Revised Return Does Not Delay Interest on Original Claim; Interest Ends on DD Issue Date

ORDER

Siddhartha Nautiyal, Judicial Member. – This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT(A)-2, Kolkata vide order dated 24.01.2025 passed for A.Y. 2017-18.

2. The assessee has raised the following grounds of appeal:

“1. The Ld. CIT(A) has erred in law and on facts of the case in confirming the rejection of rectification application u/s. 154 of the Act for short grant of interest on refund u/s. 244A of the Act.

2. The Ld. CIT(A) has erred in law and on facts of the case in holding that the appellant is not eligible to receive Rs. 16,39,177/- on account of short grant of interest u/s. 244A of the Act on refund of Rs. 10,92,78,473/-.

3. Alternatively, and without prejudice the interest u/s. 244A of the Act on refund of Rs. 10,92,78,473/- shall be allowed till the date of preparation of demand draft order as directed by CIT(A) i.e. till September, 2018.

4. The Ld. CIT(A) has erred in law and on facts of the case in holding that the appellant is not eligible to receive Rs. 9,460/- on account of short grant of interest u/s. 244A of the Act on refund of Rs. 1,11,297/-.

5. Alternatively, and without prejudice, the interest u/s. 244A of the Act on refund of Rs. 1,11,297/- shall be allowed till the date of preparation of demand draft order as directed by CIT(A) i.e. till November, 2020.

6. The Ld. CIT(A) has erred in law and on facts of the case in not following the order for preceding year passed by his predecessor allowing short grant of interest on refund u/s. 244A of the Act on identical facts.

7. The Ld. CIT(A) has erred in law and on facts of the case in holding that the appellant was granted excess interest on refund on erroneous interpretation that the appellant’s case falls under sub-clause (ii) instead of sub-clause (i) of Section 244A(1)(a) of the Act.

8. The direction issued by Ld. CIT(A) to Ld. AO for verification of excess refund is bad in law as such direction is provided without issuing any show cause notice to the appellant u/s. 251(2) of the Act for proposed reduction in refund.

9. Both the lower authorities have erred in interpreting the provisions of S. 244A of the Act in its correct perspective.

10. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

11. The Appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of appeal. “

3. The brief facts of the case are that the assessee, Suzlon Gujarat Wind Park Limited (PAN: AAICS2717D), filed its original return of income for Assessment Year 2017-18 on 13.10.2017 under section 139(1) of the Income Tax Act, 1961 (the “Act”), claiming refund of Rs. 10,92,78,473/- on account of TDS/TCS. Subsequently, the assessee filed a revised return on 25.05.2018 under section 139(5), in which it made an additional claim of TDS of Rs. 1,47,030/-. Out of this, TDS credit of Rs. 1,11,297/- was allowed by the Department, and refund was accordingly issued vide rectification order under section 154 dated 22.07.2020. The refund and interest granted under section 244A totalled to Rs. 11,81,47,067/-, comprising refund of Rs. 10,93,89,770/- and interest of Rs. 87,57,297/-. The refunds were received on 01.10.2018 and 18.11.2020 respectively. The assessee contended that there was a short grant of interest under section 244A to the extent of Rs. 16,48,643/-, on the ground that interest should have been computed from 01.04.2017 (the beginning of the assessment year) up to the actual date of receipt of refund in its bank account. The Assessing Officer, however, computed the interest from the date of filing the revised return, i.e., 25.05.2018, until the date of issue of the refund instrument, holding that the delay attributable to the assessee due to the revised return was not eligible for interest under section 244A(1)(a)(ii).

4. Before the CIT(Appeals), the assessee reiterated its contention that interest under section 244A was required to be computed up to the date of credit of refund into its bank account, and that the term “granted” in section 244A should be interpreted to mean the actual date of receipt or realization of the refund, and not merely the date of issue of the refund instrument. The assessee relied on several judicial pronouncements, including Nokia Solutions and Networks India (P.) Ltd. v. Addl. CIT [2024] 169 taxmann.com 537 (Delhi) and Strata Chemicals Ltd. v. CIT [2017] 84 taxmann.com 243 (Hyderabad – Trib.), to support its claim that interest should be computed up to the date of actual release of payment. The CIT(A), however, after perusing the records, submissions, and case laws, held that the assessee’s contention was not acceptable. The CIT(A) noted that the additional TDS credit of Rs. 1,11,297/-was not claimed in the original return filed under section 139(1) but was introduced only in the revised return filed under section 139(5). As per the statutory provision of section 244A(1)(a)(ii), in cases where the return is not filed within the time prescribed under section 139(1), the interest is to be computed from the date of furnishing of the return and not from the first day of the assessment year. The CIT(A) therefore held that interest was rightly calculated from 25.05.2018 (the date of the revised return), and not from 01.04.2017 as claimed by the assessee. On the issue of the date of grant of refund, the CIT(A) observed that the refund in question was issued through Demand Draft dated 25.09.2018 and dispatched on 28.09.2018. Relying on the statutory expression “the date on which the refund is granted”‘ in section 244A and the reasoning adopted by Courts in similar contexts, the CIT(A) held that the date of issue of the Demand Draft constitutes the date of grant of refund, as the Department cannot be expected to compute interest up to an uncertain future date when the assessee presents the instrument or the bank credits the refund. The CIT(A) further noted that there was no unreasonable delay between the date of preparation and dispatch of the refund instrument, and therefore, interest beyond the date of issue was not admissible. Regarding the judicial precedents cited by the assessee, the CIT(A) distinguished them on facts. The CIT(A) noted that in Nokia Solutions and Networks India Pvt. Ltd. (supra), the refund was made by electronic transfer, and the Hon’ble Delhi High Court had directed computation of interest till the date of actual release of payment, whereas in the present case, the refund was issued via Demand Draft, and thus the “date of grant” was to be treated as the date of issuance of the instrument. Similarly, the decision in Strata Chemicals Ltd. (supra) pertained to refund arising from excess payment of regular tax and did not involve the issue of a revised return or fresh TDS claim. Accordingly, both decisions were held inapplicable to the assessee’s case. The CIT(A) also observed that, in fact, the assessee had been granted interest for a period of 16 months, although as per the correct computation, it was eligible only for five months from May 2018 (date of revised return) to September 2018 (date of Demand Draft). Therefore, the assessee had not suffered any shortfall in the grant of interest; on the contrary, excess interest appeared to have been allowed. The CIT(A) thus directed the Assessing Officer to verify whether excess interest had been granted under section 244A(1)(a)(ii) and to take remedial action if necessary.

5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the Ld. Counsel for the assessee submitted that the only controversy involved in the present appeal pertains to the period for which interest under section 244A of the Act is to be granted to the assessee. It was contended that the Ld. CIT(A) had erred both in law and on facts in holding that the assessee’s case fell under clause (ii) of section 244A(1)(a) merely because a revised return was filed, and consequently restricting the period of interest. The Ld. Counsel submitted that the original return of income was filed within the due date under section 139(1), and the subsequent revised return filed on 25.05.2018 was only to rectify errors or omissions in the original return. Therefore, the act of filing a revised return cannot be treated as an act of delay attributable to the assessee. Reliance was placed on the judgment of the Hon’ble Gujarat High Court in Ajanta Manufacturing Ltd. v. Dy. CIT [2016] 72 taxmann.com 148 (Gujarat)/[2017] 391 ITR 33 (Gujarat), wherein it was held that filing a revised return does not disentitle an assessee from claiming interest from the beginning of the assessment year when the original return was filed within the prescribed time limit. The Ld. Counsel further submitted that in view of the above legal position, the assessee is entitled to interest on the entire amount of TDS and TCS credit under clause (i) of section 244A(1)(a), i.e., from 1st April of the assessment year till the date of grant of refund, and not under clause (ii), as erroneously applied by the Ld. CIT(A). It was argued that the Ld. CIT(A) failed to appreciate that even assuming clause (ii) applies, it could apply only to the additional TDS claim of Rs. 1,47,029/- made in the revised return, and not to the entire refund of Rs. 10,93,89,770/-, which also included TDS/TCS credits of Rs. 10,92,42,741/- already claimed in the original return filed under section 139(1). Hence, the interest on the latter component of the refund ought to have been computed under clause (i) of section 244A(1)(a). The Ld. Counsel also submitted that under section 244A(1)(a), interest is payable up to the date of “grant” of refund, and that the expression “grant” must be understood to mean the date on which the refund is actually received by or credited to the bank account of the assessee, since interest is compensatory in nature for the period during which the assessee is deprived of the use of its own funds. Reliance was placed on the landmark decision of the Hon’ble Supreme Court in Union of India v. Tata Chemicals Ltd. [2014] 43 taxmann.com 240 (SC)/[2014] 222 Taxman 225 (SC)/[2014] 363 ITR 658 (SC), wherein it was held that interest on refund is a normal accretion to the principal amount and is payable as compensation for wrongful retention of money by the Revenue. The Ld. Counsel also referred to CIT v. Vijaya Bank [2011] 12 taxmann.com 485 (Karnataka)/[2011] 201 Taxman 371 (Karnataka)/[2011] 338 ITR 489 (Karnataka)and CIT v. Sutlej Industries Ltd. [2010] 190 Taxman 136 (Delhi)/[2010] 325 ITR 331 (Delhi), which reiterate that interest under section 244A is a statutory right flowing from the Act, intended to compensate the assessee for deprivation of funds. To further support the interpretation of the term “grant,” the Ld. Counsel placed reliance on CIT v. Pfizer Ltd. [1991] 191 ITR 626 (Bombay), where it was held that refund is deemed to be granted when it is actually made available to the assessee, and not merely when the refund order is passed. Reliance was also placed on the decision of the Hon’ble Delhi High Court in Nokia Solutions and Networks India Pvt. Ltd. (supra), where it was categorically held that the interest under section 244A is to be computed up to the date on which the refund amount is released or credited to the assessee’s bank account, and not merely up to the date of the refund order. Similar reliance was placed on Small Industries Development Bank of India v. DCIT [IT Appeal No. 3707 (Mum) of 2012] and Koninklijke Philips N.V v. Dy. CIT (IT) [2023] 146 taxmann.com 213 (Kolkata – Trib.), both of which affirm that the date of “grant” of refund corresponds to the date of receipt or credit of the refund amount, since only from that date the assessee can utilize the funds. It was thus submitted that in accordance with the statutory provisions and settled judicial precedents, the assessee is entitled to interest under section 244A up to the date of receipt of refund draft or credit in its bank account, as the case may be. In summary, the Ld. Counsel submitted that the interest under section 244A be directed to be recomputed from 1st April 2017 till the date of receipt or credit of refund in the assessee’s bank account, and that the order of the Ld. CIT(A) is liable to be set aside as being contrary to law, facts, and principles of natural justice.

6. In response, Ld. DR placed reliance on the observations made by CIT(Appeals) in the appellate order.

7. We have heard the rival contentions and perused the material on record.

8. At the outset, the Id. counsel for the assessee submitted that that he shall not be pressing grounds 4 and 5. Accordingly, grounds 4 and 5 of the assessee’s appeal are dismissed as “not pressed”.

9. Grounds 1, 2, 3 6 and 7 represent a common ground and is accordingly being disposed of.

10. We have heard the rival contentions and perused the material on record. It would be useful to reproduce section 244 of the Act for ready reference:

244A. (1) [Where refund of any amount becomes due to the assessee ⁹⁴ under this Act], he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely :-

11. The only issue arising for our consideration is with respect to the period for which the assessee is entitled to interest under section 244A of the Act. The brief facts have already been noted hereinabove and are not in dispute. The assessee filed its original return of income under section 139(1) on 13.10.2017 within the prescribed due date, claiming refund of Rs. 10,92,78,473/-, and subsequently filed a revised return under section 139(5) on 25.05.2018 claiming an additional TDS credit of Rs. 1,47,029/-. Out of such additional claim, credit of Rs. 1,11,297/- was granted to the assessee and refund issued accordingly. On careful consideration of the provisions of section 244A(1)(a) and the submissions made, we find merit in the contention of the assessee that even assuming that clause (ii) of section 244A(1)(a) applies, such clause would be applicable only to the additional TDS claim of Rs. 1,47,029/- made in the revised return of income filed on 25.05.2018, and not to the entire refund amount of Rs. 10,93,89,770/-, which includes TDS/TCS credits of Rs. 10,92,42,741/- already claimed in the original return of income filed under section 139(1). The act of filing a revised return to correct an omission or error cannot be considered an act of delay attributable to the assessee so as to deny interest from the beginning of the assessment year in respect of the amount already claimed in the original return. This view finds support from the judgment of the Hon’ble Gujarat High Court in Ajanta Manufacturing Ltd. (supra), wherein it was held that when the original return has been filed within the prescribed due date, the assessee’s entitlement to interest under section 244A cannot be curtailed merely because a revised return is subsequently filed. Accordingly, we direct that interest under section 244A(1)(a)(i) be granted on the amount of Rs. 10,92,42,741/- being the TDS/TCS credit claimed in the original return of income filed within the due date under section 139(1), for the period from 01.04.2017 till the date of grant of refund, and that interest under section 244A(1)(a)(ii) shall apply only in respect of the additional TDS claim of Rs. 1,47,029/- made in the revised return of income filed on 25.05.2018.

12. As regards the issue of the date of grant of refund, we concur with the finding of the Ld. CIT(A) that the refund in question was issued through a Demand Draft dated 25.09.2018, which was dispatched on 28.09.2018 and received by the assessee on 01.10.2018. The expression “the date on which the refund is granted” occurring in section 244A has to be construed in accordance with the statutory scheme and the reasoning adopted by judicial authorities, including the decision of the Hon’ble Delhi High Court in Nokia Solutions and Networks India Pvt. Ltd. (supra) When the refund is issued through an instrument such as a Demand Draft, the date of issue of the Demand Draft constitutes the date of grant of refund, since the Department cannot reasonably be expected to compute interest up to an uncertain future date when the assessee presents the instrument or when the bank credits the amount. There is no evidence on record of any inordinate delay or lapse on the part of the Revenue in dispatching the Demand Draft, which was sent within three days of its preparation. Therefore, we hold that interest under section 244A is to be computed up to the date of actual issue of the Demand Draft, i.e., 25.09.2018. The Assessing Officer is directed to recompute the interest under section 244A of the Act in accordance with our observations hereinabove.

13. In the result, the appeal of the assessee is partly allowed in the above terms.