Mmtc Ltd., New Delhi vs Assessee

Appellant by : Sh. Ajay Vohra, Sr. Adv., Rohit Jain, Adv. & Deepashree Rao, CA Respondent by : Sh. Gunjan Prashad, CIT-DR

ORDER

PER C.M. GARG, J.M.

This appeal has been preferred by the assessee against the order of

the CIT(Appeals)-VIII, New Delhi dated 20.01.2011 in Appeal No. 07/2009-

10 for A.Y. 1995-96.

2. Ground no. 1 & 9 of the assessee are of general in nature remaining

grounds of the assessee read as under:

2. "The AO has on facts and in the circumstances of the case and in law erred in reducing the deduction u/s 80HHC of the Act from Rs.

30,32,43,522/- already allowed as per order dated 29.05.2000 passed u/s 154/250 of the Act to Rs. 30,19,20,104/- as per the impugned order without ITA No. 1414/D/2011 2

assigning any reasons and also without providing any calculation thereof, in the absence of which the appellant will not be able to make any submissions on the same.

3. The AO has on facts and in the circumstances of the case and in law erred in not allowing interest u/s 244A of the Act on the tax refund of Rs. 663.12 lacs from 1/4/1995 (being the date of commencement of the assessment year) till 23/8/2007, (being the date on which the imgpuned order is stated to have been received by the CIT)

a) particularly when there is no delay attributable to the appellant.

b) The refund has arisen as a result of the order of ITAT giving effect to the order of BIFR.

c) Stating that there is no delay on the part of the Department till 23/8/2007 (being the date of receipt of the impugned order by the CIT) which is not a legally tenable reason to deny interest u/s 244A(2) of the Act.

4. The AO has on facts and in the circumstances of the case and in law erred while calculating interest u/s 244A and;

4.1 denying interest for the month of March 1998 on the payment of Rs. 7,75,50,260/- made on 25/03/1998 4.2 and thereafter allowing interest on Rs. 74,357,749, after appropriating the difference of Rs. 3192511 towards the refund attributable to BIFR refund; and also 4.3 not allowing interest for the months of November, 1998, August 1999, and March, 2006 (on Rs. 54,700,000)

5. The AO has erred on facts and in the circumstances of the case and in law while calculating interest for the period September, 1999 to May 2000 at Rs. NIL by taking to the principal amount (on which interest is admissible) has been wrongly taken as (minus) Rs. 43,56,651/- being the difference between Tax of Rs. 8,42,06,916 and refund of Rs. 8,85,65,567/- ITA No. 1414/D/2011 3

which includes interest u/s 244A of Rs. 1,21,03,381/-. Interest is admissible on Rs. 77,44,730/- (being the difference between Rs. 84206916 and Rs. 7,64,62,186)

6. The AO has on facts and in the circumstances of the case and in law erred in withdrawing Rs. 19,46,200/- being the interest allowed on the refund of self assessment tax u/s 143(1) of the Act as per ITNS 150 dt. 29.5.2000 forming part of order u/s 250/143(1)(a), whereas the ITNS-150 accompanying the impugned order starts with post section 143(1) orders only, thereby reducing the refund admissible to the Appellant.

7. The AO has on facts and in the circumstances of the case and in law erred in not complying with the mandatory provisions as contained in sec. 245 by not intimating the appellant in writing before setting off the refund against the amount payable under for different years, the adjustment is thus illegal and deserves to be reversed.

8. The AO has on facts and in the circumstances of the case and in law erred in not issuing the balance refund of Rs. 49,21,194/- to the appellant as worked out in the ITNS-150 accompanying the impugned order."

3. Briefly stated the facts giving rise to the appeal and leading to the

issues in question are that a scheme of amalgamation between the

assessee company and MICA Trading Company Limited was approved by

the Board for Industrial & Financial Reconstruction (BIFR). The said

scheme was affected from 01/04/1994 i.e. beginning of the previous year

relevant to the assessment year under appeal. According to the

declaration u/s 72A of the I.T. Act, 1961 (for short the Act) pursuant to

which it was ordered that notwithstanding anything contained in any

provision of the Act, the accumulated losses and unabsorbed depreciation ITA No. 1414/D/2011 4

of amalgamated company viz. MITCO shall be deemed to be

loss/depreciation of the assessee company for the previous year in which

the amalgamation was to take effect. However, it was further provided in

the declaration/scheme of amalgamation as approved by BIFR that the tax

benefit under the scheme will be restricted to Rs. 663.12 lacs only. A

perusal of the assessment record reveals that the benefit of set off of

accumulated losses and unabsorbed depreciation was initially claimed by

the assessee company in A.Y. 1996-97 to 1999-2000. The AO allowed

benefit of set off of accumulated losses pertaining to MITCO which was

subsequently withdrawn by the Department in terms of order u/s 154 of the

Act dated 29/03/2004 the relief in terms of scheme of merger was restricted

to the extent of Rs. 663.12 lacs for the year under consideration in this

appeal.

4. Being aggrieved by the aforesaid action of the AO the assessee

company carried the matter before CIT(A) and in terms of his order dated

22/07/2004 it was decided by the CIT(A) that the benefit of Rs. 663.12 lacs

was in terms of tax credit and not in terms of quantum of unabsorbed

losses/depreciation of MITCO and, therefore, the AO was directed to grant

tax benefit to the assessee company for A.Y. 1995-96. Subsequently the

CIT(A) rectify his own order so as to hold that the tax benefit was to be

granted for A.Y. 1996-97 and not for 1995-96 as earlier held by him. ITA No. 1414/D/2011 5

5. Being aggrieved by the aforesaid rectification made by the CIT(A) the

matter was brought by the assessee company before ITAT and in terms of

order dated 13/07/2007 it was held by the ITAT that the benefit u/s 72A of

the Act was to be granted in the assessment year relevant to the previous

year in which the amalgamation takes place. According to ITAT order

(supra), since the scheme of amalgamation was to take effect from

01/04/1994, the benefit of tax credit was to be allowed to the assessee

company for the A.Y. 1995-96 and not for 1996-97 as held by the CIT(A) in

terms of his order passed u/s 154 of the Act dated 22/07/2004. While

giving effect to the order of the ITAT the AO vide order dated 12/03/2009

u/s 254/143(3) of the Act. The claim of the assessee company of the

interest u/s 244A of the Act has been denied.

6. The empty handed assessee further carried out the matter before

CIT(A) and action of the AO was upheld by dismissing the ground of

appeal of the assessee company pertaining to interest u/s 244A of the Act.

Now the aggrieved assessees before this Tribunal with the grounds as

reproduced hereabove.

7. We have heard the argument of both the sides and carefully perused

the relevant material placed on record before us, inter-alia, order of the AO,

order of the first appellate authority, paper books submitted by the

assessee and case was relied by both the parties.

ITA No. 1414/D/2011 6

8. Since the main issue is revolving around the provision of section

244A of the Act and the main contention of the assessee is that the delay

in proceedings is not attributable to the assessee. Therefore, it was

contended by the ld. Sr. Counsel for the assessee that assessee is entitled

for interest for the period of 01/04/1995 to 23/08/2007. The ld. Sr. Counsel

further submitted that the CIT(A) upheld the action of the AO by ignoring

certain facts that a note was appended with the revised return of income

field on 31/03/1997 about the conditions to be fulfilled as prescribed u/s

72A of the Act and the submission of the assessee company vide letter

dated 06/10/2003 thereon. The ld. Sr. Counsel further pointed out that as

per order dated 29/03/2004 passed by the AO u/s 154 of the Act the

assessee company was allowed relief out of income u/s 72A of the Act in

A.Y. 1995-96 to the extent of 663.12 lacs and the CIT(A) vide order dated

22/07/2004 further allowed the benefit u/s 72A of the Act of equivalent

income so as to allow tax credit to the extent of same amount for

assessment year under consideration. The ld. Sr. Counsel vehemently

contended that the CIT(A) wrongly reverse his own order dated 22/07/2004

denying relief u/s 72A of the Act as there was no delay attributable on the

part of the assessee company so as to deny interest u/s 244A of the Act.

The ld. Sr. Counsel further pointed out that the refund has arisen constant

effect as directed by the ITAT and interest u/s 244A of the Act is

mandatorily allwoable by the provisions of the Act on the consequential ITA No. 1414/D/2011 7

refund. The ld. Sr. Counsel strenuously contended that the CIT(A) grossly

erred on facts and circumstances of the case and also in law in holding that

the claim of the assessee company in regard to the interest u/s 244A of the

Act is not covered either by clause (a) or (b) of sub-section (1) of sec. 244A

of the Act.

9. The ld. Sr. Counsel further submitted that the CIT(A) wrongly justified

the denial of assessee's claim of interest u/s 244A of the Act for the year

under consideration on the basis of non charging of interest u/s 220(2) of

the Act for A.Y. 1996-97 which was even otherwise not leviable according

to the provisions of law. The ld. Sr. Counsel finally submitted that the

assessee company be allowed interest upon interest wrongly withheld by

the AO u/s 244A of the Act on refund of Rs. 662.12 lacs for the period

01/04/1995 to 23/08/2007 which should have been allowed along with the

refund granted pursuant to the order of the AO dated 12/02/2009 passed

u/s 143(3) of the Act.

10. Reply to the above, the ld. Departmental Representative (DR)

supported the action of the authorities below and submitted that the

assessee company cannot take double benefit and the delay was fully

attributable to the assessee company as per sequence of events noted by

the AO and the CIT(A) in the impugned order para 4.4 at page 3 to 7 of the

impugned order. The ld. DR further submitted that as per provisions of

section 244A(2) of the Act where any question arises as to the period to be ITA No. 1414/D/2011 8

excluded for the calculation of interest on refund, it shall be decided by the

Principal Chief Commissioner or Chief Commissioner or Principal

Commissioner or Commissioner and whose decision thereon shall be final.

11. The ld. DR further contended and fairly accepted that the AO in this

case has not referred the matter either to the Chief CIT or CIT for the

determination of the period for which the assessee was not entitled to the

interest u/s 244A(1) of the Act. Ld. DR has placed his reliance on decision

of Power Finance Corporation Ltd. Vs. ACIT, ITAT Delhi 'E' Bench (2009)

28 SOT 220 (Del.).

12. On careful consideration of above rival submissions of both the

parties and vigilant perusal of the relevant material on the record, we note

that in the present case the AO excluded the period at his own while

processing the claim of the assessee for refund and interest thereon

payable u/s 244A(1) of the Act. Under the express provisions of sec.

244A(2) of the Act the AO could not do so as it was outside of his

jurisdiction and the question of exclusion of any period for the purpose of

grant of interest u/s 244A(1) of the Act was necessarily and mandatorily to

be decided either by the Chief Commissioner of Income Tax or

Commissioner of Income Tax. Therefore, in the given facts and

circumstances of the present case, the AO did not work in accordance with

the provisions of law. From perusal of the impugned order of the CIT(A)

we also note that the CIT(A) also upheld the action of the AO ignoring the ITA No. 1414/D/2011 9

relevant statutory provisions of the Act specially provision of sec. 244A(2)

of the Act. Thus, we are inclined to hold that neither the AO nor the CIT(A)

were right in ordering the exclusion of any period for computation of

interest on refund u/s 244A(1) of the Act as it was outside the ambit of their

powers.

13. At this stage it will be appropriate and relevant to reproduce

provisions of section 244A of the Act to decide this controversy in a

judicious manner, thus, said provision reads as under:

"244A Interest on refunds : (1) Where refund of any amount becomes due to the assessee 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 :

(a) Where the refund is out of any tax paid under s. 115WJ or collected at source u/s 206C or paid by way of advance tax or treated as paid u/s 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period from the 1st April of the assessment year to the date on which the refund is granted:

Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of s. 115WE or sub-s. (1) of s. 143 or on regular assessment;

(b) In any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, ITA No. 1414/D/2011 10

dates of payment of the tax or penalty to the date on which the refund is granted.

Explanation : For the purposes of this clause, 'date of payment of tax or penalty' means the date on and from which the amount of tax or penalty specified in the notice of demand issued u/s 156 is paid in excess of such demand.

(2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief CIT or CIT whose decision thereon shall be final.

(3) Where, as a result of an order under sub-s. (3) of s. 115WE or s. 115WF or s. 115WG or sub-s. (3) of s. 143 or s. 144 or s. 147 or s. 154 or s. 155 or s. 250 or s. 254 or s. 260 or s. 262 or s. 263 or s. 264 or an order of the Settlement Commission under sub-s. (4) of s. 245D, the amount on which interest was payable under sub-s. (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the AO shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice u/s 156 and the provisions of this Act shall apply accordingly.

(4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st April, 1989, and subsequent assessment years:

ITA No. 1414/D/2011 11

Provided that in respect of assessment of fringe benefits, the provisions of this sub-section shall have effect as if for the figures '1989', the figures '2006' had been substituted."

14. On vigilant perusal of the order of the ITAT Delhi 'E' Bench in the

case of Power Finance Corporation Limited vs. ACIT, we note that in the

similar set off facts and circumstances the Coordinate Bench of this

Tribunal decided the controversy as follows:

11. "Sec. 244A has been inserted on the statute by the Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989 and it has been inserted in lieu of ss. 214, 243 and 244. Sub-s. (1) of s. 244A provides for granting of refund by the Revenue to the assessee in the cases where payment of advance tax and TDS exceeds the tax liability. In the present case, there is no dispute so as for the entitlement of assessee to get refund, but the controversy is regarding the period which is to be excluded as per provisions of s. 244A(2). Looking to the language used in s. 244A, it is very clear that the AO, considering the facts before him, will have to determine whether the assessee is entitled to refund or not and if he is entitled to refund then for what period he is entitled to interest and further where any question arises as to the period to be excluded the same shall be decided either by Chief CIT or CIT whose decision thereon shall be final. Here, in the present case, the AO excluded the period at his own while processing the claim of the assessee for refund. Under the express provisions of s. 244A(2) the AO could not do so as it was outside of his jurisdiction and the question of exclusion of any period for the purpose of grant of interest u/s 244A(1) was necessarily and mandatorily to be decided either by Chief CIT or CIT. Thus, in the facts and circumstances of ITA No. 1414/D/2011 12

the case, the AO did not work in accordance with the provisions of law which in itself is a mistake apparent from record. What was required to be done by the AO was to refer the matter either to Chief CIT or CIT for determination of period for which the assessee was not entitled to grant of interest u/s 244A(1). Ld. CIT(A) is also wrong in holding that the AO was right in excluding such period. No such authority is vested in AO to exclude period and if any question has arisen for exclusion of any period, the manner provided in sub-s. (2) has to be adopted by the AO. Thus, neither the AO nor the CIT(A) were right in ordering the exclusion of any period as the exclusion, if any was outside their powers. To that extent the order of the AO and CIT(A) suffers from legal infirmity. Keeping in view the entirety of facts and the relevant provisions of law, we are of the opinion that it would serve the interest of justice if the matter is restored back to the file of AO with a direction to refer the issue regarding exclusion of period as prescribed in sub-s. (2) of s. 244A either to Chief CIT or CIT (as the case may be) to get it determined. We find that similar action of the Tribunal was upheld by Hon'ble Kerala High Court in the case of Kerala State Civil Supplies Corpn. Ltd. Vs. Jt. CIT (2006) 200 CTR (Ker) 653 : (2006) 282 ITR 647 (Ker) wherein it was found by the Tribunal that the AO without referring the matter either to Chief CIT or CIT had excluded the period for grant of interest u/s 244A(1) and it was held that the order of the AO was to be set aside to enable him to proceed in accordance with the provisions of law and the AO was directed to deal with the matter afresh in terms of s. 244A(2)."

15. In view of the above, we have no hesitation to hold that as per

provisions of sec. 244A(2) of the Act the issue of exclusion of any period for

the purpose of grant of interest u/s 244A(1) of the Act was mandatorily to ITA No. 1414/D/2011 13

be decided either by the Chief Commissioner of Income Tax or

Commissioner of Income Tax and the authorities below did not work in

accordance with the provisions of law and to that extent the order of the AO

and the CIT(A) suffers from legal infirmity. Respectfully following the

decision of ITAT in the case of Power Finance Corporation Ltd. Vs. ACIT

(supra) and keeping in view the entirety of facts, circumstances and the

relevant provisions of the law, we are of the considered opinion that it

would serve the interest of justice if the matter is restored back to the file of

AO with a direction to refer the issue regarding exclusion of period as

prescribed in sub-section (2) of sec. 244A of the Act either to the Chief

Commissioner of Income Tax or Commissioner of Income Tax, as the case

may be, to get it determine. We may also point out that as per provision of

sec. 244A(2) of the Act the decision of Chief Commissioner of Income Tax

or Commissioner of Income Tax shall be final on this issue and, therefore,

revenue authorities are duty bound to refer the matter to the competent

authority for determination of the issue regarding exclusion of period as per

provisions of the Act.

16. In view of the above discussion and respectfully following the

decision of Power Finance Corporation Ltd. vs. ACIT the matter is set aside

and restored to the file of AO to deal with the matter afresh in terms of sec.

244A(2) of the Act. We order accordingly.

ITA No. 1414/D/2011 14

17. In the result, the appeal filed by the assessee is deemed to be

allowed for statistical purposes in the manner as indicated above.

This decision is pronounced in the open court on 2nd March, 2015.

Sd/- Sd/-

(G.D. AGARWAL) (C.M. GARG) VICE PRESIDENT JUDICIAL MEMBER

Dated: 02.03.2015 *Kavita

Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, New Delhi. TRUE COPY By Order

ASSISTANT REGISTRAR