Issues in time period for refund interest

CA V.K. Subramani

Taxpayers admit income and pay tax which is an annual compliance prescribed in law. There are cases where the taxpayer files ITR only for the purpose of refund of TDS/TCS. The tax may be because of TDS, TCS or advance tax or self-assessment tax. Section 244A deals with interest on refund. Previously, section 244 dealt with interest on refund where no claim is needed and this section ceased to be applicable from assessment year 1989-90 onwards and section 244A inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01.04.1989 has been operational since then.

The Finance Act, 2023 w.e.f. 01.10.2023 inserted a proviso to section 244A(1) whereby if a refund arises as a result of an order passed by the Assessing Officer in consequence of an application made by the assessee under section 155(20), such interest shall be paid for the period from the date of such application to the date on which such refund is granted.

Obviously, one would be tempted to refer section 155(20) which says that where any income has been included in the ITR furnished under section 139 and the TDS on such income is deducted and paid in subsequent financial year, the Assessing Officer shall on an application made by the assessee in such form, as may be prescribed, within a period of 2 years from the end of the financial year in which the TDS was deducted at source, amend the order of assessment or intimation allowing credit of such TDS in the relevant assessment year. This however does not cover refund because of TCS. The provisions of section 154 shall apply thereto and the period of 4 years shall be reckoned from the end of the financial year in which such tax was deducted.

To explain the provision narrated above, let us see by means of an example that a job worker for Rs.18 lakhs has filed the ITR for AY 2024-25 on 30.07.2024 with TDS credit of Rs.5,000 as against the correct TDS amount of say Rs.18,000. The deductor has deducted and paid the TDS amount in November, 2024 and the job worker having filed the ITR cannot claim credit of TDS in AY 2024-25 nor in any subsequent assessment year.

To manage such scenario, the payee job worker can take shelter under section 155(20) before 31.03.2027 (two years from the end of the financial year in which tax was deducted at source). It may be surprising to note that so far, the form for making such refund claim has not yet been prescribed.

The Finance Act, 2023 inserted a proviso to section 244A(1A). Where a refund arises as a result of giving effect to an order under sections 250, 254, 260, 262, 263 or 264 wholly or partly, otherwise than by making a fresh assessment or reassessment, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1) of section 244A, an additional interest on such amount of refund @3% per annum which is payable, for the period beginning from the date following the date of expiry of the time allowed under section 153(5) and up to the date on which the refund is granted. The assessee in such cases becomes eligible for interest @9% per annum (6% under section 244A(1) + 3% under section 244A(1A)). The time period under section 155(5) is three months from the end of the month in which the order under sections 250, 254, 260, 262 is received by the PCCIT or CCIT or PCIT or CIT, as the case may be, or where the order is under section 263 or section 264 is passed by PCCIT or CCIT or PCIT or CIT.

The proviso to section 244A(1A) says that in computing the period for determining the additional interest payable, the period beginning from the date on which the refund is withheld by the Assessing Officer in accordance with section 245(2) and ending with the date on which assessment or reassessment is made shall be excluded. Thus, the proviso would operate only when the assessment or reassessment is to be made and not in cases where the direction is given for passing the order in terms of sections 250, 254, 260 or 262.

Sub-section (2) of section 244A empowering the PCCIT or CCIT or PCIT or CIT to determine the period of delay attributable to the assessee for denial of interest on refund though remains in the statute book for the past 10 years, seems to be arbitrary since exercise of such power and the order thereon is not appealable.