Refund Interest Cannot Be Denied on Basis of Overruled Judgment: Delhi HC Sets Aside Income Tax Dept Order [Read Order]
The Delhi High Court held income tax refund cannot be denied based on a judgment that has already been reversed by the Supreme Court.
![Refund Interest Cannot Be Denied on Basis of Overruled Judgment: Delhi HC Sets Aside Income Tax Dept Order [Read Order]](https://images.taxscan.in/h-upload/2026/02/28/2127394-refund-interest-cannot-be-deniedjpg-1.webp "Refund Interest Cannot Be Denied on Basis of Overruled Judgment: Delhi HC Sets Aside Income Tax Dept Order [Read Order]")
In a recent ruling, the Delhi High Court held that refund interest under the Income Tax Act cannot be denied based on a judgment that has already been reversed by the Supreme Court and set aside an order of the Income Tax Department which had rejected the assessee’s claim for additional interest on that ground. Mitsui Engineering & Ship Co. Ltd., the petitioner, filed a...
In a recent ruling, the Delhi High Court held that refund interest under the Income Tax Act cannot be denied based on a judgment that has already been reversed by the Supreme Court and set aside an order of the Income Tax Department which had rejected the assessee’s claim for additional interest on that ground.
Mitsui Engineering & Ship Co. Ltd., the petitioner, filed a writ petition challenging the order dated 20 January 2005 passed by the Director of Income Tax (International Taxation), New Delhi. By this order, the authority had dismissed the petitioner’s application filed under Section 154 of the Income Tax Act, 1961 seeking grant of additional interest under Section 244(1A) of the Act in relation to Assessment Year 1988-89.
The petitioner had sought rectification on the ground that it was entitled to additional interest on the refund amount. The Director of Income Tax rejected the application by relying on the judgment of the Bombay High Court in Sandvik Asia Ltd. v. Commissioner of Income Tax-1 (2004) 267 ITR 78 (Bom).
The petitioner’s counsel argued before the High Court that the reasoning in the impugned order was based entirely on the Bombay High Court’s decision in Sandvik Asia which had subsequently been reversed by the Supreme Court in its judgment dated 27 January 2006 reported in (2006) 280 ITR 643 (SC). The counsel submitted that once the very basis of the order no longer survived in law, the rejection of the claim for additional interest could not be sustained.
After hearing the parties, the Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that the judgment of the Bombay High Court in Sandvik Asia, on which the department had relied, had indeed been reversed by the Supreme Court. In view of this position, the court found it appropriate to allow the writ petition.
The court set aside the order and directed the competent authority, stated to be the Commissioner of Income Tax to pass a fresh order within three months from the date of placing a certified or web copy of the High Court’s order on record. The court explained that while recalculating the amount of interest, the authority must take into account the applicable provisions of law and the rate of interest as in force from time to time.
Considering that the matter related to Assessment Year 1988-89, the Court further directed that if the needful was not done within three months, the amount would carry interest at the rate of 1% per annum from 1 June 2026 until the additional amount was paid, apart from the interest payable under Section 244, 244A or 244(1A) of the Income Tax Act.
The petitioner was also granted liberty to provide its own calculation of interest while placing the certified copy of the order. The writ petition was allowed.
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