assessee and recovered part of the demand by way of adjustment of the refunds due to the assessee in respect of A.Ys 2008- 09 and 2009-10 totalling to Rs.567,87,02,900/-. Against the above action of the AO, the assessee filed a Writ Petition (supra) before the Hon'ble Bombay High Court. The Hon'ble Bombay High Court vide order dt. 4.4.2013 directed the AO to adjust the refund due for the earlier years towards the demand for the year under consideration to the extent of Rs. 60 crores only. The Hon'ble High Court directed that the balance refundable amount in respect of A.Ys 2008-09 and 2009-10 be refunded together with interest as admissible in accordance with law to the assessee. The relevant findings of the Hon'ble High Court, for the sake of convenience, are reproduced as under :

The AO while giving effect to the orders of the Hon'ble High Court first adjusted Rs. 60 crores demand for A.Y 2010-11 and then granted the refund of the balance amount alongwith interest on the balance refund only. The AO did not refund the interest due on the amount of Rs. 60 crores. He had refunded only the balance amount of Rs.507,87,00,000/- out of total refund due of Rs.567,87,02,900/- alongwith interest. The controversy involved is as to whether the AO was supposed to refund the balance amount including the interest on the amount of Rs. 60 crores which has been adjusted as per the directions of the Hon'ble High Court.

Being aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A). The ld. CIT(A) while referring to the provisions of Sec. 244A of the Act observed that as per the said provisions, where refund of any amount becomes due to the assessee, the assessee is entitled to receive in addition to the said amount, simple interest thereon. He interpreted the word “thereon” and held that the word “thereon” refers to the amount of refund that has become due to the assessee. He observed that when the demand is also outstanding against the assessee in another assessment year, and the same has to be adjusted partly out of refund, the amount of refund due shall automatically be the reduced amount and interest shall have to be granted “thereon” on such reduced amount. He, therefore, observed that the AO had rightly not granted interest to the assessee on the adjusted amount of Rs. 60 crores.

Being aggrieved by the order of the ld. CIT(A), assessee has thus come in appeal before us.

We have heard the rival contentions. A perusal of the operating part of the order of the Hon'ble Bombay High Court reveals that the Hon'ble High Court has observed that the assessee had a prima facie case in respect of three issues and that the demand in relation to addition made on the said three issues was to be stayed. The Hon'ble High Court further observed that in respect of the balance due and payable by the assessee, the amount due was worked out at Rs.159.49 crores and that the assessee had already paid an amount of Rs. 100 crores out of the said balance due. The Hon'ble High Court, in the light of the above facts, directed the AO to adjust Rs. 60 crores towards the balance amount due and directed the AO to refund the remaining amount alongwith interest. In our view, the lower authorities have wrongly interpreted the directions of the Hon'ble High Court. The directions of the Hon'ble High Court are clear and unambiguous. The Hon'ble High Court has specifically observed that after stay of the demand in relation to the three issues, the demand in relation to the remaining issues were about Rs. 160 crores, out of which the assessee had already paid Rs. 100 crores, and therefore, directed the AO to adjust Rs.60 crores out of the refunds due for the earlier assessment years. The assessee, thus, is entitled to the refund of the balance amount and the interest amount as is admissible/payable to him as per the provisions of law. There is no justification on the part of the AO to withhold the refund of interest amount on the amount of Rs. 60 crores directed to be adjusted by the Hon'ble High Court towards the tax demand for the year under consideration. We, therefore, direct the AO to refund the assessee the interest due on the amount of Rs. 60 crores from the date it becomes due till the date of adjustment of it by the AO at the rate as admissible under the relevant provisions. With the above observations, the appeal of the assessee is treated as allowed.

In the result, the appeal of the assessee is treated as allowed.