Interest u/s 244A shall be Calculated by first Adjusting Amount of Refund towards Interest Component and Balance left towards Tax Component: ITAT grants relief to IDBI Bank [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) granted relief to the IDBI Bank and held that the interest under Section 244A of the Income Tax Act, 1961 shall be calculated by first adjusting the amount of refund towards the interest component and then the balance left towards the tax component.

The assessee filed the original return of income declaring a total income of Rs.918,92,18,700/-. Subsequently, a revised return was filed declaring total income at Rs.905,24,80,790/-. The case was selected for scrutiny and the assessment under Section 143(3) of the Income Tax Act was completed by assessing the income of the assessee at Rs.13216,623,26,540/-.

The Assessing Officer (AO) passed an order under Section 143(3) read with Section 254 giving effect to the order of the Tribunal whereby the assessed income was revised to Rs.921, 37,88,870. The assessee filed an appeal before the Commissioner of Income Tax (Appeal) [CIT(A)] against the said order of the assessing officer stating that the AO in the order giving effect had not correctly granted interest under Section 244A of the Income Tax Act.

The CIT(A) relied on the decision of the co-ordinate bench in the case of DCIT vs Bank of Baroda and granted relief to the assessee.

The Departmental Representative submitted that the decision of the co-ordinate bench cannot be applied in the assessee’s case since there is a ratio laid down by the higher court that there cannot be any interest on interest on refunds granted to the assessee. It was further submitted that the method of adjusting the tax as computed by the AO is the right way since the same would not result in interest on interest and, therefore, should be upheld.

The Authorized Representative submitted that the CIT(A) has correctly followed the decision of the co-ordinate bench in the Bank of Baroda’s case which is exactly on the issue under consideration.

The Two-member bench comprising of Vikas Awasthy (Judicial member) and Padmavathy S. (Accountant member) held that “the amount of interest under Section 244A of the Income Tax Act was to be calculated by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component”.

Accordingly, the bench held that the manner in which the AO has adjusted the refund was not correct and that the assessee would be entitled to interest on the unpaid refunds in accordance with the principle laid out in the aforesaid decision of the Tribunal. Thus, the AO was directed to compute interest under Section 244A of the Income Tax Act as per the claim of the assessee after giving a proper opportunity to be heard.

To Read the full text of the Order CLICK HERE

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