In case of refunds payable to the assessee, interest is payable in terms of sub-section (1) of section 244A of the Act. Section 244A(2) of the Act however provides that if the proceedings resulting in the refund are delayed for reasons attributable to the assessee whether wholly or in part, the period of delay so attributable, would be excluded from the period for which interest is payable under sub-section (1) of section 244A of the Act.
Dinakar Ullal v CIT  323ITR452 (Karnataka HC) – The assessee filed a belated return of income on September 8, 1997, for AY 1995-96 declaring income of Rs. 50,240 and claiming refund of Rs. 2,41,505 being tax deducted at source, though March 31, 1997 was the last date for filing the belated return under section 139(4).
The Assessee filed condonation petition for delay of five months and seven days in filing the belated return invoking section 119(2)(b). The Revenue accepted the cause shown for the delay in filing the belated return, but denied interest on the refund amount, in view of the condition set out in Circular No. 670 dated 26-10-1993, read with Instruction No. 13 of 2006 dated 22-12-2006, by order dated 15-5-2008.
The question for consideration before HC was whether the condition to deny interest on refund amount due to an assessee under the Act, while admitting an application to condone the delay in making a claim for belated refund under section 237, as contained in Instruction Nos.12 of 2003 dated 30-10-2003 and 13 of 2006 dated 22-12-2006, is inconsistent with sub-section (2) of section 244A.
The HC held that CBDT issued Instruction No. 12 of 2003, dated 30-10-2003, relating to procedure for dealing with application to condone delay in claiming refund, authorizing the Chief Commissioner of Income-tax (CCIT) in respect of refund claim from Rs. 1 lakh to Rs. 5 lakhs, subject to denial of interest on the belated refund and that, however, the instructions would not cover cases prior to the assessment year 1996-97.
The HC observed that the CBDT issued another set of Instruction bearing No. 13 of 2006 dated 22-12-2006, enhancing the consideration of refund limits up to Rs. 50 lakhs by the Chief Commissioner.
The substantive law relating to denial of interest on refunds in respect of belated claim, being fully covered by sub-section (2) of section 244A, it cannot but be concluded that, the CBDT, exercising a jurisdiction under section 119 could not have issued instructions/orders/directions/circulars, imposing a condition denying interest on refund, so as to supplement the law. Such a condition in derogation of the statute, is not “for the proper administration of the Act”. That, condition by way of instruction contained in Nos. 12 of 2003 and 13 of 2006 overrides sub-section (2) of section 244A of the Act and is in exercise of a power not vested in the CBDT, and hence, inconsistent.
There was no dispute over the fact that the petitioner’s belated claim for refund on 8-9-1997, along with an application to condone the delay filed on 21-9-1998, was required to be considered by the CBDT under section 119(2)(b). In fact Instruction No. 12 of 2003, dated 30-10-2003 makes the instruction inapplicable to the belated claim for refund prior to the assessment year 1996-97. In other words, the condition denying interest on the claim for refund made belatedly, was not applicable to the petitioner’s application to condone the delay. The petitioner’s claim for refund of Rs. 2,41,505 was required to be considered by the CBDT on the basis of the law as it then existed and not on instructions subsequently issued authorizing the Chief Commissioner of Income-tax, the respondent, based on enhanced limits of refund claim.
The HC held that there was no material forthcoming from the order impugned that the proceedings resulting in refund were delayed for reasons attributable to the assessee so as to exclude the period from 21-9-1998, the date of filing the application to condone the delay in filing the belated return, up to 1-7-2008. The impugned order in so far as it related to denying interest on the amount of refund by merely following the conditions imposed in Circular No. 670, dated 26-10-1993, read with Instruction Nos. 12 of 2003, dated 30-10-2003 and 13 of 2006, dated 22-12-2006, was contrary to law, arbitrary and unsustainable.
CIT vs. Melstar Information Technologies Ltd.  106 taxmann.com 142 (Bombay HC) – The assessee had raised a belated claim during the course of the proceedings before Tribunal. The Tribunal remanded the appeal to CIT(A). CIT(A) allowed the claim resulting in refund. This all resulted in delay in granting of refund. The AO did not grant interest on refund. Tribunal allowed it.
The HC observed that section 244A(2) of the Act refers to the proceedings resulting in the refund which are delayed for the reasons attributable to the assessee. The HC held that there is no allegation or material on record to suggest that any of the proceedings hit the assessee’s appeal before the Tribunal or remanded the proceedings before the CIT (A), whether in any manner delayed on account of the reasons attributable to the assessee. The HC held that it couldn’t be said that refund had been delayed for the reasons attributable to the assessee and assessee wasn’t entitled to interest for the entire period from the first date of assessment year till the order giving effect to the appellate order was passed.
Grasim Industries Ltd [TS-813-ITAT-2022(Mum)] – The ITAT held that interest on refund valid on additional ground allowed by ITAT and delay not attributable to assessee. The Mumbai ITAT sets aside rectification order passed under Section 154 denying interest on refund under Section 244A. The ITAT observed that “Just because an assessee has raised a claim by way of an additional ground of appeal before the Tribunal, it does not necessarily mean that the delay is attributable to the assessee…”.