IN INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA no. 4193/Mum./2014 (Assessment Year : 2005 06) M/s. Quality VMG Bus Depot Project G 7, Mall 864 (Pt.) J.P. Road Seven Bungalows, Andheri (W) . Appellant Mumbai 400 053 PAN AAAAQ0055A v/s Dy. Commissioner of Income Tax (TDS) . Respondent Circle 2(2), Mumbai Assessee by : Shri K.B. Desai Revenue by : Shri Satya Pal Kumar Date of Hearing 22.08.2016 Date of Order 16.09.2016 ORDER PER SAKTIJIT DEY, J.M. Instant appeal by assessee is directed against order dated 21st March 2014, passed by learned Commissioner (Appeals) 14, Mumbai, for assessment year 2005 06. solitary issue in dispute in present appeal relates to disallowance of assessee s claim of interest on refund. 2. Brief facts are, assessee joint venture is engaged in business of construction of commercial building. As stated, 2 M/s. Quality VMG Bus Depot Project assessee had undertaken project for construction of shopping and commercial office at Plot no.864, J.P. Road, 7 Bungalow, Andheri (West), Mumbai. On 20th April 2004, assessee had entered into agreement with Lakshdeep Investment and Finance Ltd. (LIFL), as per which assessee agreed to provide to concerned party super built up area of 33,000 sq.ft. on 3rd and 4th and part of 5th Floor in commercial building to be constructed under project. As per terms of agreement, for reservation of super built up area in its name, LIFL paid ` 10 crore as margin money to be adjusted against final consideration payable by them against allotment of specified area. Subsequently, plan of project for construction of shopping and commercial office was changed for some reason and it was decided to construct shopping mall in its place. Due to change in plan as well as delay in carrying out construction activity, agreement with LIFL was terminated on 23rd March 2005 and as consequence, margin money paid by LIFL was returned back to them. As per terms of agreement interest on margin money was provided and assessee had deducted tax at source on such interest payment as per prescribed rate during relevant financial year and credited to Central Government on 9th June 2005. In return of income filed for impugned assessment year, assessee claimed deduction towards interest payment. Assessee also filed TDS 3 M/s. Quality VMG Bus Depot Project return. Subsequently, realising that there was no requirement for deduction of tax at source on interest payment, assessee filed revised return of income as well as revised TDS return. During assessment proceedings, it was submitted by assessee that neither assessee had issued TDS certificate in favour of LIFL towards TDS nor had claimed interest payment as expenditure. It was also submitted LIFL has neither shown interest received as income nor claimed any credit of TDS in return of income. assessee also furnished indemnity bond before Assessing Officer in support of aforesaid claim. Ultimately, Assessing Officer completed assessment accepting income declared in return of income. After completion of assessment, assessee on 29 th November 2007, applied for refund of TDS amount of ` 29,27,400, mistakenly deducted and remitted to Government account. Thereafter, assessee went on filing several letters before Departmental Authorities requesting for grant of refund. Since none of these letters were responded to by Departmental Authorities, assessee on 1st June 2012, filed petition before Ombudsman claiming refund of TDS amount along with interest. On basis of petition filed by assessee, Ombudsman vide letter dated 5th June 2012, called for report from Assessing Officer on assessee s claim. Assessing Officer vide letter dated 8th August 2012, intimated assessee that 4 M/s. Quality VMG Bus Depot Project against refund claim for ` 29,27,400 certain demands relating to assessment year 2007 08, were to be adjusted. Ultimately, after adjusting said demand, Assessing Officer on 17 th August 2012, granted refund of ` 16,29,669 to assessee. While granting such refund, as Assessing Officer did not compute any interest under section 244A, assessee on 5th October 2012 and 8th November 2012 filed applications purportedly under section 154 before Assessing Officer claiming interest on refund of excess TDS deposited. Assessing Officer, however, vide order dated 7 th February 2013, rejected petition for rectification under section 154 stating that refund of principal amount of excess TDS has already been issued and no interest on refund of excess deposit of TDS is payable as per provisions of Act. Being aggrieved of such order of Assessing Officer assessee preferred appeal before learned Commissioner (Appeals). 3. learned Commissioner (Appeals), after considering submissions of assessee, however, confirmed order of Assessing Officer. learned Commissioner (Appeals) observed, as assessee had deducted TDS voluntarily and deposited to Government account no interest under section 244A on refund can be given in view of CBDT circular no.769 dated 6th August 1998 and 5 M/s. Quality VMG Bus Depot Project circular no.790 dated 2nd April 2000. Though, assessee relied upon decision of Hon'ble Supreme Court in Union of India v/s Tata Chemicals Ltd. [2014] 363 ITR 658, however, learned Commissioner (Appeals) observed that in case before Hon'ble Supreme Court deduction of tax by assessee was not voluntary as in case of assessee. Accordingly, he upheld order of Assessing Officer. As far as additional ground raised by assessee, claiming interest on interest, learned Commissioner (Appeals) refused to entertain additional ground observing that unless additional ground raised during appeal has arisen solely due to developments after filing of appeals and it was not available to assessee at time when appeal was filed such additional ground should not be admitted. He further observed when no interest is admissible on TDS refund there is no question of allowing interest on interest. Accordingly, he dismissed assessee s appeal. 4. Learned Authorised Representative reiterating stand taken before Departmental Authorities submitted, assessee was not required to deduct tax at source, however, due to mistake assessee deducted tax on interest payment and remitted to Government account. Learned Authorised Representative submitted, even Department has accepted fact that assessee was not required to 6 M/s. Quality VMG Bus Depot Project deduct tax at source and remit to Government account and, therefore, has refunded back excess TDS to assessee. Learned Authorised Representative submitted, thus, it is accepted fact that TDS amount was not payable to Government account. Learned Authorised Representative submitted, there is no dispute to fact that assessee has paid TDS amount to Government account in financial year 2004 05 and after filing its revised return and completion of assessment on 28th March 2008, , assessee for first time claimed refund in letter dated 29th November 2008 and thereafter has repeated claim on various occasions. He submitted, since assessee s money was retained by Department for such long period, assessee is entitled to receive interest on refund of excess TDS in terms of provision contained under section 244A. Learned Authorised Representative submitted, object behind introduction of section 244A is for purpose of removing ambiguity and inequity in payment of interest on delayed payment of refund. Learned Authorised Representative relying upon decision of Hon'ble Supreme Court in Tata Chemicals Ltd. (supra) submitted, even for erroneous deduction of tax at source, assessee is entitled for grant of interest. He submitted, when Department retains and enjoys money deposited on account of tax which is otherwise not payable to Department, assessee is 7 M/s. Quality VMG Bus Depot Project entitled to payment of interest on money remaining with Government. In this context, he also relied upon decision of Hon'ble Jurisdictional High Court in Stock Holding Corp. of India Ltd. v/s CIT & Ors, [2015] 373 ITR 282 (Bom.) and decision of Hon'ble Supreme Court in Sandvik Asia v/s ACIT, [2008] 280 ITR 643 (SC). As far as decision of learned Commissioner (Appeals) in rejecting additional ground raised by assessee claiming interest on interest, learned Authorised Representative submitted, as per decision of Hon'ble Supreme Court in National Thermal Power Co. Ltd. v/s CIT, 229 ITR 383 (SC), learned Commissioner (Appeals) was not justified in rejecting additional ground as all facts relating to such ground are available on record. Learned Authorised Representative also relied upon following decisions in support of its claim of interest on interest. i) D.J. Works v/s DCIT, 195 ITR 227; and ii) CIT v/s Narendra Gosi, 254 ITR 606. 5. learned Departmental Representative on other hand relied upon observations of learned Commissioner (Appeals). 6. We have considered submissions of parties and perused material available on record in light of decisions relied upon. As far as factual aspect is concerned, there is no dispute 8 M/s. Quality VMG Bus Depot Project that assessee was not required to deduct tax on interest paid on margin money to LIFL, however, under misconception assessee deducted tax at source on such payment of interest and remitted to Govt. account. After realising its mistake, assessee had filed revised return of income disallowing deduction claimed on account of interest payment and also filed revised TDS return claiming no TDS on interest payment on margin money to LIFL. While completing assessment under section 143(3), Assessing Officer appears to have accepted aforesaid claim of assessee. It is further evident, since November 2007 assessee has repeatedly raised claim before Departmental Authorities towards refund of excess TDS paid to Govt. account. However, none of applications filed by assessee were considered by Departmental Authorities. Only after Ombudsman called for report from Assessing Officer, he granted refund of excess TDS after adjusting certain demand relating to A.Y. 2007 08. Thus, as could be seen, though excess TDS was remitted to Govt. account by assessee, may be voluntary in financial year 2004 05 but Department granted refund only in August 2012. Thus, it is apparent there was inordinate delay by Department in granting refund to assessee. issue before us is whether assessee is entitled for interest on delayed payment of refund. Assessing Officer / learned 9 M/s. Quality VMG Bus Depot Project Commissioner (Appeals) have rejected assessee s claim of interest on delayed payment of refund on reasoning that excess TDS was voluntarily paid to Govt. account, hence, in terms of section 244A, r/w CBDT circulars referred to by Departmental Authorities, assessee is not entitled for interest payment. On perusal of provisions contained in section 244A, we have noted that there is no specific bar or prohibition under said provision for granting interest on delayed payment of refund. As far as circular on delayed payment of interest is concerned, we are of view that Department cannot resort to such circulars for depriving assessee from claiming interest on refund as delay in granting refund to assessee is due to negligence of Departmental Authorities. In case of Sandvik Asia (supra), Hon'ble Supreme Court held that interest provided under section 244A, is compensatory in nature for wrongful retention of money belonging to assessee. Hon'ble Supreme Court again in Tata Chemicals Ltd. (supra) after taking note of object for which section 244A was brought into statute held as under: tax refund' is refund of taxes when tax liability is less than tax paid. As per old section assessee was entitled for payment of interest on amount of taxes refunded pursuant to order passed under Act, including order passed in appeal. In present fact scenario, deductor/assessee had paid taxes pursuant to special order passed by assessing officer/Income-tax Officer. In appeal 10 M/s. Quality VMG Bus Depot Project filed against said order assessee has succeeded and direction is issued by appellate authority to refund tax paid. amount paid by resident/deductor was retained by Government till direction was issued by appellate authority to refund same. When said amount is refunded it should carry interest in matter of course. As held by Courts while awarding interest, it is kind of compensation of use and retention of money collected unauthorizedly by Department. When collection is illegal, there is corresponding obligation on revenue to refund such amount with interest inasmuch as they have retained and enjoyed money deposited. Even Department has understood object behind insertion of section 244A, as that, assessee is entitled to payment of interest for money remaining with Government which would be refunded. There is no reason to restrict same to assessee only without extending similar benefit to resident/ deductor who has deducted tax at source and deposited same before remitting amount payable to non-resident/foreign company. Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is method now statutorily adopted by fiscal legislation to ensure that aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of recovery machinery provided in taxing Statute. Refund due and payable to assessee is debt-owed and payable by Revenue. Government, there being no express statutory provision for payment of interest on refund of excess amount/tax collected by Revenue, cannot shrug off its apparent obligation to reimburse deductors lawful monies with accrued interest for period of undue retention of such monies. State having received money without right, and having retained and used it, is bound to make party good, just as individual would be under like circumstances. obligation to refund money received and retained without right implies and carries with it right to interest. Whenever money has been received by party which ex ae quo et bono ought to be refunded, right to interest follows, as matter of course. In present case, it is not in doubt that payment of tax made by resident/depositor is in excess and department chooses to refund excess payment of tax to depositor. As already held interest requires to be paid on such refunds. 11 M/s. Quality VMG Bus Depot Project catechise is from what date interest is payable, since present case does not fall either under clause (a) or (b) of section 244A of Act. In absence of express provision as contained in clause (a), it cannot be said that interest is payable from 1st of April of assessment year. Simultaneously, since said payment is not made pursuant to notice issued under section 156 of Act, Explanation to clause (b) has no application. In such cases, as opening words of clause (b) specifically referred to 'as in any other case', interest is payable from date of payment of tax. sequel of aforesaid discussion is resident/deductor is entitled not only refund of tax deposited under section 195(2) of Act, but has to be refunded with interest from date of payment of such tax. 7. On careful reading of aforesaid judgment of Hon'ble Supreme Court, principle which emerges is, assessee is entitled to interest on refund of excess deduction or even erroneous deduction of tax at source. Hon'ble Supreme Court has observed that interest on delayed refund is kind of compensation for use and retention of money collected unauthorizedly by Department. Hon'ble Supreme Court has observed that refund due and payable to assessee is debt owed and payable by Revenue. Hon'ble Supreme Court has observed even in absence of any express statutory provisions for payment of interest on refund of excess amount collected by Revenue, government cannot shrug off its obligation to reimburse deductor s lawful money with accrued interest for period of undue retention of such money. Hon'ble Supreme Court has observed, obligation to refund money 12 M/s. Quality VMG Bus Depot Project received and retained without right implies and carries with it right to interest and right to interest follows as matter of course. If we consider facts of present case in light of aforesaid principle laid down by Hon'ble Supreme Court it is to be seen that Department in principle has accepted that excess TDS paid by assessee is not due to Department. Accordingly, amount has been refunded to assessee. It is equally true that though assessee had been claiming refund since year 2007, there was no apparent effort on part of Department to refund excess TDS paid by assessee knowing fully well that such money retained by it is without authority of law. That being case, applying ratio laid down by Hon'ble Supreme Court, Revenue has to compensate assessee for unauthrisedly holding on or retaining excess amount paid by assessee. Therefore, even if excess TDS was paid by assessee to Govt. account voluntarily under misconception, however, as held by Hon'ble Supreme Court even in absence of express statutory provision for payment of interest, assessee has to be paid interest on refund from date of payment of such tax. It has further been brought to our notice that CBDT abiding by view expressed by Hon'ble Supreme Court in Tata Chemicals Ltd. (supra) had issued Circular no.11 of 2016 dated 26th April 2016, wherein, it is stated that if resident deductor 13 M/s. Quality VMG Bus Depot Project is entitled for refund of tax deposited, then it has to be refunded with interest under section 244A from date of payment of such tax. In said Circular, Departmental Authorities have also been advised not to contest claim of interest in appeal. Thus, in view of decision of Hon'ble Supreme Court as referred to above and CBDT circular no.11 of 2016 dated 26th April 2016, we hold that assessee is entitled to receive interest on excess TDS refunded to him from date of payment. Grounds no.1 and 2 are allowed. 8. In ground no.3, assessee has claimed interest on interest. 9. We have observed that this issue was raised by assessee before first appellate authority by way of additional ground. However, first appellate authority refused to entertain additional ground raised for two reasons; (i) assessee should have raised it while filing appeal; and (ii) when assessee s claim of interest itself has not been allowed, there was no question of paying interest on interest. In our view, as per principle laid down by Hon'ble Supreme Court in National Thermal Power Corp. Ltd. (supra), legal issue can be entertained by way of additional ground raised by assessee if basic / primary facts relating to such ground are available before Departmental Authorities. As could be seen, primary facts relating to payment of excess TDS to 14 M/s. Quality VMG Bus Depot Project Government account as well as claim of interest on refund are available in records of Department, therefore, legal issue pertaining to assessee s claim of interest on interest can be decided on basis of those facts. In that view of matter, learned Commissioner (Appeals) was not justified in rejecting additional ground raised by assessee. We, therefore, restore this issue back to file of Assessing Officer for deciding assessee s claim of interest on interest in light of facts and material on record and in consonance with relevant statutory provisions as well as decisions which may be relied upon by assessee. Accordingly, ground no.3, is allowed for statistical purposes. 10. In result, assessee s appeal is partly allowed. Order pronounced in open Court on 16.09.2016 Sd/- Sd/- N. K. PRADHAN SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.09.2016 Copy of order forwarded to: (1) Assessee; (2) Revenue; (3) CIT(A); (4) CIT, Mumbai City concerned; (5) DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary (Dy./Asstt. Registrar) ITAT, Mumbai M/s. Quality VMG Bus Depot Project v. Dy. Commissioner of Income-tax (TDS) Circle2(2), Mumbai