Additional interest u/s 244A(1A) of Income Tax Act Applies for delayed Refunds: ITAT [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that additional interest under Section 244A(1A) of the Income Tax Act,1961 applies to delayed refunds, even if the original order was made before the introduction of the provision.

Jethiben K. Patel,the appellant-assessee,was a discretionary trust for the assessment year 1992-93. The main issue was the claim for additional interest under section 244A for a delayed refund. The Assessing Officer ( AO ) had originally assessed and later issued rectification orders.

Dissatisfied, the assessee requested additional interest on 21.08.2017, but the AO rejected this, citing no provision for such compensation. The Commissioner of Income Tax (Appeals)[CIT(A)] also dismissed the appeal.

The assessee argued that the AO miscalculated the refund interest by not applying it first to interest and then to tax, based on principles of equity and fairness.

The assessee also argued that Section 244A(1A), introduced by the Finance Act, 2016, applied retrospectively, citing Tata Sons Pvt. Ltd. for additional interest on delayed refunds and referencing the Tribunal’s ruling in Nirma Ltd.

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The tribunal noted that the CIT(A) found no provision for "additional compensation" and that Section 244A(1A), effective from 01.06.2016, applied only to orders made after this date, thus not applicable to the order dated 04.05.2016.

The bench contended that CIT(A) wrongly ruled that Section 244A(1A) did not apply because the order was before Section 153(5) was introduced. However, Section 244A(1A) applied to delays after 01.06.2016, regardless of the original order's date. Since the refund was granted on 05.07.2017, Section 244A(1A) applied from 01.06.2016 to 05.07.2017.

The decision in Tata Sons Pvt. Ltd. was relevant, as Section 244A(1A) applied from 01.06.2016 to address refund delays. The Tribunal ruled that refunds should first be adjusted against interest, following principles used in tax collections. It criticized the revenue for inconsistency and emphasized fairness, aligning with previous rulings, including Nirma Ltd., which supported fair refund adjustments.

Get a Copy of Income Tax Refunds (Law & Procedure), Click here

The two-member bench comprising Suchitra Kamble(Judicial Member)and Makarand V.Mahadeokar(Accountant Member)directed the AO to re-compute the interest under Section 244A, first applying the refund to interest and then to tax. Additional interest under Section 244A(1A) for 01.06.2016 to 05.07.2017 was also to be granted. The appeal was partly allowed.

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