Assessee Entitled to Section 244A Interest and Additional Interest as Claim Denial Without Delay Is Unlawful

ORDER

Amit Shukla, Judicial Member.- The aforesaid appeal has been filed by the assessee against the order dated 19.03.2026 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, under section 154 read with section 250 of the Income-tax Act, 1961, for the assessment year 2012-13. The assessee is aggrieved by the denial of interest under section 244A(1)(a) on refund of Rs. 5,39,84,057 and further denial of additional interest under section 244A(1A) on refund of Rs. 90,94,381, which, according to the assessee, was released beyond the period prescribed under section 153(5).

2. Brief facts are that the assessee filed its original return of income on 23.11.2012 declaring total income of Rs. 199,46,34,280 and tax liability of Rs. 62,54,48,749 after relief under section 90. In the said return, capital gains arising from the sale of 19 flats, amounting to approximately Rs. 49.65 crore, were offered to tax at the rate of 30%, treating the same as short-term capital gains by virtue of section 50. The assessee had paid advance tax of Rs. 63 crore and had also claimed substantial TDS credit. A revised return was filed on 28.03.2014 for claiming additional TDS credit; however, no revision was made with regard to the rate applicable to the capital gains. During the course of scrutiny proceedings, the assessee, vide letter dated 28.03.2016, raised a claim that notwithstanding the deeming fiction contained in section 50, the flats were long-term capital assets and, therefore, the capital gains should be subjected to tax at the rate of 20% under section 112 instead of 30%. The assessment was completed under section 143(3) read with section 144C(4) on 29.04.2016 at a total income of Rs. 203,43,63,072, without adjudicating the aforesaid claim.

3. In the first round of appeal, the learned CIT(A), vide order dated 05.09.2018, directed the Assessing Officer to verify whether the claim had been raised during the assessment proceedings and, if so, to decide the same in accordance with law. While giving effect to the said order on 27.02.2019, the Assessing Officer rejected the claim, holding that since the flats constituted depreciable assets and section 50 was applicable, the resultant gains were liable to tax at the rate of 30%. The assessee once again preferred an appeal, whereupon the learned CIT(A), vide order dated 26.02.2020, accepted its contention and directed the Assessing Officer to apply the rate of 20% to the capital gains of Rs. 49,91,59,103. While giving effect to this appellate order on 08.10.2020, the Assessing Officer recomputed the tax liability by applying the rate of 20%; however, he declined to grant interest under section 244A on the resultant refund, solely on the ground that the assessee had suo motu offered the capital gains to tax at 30% in its return.

4. The record further shows that a revised order giving effect was passed on 23.11.2020 on account of certain technical difficulties concerning the grant of foreign tax credit. The total income remained at Rs. 200,63,32,926 and the net tax liability, after relief under sections 90/91, was determined at Rs. 56,54,39,965 as against total prepaid taxes of Rs. 95,91,75,805. Although interest under section 244A was computed on certain other components of refund, no interest was allowed on the refund attributable to the reduction of the tax rate from 30% to 20%. The assessee challenged this denial before the learned CIT(A). The earlier appellate order dated 04.10.2021 was thereafter set aside by the Tribunal in Voltas Ltd. v. Dy. CIT [IT Appeal No. 1902 (Mum.) of 2022, dated 30-1-2023], with a direction to adjudicate afresh the claim under section 244A. Pursuant thereto, the assessee also filed an application dated 26.04.2023; however, the learned CIT(A), vide the impugned order dated 19.03.2026, again rejected both claims, holding that the refund arose from the assessee’s voluntary adoption of the higher rate in its return and its failure to revise such return, and consequently, the delay in crystallising the refund was substantially attributable to the assessee.

5. Before us, the learned counsel submitted that once the appellate authority accepted that the capital gains were taxable at 20%, the excess advance tax and TDS became refundable under the Act and carried mandatory interest under section 244A(1)(a). According to him, neither an error in the return nor the failure to file a revised return constitutes a statutory ground for rejecting interest. Reliance was placed upon the judgments of the Hon’ble jurisdictional High Court in Chetan N. Shah v. M.K. Moghe, CIT  (Bombay) andPr. CIT v. State Bank Of India  (Bombay), besides the judgment of the Hon’ble Gujarat High Court in Ajanta Manufacturing Ltd. v. Dy. CIT [ /[2017] 391 ITR 33 (Gujarat). Insofar as additional interest under section 244A(1A) is concerned, the learned counsel submitted that the separate refund of Rs. 90,94,381 arose from the appellate order dated 05.09.2018, received on 09.10.2018, but was actually paid only on 02.03.2021. Therefore, additional interest at 3% per annum was payable from the day following the expiry of the period prescribed under section 153(5) until the date of actual refund. The learned DR, on the other hand, strongly relied upon the impugned order and submitted that the refund arose solely because the assessee subsequently departed from the position consciously adopted in its return and succeeded only in the appellate proceedings.

6. We have heard the rival submissions and perused the relevant material placed before us. Section 244A(1) provides that where refund of any amount becomes due to the assessee under the Act, the assessee shall, subject to the other provisions of the section, be entitled to receive simple interest in addition to the amount of refund. Clause (a) governs refunds arising out of advance tax, TDS and TCS, while clause (b) operates residually in other cases. The use of the expression “shall be entitled” leaves no general discretion with the Assessing Officer to refuse interest once the refund falls within the ambit of the provision. Sub-section (2) carves out a limited exception by providing that where the proceedings resulting in the refund are delayed for reasons attributable to the assessee, only the period of such delay may be excluded while computing interest. Thus, the statutory enquiry is not whether the excess tax arose because of an error committed by the assessee, but whether the proceedings resulting in the refund were delayed by some identifiable conduct attributable to it. An erroneous return may furnish the occasion for a subsequent claim, but it does not, by itself, establish that the assessee delayed either the assessment or the appellate proceedings.

7. This distinction has been lucidly explained by the Hon’ble jurisdictional High Court in Chetan N. Shah(supra). In that case also, the assessee had, by mistake, offered excess income in his return and obtained relief only in the proceedings under section 264. The Revenue denied interest on the ground that the excess payment had arisen from the assessee’s own mistake. Rejecting the contention, the Hon’ble High Court held that the Assessing Officer had no discretion in the matter of granting statutory interest and that the Act did not authorise rejection of interest merely because excess tax had been paid on account of a mistake committed by the assessee. It was held that the only permissible limitation was the exclusion, under section 244A(2), of the period of delay actually attributable to the assessee. The High Court further observed that acceptance of the Revenue’s proposition would render section 244A largely otiose, because excess payment of tax would ordinarily originate from some mistake of fact or law.

8. The issue stands even more directly answered by the Hon’ble Bombay High Court in State Bank of India (supra). There, the assessee had itself offered interest income in the return but contended during assessment that such income had not accrued. The claim was rejected by the Assessing Officer and accepted only in appeal. The Assessing Officer sought to grant interest merely from the date of the appellate order. The Hon’ble High Court rejected this approach and upheld the grant of interest from the beginning of the relevant assessment year, holding that there was no material to suggest that the assessee had delayed the proceedings resulting in the refund. The Court held that raising a claim during the assessment and succeeding upon it in appeal did not constitute delay attributable to the assessee. Similarly, the Hon’ble Gujarat High Court in Ajanta Manufacturing Ltd. (supra) held that revising a return, raising a claim during assessment or succeeding in appellate proceedings cannot, without something further, be treated as delay attributable to the assessee. Unless the assessee is shown to have needlessly or frivolously prolonged the proceedings, the mere fact that relief was eventually obtained at the appellate stage does not attract section 244A(2).

9. Examined in light of the aforesaid principles, the reasoning adopted in the impugned order cannot be sustained. The learned CIT(A) has treated the assessee’s adoption of the 30% rate in its return and its failure to revise that position as sufficient to extinguish the statutory right to interest. There is no finding that the assessee withheld information, failed to comply with statutory notices, sought unwarranted adjournments, instituted frivolous proceedings or otherwise obstructed the assessment or appellate process. On the contrary, the claim for application of the 20% rate was raised during the assessment proceedings themselves, vide letter dated 28.03.2016. It thereafter travelled through two rounds of appellate proceedings because the Assessing Officer initially did not adjudicate it and subsequently rejected it while giving effect to the first appellate order. The time consumed in pursuing a claim which was ultimately found to be legally tenable cannot be characterised as delay attributable to the assessee.

10. The failure to file a revised return also does not constitute an independent ground for denying interest. Once the appellate authority entertained and accepted the claim and the resultant refund became due under the Act, the statutory incidents attached to such refund necessarily followed. The restriction upon the Assessing Officer entertaining a fresh claim otherwise than through a revised return cannot curtail the jurisdiction of the appellate authority, nor can it be imported into section 244A as an additional disabling condition. The determination that the capital gains of Rs. 49,91,59,103 were taxable at 20% has attained finality and cannot be indirectly reopened while deciding the consequential entitlement to interest.

11. The reliance placed by the learned CIT(A) upon CIT v. Gujarat Fluoro Chemicals  [2013] 358 ITR 291 (SC) is equally misplaced. The Hon’ble Supreme Court therein held that interest over and above the interest contemplated by the statute, commonly referred to as “interest on interest”, could not be granted on general equitable considerations. It did not hold that interest expressly mandated by section 244A could be denied on considerations not found in the provision. The assessee herein does not seek any extra-statutory compensation but only the interest specifically provided under section 244A. In fact, the Hon’ble Supreme Court in Union of India v. Tata Chemicals Ltd. [2014]   (Mag.)/363 ITR 658 (SC) explained that once tax becomes refundable, the obligation to refund carries with it the statutory liability to pay interest for the period during which the money remained with the Revenue.

12. There is yet another infirmity in the impugned reasoning. Section 244A(2) permits exclusion only of the particular period for which the proceedings resulting in refund were delayed for reasons attributable to the assessee. It further provides that where a question arises regarding the period to be excluded, the matter is to be decided by the prescribed higher authority, whose decision thereon is final. In the present case, the Assessing Officer neither made the statutory reference nor identified any definite period of delay. The entire interest was rejected on the broad premise that the assessee had originally adopted a higher rate. Even the learned CIT(A) has neither identified any particular act which delayed the proceedings nor quantified the corresponding period. A provision authorising exclusion of a demonstrably attributable period cannot be employed to deny statutory interest in its entirety.

13. We accordingly hold that the assessee is entitled to interest under section 244A(1)(a) on the refund of Rs. 5,39,84,057 arising from the appellate order dated 26.02.2020. The material on record shows that the assessee had paid advance tax of Rs. 63 crore and had substantial TDS credit, and that the total refund determined was well above the threshold prescribed in the proviso to section 244A(1). Since the return was filed on 23.11.2012 within the applicable due date, interest on the aforesaid component shall be computed from 01.04.2012 until the date on which the refund was actually granted, after reducing any interest already allowed on the same amount, if any. The Assessing Officer shall verify only the arithmetical computation and the actual date of grant of refund and shall not reconsider the assessee’s substantive entitlement. Ground No. 1 is accordingly allowed.

14. Insofar as Ground No. 2 is concerned, it relates to a separate refund of Rs. 90,94,381 arising from the first appellate order dated 05.09.2018 and is distinct from the refund of Rs. 5,39,84,057 resulting from the subsequent appellate order dated 26.02.2020. Section 244A(1A), inserted with effect from 01.06.2016, provides that where a refund arises from giving effect to an order under section 250, section 254, section 260, section 262, section 263 or section 264, wholly or partly, otherwise than by making a fresh assessment or reassessment, the assessee shall, in addition to interest under sub-section (1), receive additional interest at 3% per annum. Such interest runs from the day immediately following the expiry of the time allowed under section 153(5) until the date on which the refund is granted. The provision thus attaches a specific statutory consequence to departmental delay in giving effect to an appellate or revisional order.

15. In the present case, the appellate order was passed on 05.09.2018 and is stated to have been received by the prescribed authority on 09.10.2018. Under section 153(5), the consequential order was required to be passed within three months from the end of the month in which the appellate order was received, unless the prescribed extension was validly invoked. The ordinary statutory period, therefore, expired on 31.01.2019. The order giving effect was passed on 27.02.2019, whereas the resultant refund of Rs. 90,94,381 was actually paid only on 02.03.2021. No order extending the period under the proviso to section 153(5), nor any statutory order withholding or adjusting the refund, has been brought on record. Once the refund arose from an order under section 250, no fresh assessment or reassessment was required and the refund was granted beyond the prescribed period, the additional interest under section 244A(1A) followed by operation of law. The learned CIT(A)’s observation that the original dispute arose from the assessee’s own computation is extraneous to these statutory conditions. In any event, no conduct of the assessee has been identified which delayed the grant of refund after expiry of the period prescribed under section 153(5).

16. We, therefore, direct the Assessing Officer to grant additional interest under section 244A(1A) at the statutory rate of 3% per annum on the refund of Rs. 90,94,381 for the period commencing from 01.02.2019 until the date on which the said refund was actually granted. It is also clarified that Rs. 90,94,381 represents the underlying refund on which additional interest has been claimed and not the quantified amount of additional interest itself, as appears to have been understood in the concluding portion of the impugned order. The Assessing Officer shall verify only the actual date of credit and the arithmetical computation. Ground No. 2 is accordingly allowed.

17. Thus, the power to exclude a period under section 244A(2) cannot be converted into a general discretion to deny interest whenever an assessee succeeds upon a claim not incorporated in the original return. The provision contemplates a causal connection between some act of the assessee and an identifiable delay in the proceedings resulting in refund. In the absence of such material, the statutory entitlement under sections 244A(1) and 244A(1A) cannot be curtailed by importing considerations which the Legislature has not enacted.

18. In the result, the appeal of the assessee is allowed.