In a significant relief for IDBI Bank, the Income Tax Appellate Tribunal ( ITAT ) of Mumbai ruled that the bank is entitled to the full amount of interest on its tax refund under Section 244A of the Income Tax Act 1961.
This ruling was delivered in response to three appeals that involved similar facts and legal issues. However the ITAT decided to resolve them with a common order, focusing on ITA No. 4318/MUM/2023, related to the assessment year 2013-14 for the sake of brevity.
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The case, centered on the assessment year 2013-14, arose when the Assessing Officer (AO) granted IDBI, the assessee, ₹20.17 crores in interest on its income tax refund, falling short of the assessee-bank’s claim of ₹22.07 crores.The discrepancy arose because the AO separated the refund amount into interest and tax components and did not grant interest on the entire refund, contrary to Section 244A of the tax legislature.
Aggrieved, the assessee appealed before the CIT(A), who ruled in the assessee’s favor. The Revenue, dissatisfied with this order, appealed to the ITAT.
Before the ITAT, the Counsel for Revenue submitted that the CIT(A) had incorrectly relied on the ITAT’s decision in a case involving Bank of Baroda and ignored a Delhi High Court ruling in CIT v. Indian Farmer Fertilizer Co-operative Ltd. (2016). The Revenue also cited the Supreme Court’s decision in CIT v. Gujarat Fluoro Chemicals (2013), arguing that interest on statutory interest was not permissible unless explicitly provided by law. Additionally, the Revenue questioned the CIT(A)’s methodology for adjusting refunds first against interest and then against the tax amount.
The bench comprising Mr. BR Baskaran and Mr. Sunil Kumar, reviewed the facts and arguments and observed that the case deals primarily with two issues, whether the CIT(A) was justified in directing the AO to grant the full interest under Section 244A of the tax statute, and whether the refund adjustment methodology used was appropriate.
The Tribunal noted that the CIT(A)’s decision was supported by previous judgments, including the Delhi High Court ruling in India Trade Promotion Organization v. CIT (2014), which held that interest should accrue on the unpaid portion of a refund. It also referenced Section 140A of the tax statute, which prescribes that payments by an assessee should first be adjusted towards fees, then interest, and lastly tax. The Tribunal found no reason why a similar approach should not be applied when calculating refunds due to an assessee.
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Further, the Tribunal rejected the Revenue’s argument based on the Gujarat Fluoro Chemicals case, clarifying that the assessee was not seeking “interest on interest” but rather proper calculation of interest on the remaining refund amount. Consequently, the ITAT upheld the CIT(A)’s directive for the AO to recalculate the refund amount and granted interest accordingly, dismissing the Revenue’s appeals.
Thus, the assessee was affirmed to be entitled to the full interest under Income Tax Section 244A of, and the Tribunal supported the methodology of adjusting refunds first towards interest and then towards tax.
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