By TIOL News Service

MUMBAI, JULY 19, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether a taxpayer cannot be prevented from netting off interest received on income tax refund against interest payable on delayed deposit of tax, as the same does not result in any loss to I-T Department. YES IS THE ANSWER.

Facts of the case:

The assessee company, engaged in the business of manufacturing & sale of pharmaceutical products, had e-filed its return declaring total income of Rs.252,00,29,460/- as per the normal provisions and a 'book profit' of Rs.305,22,12,660/- as per the provisions of Sec.115JB. The case of assessee was then taken up for scrutiny, wherein the AO noticed that assessee company was in receipt of interest on income tax refunds amounting to Rs.2,64,12,688/- for various assessment years, and it had claimed set off of the same against the interest of Rs.3,67,73,753/- that was paid to the Income tax Department for late payment of tax for various years. However, the claim for set off was declined by AO for the reason that interest paid did not have a nexus with the interest received by assessee. On appeal, the assessee's claim for setting off of interest income was allowed.

Tribunal held that,

++ it is found that the issue that an assessee is well within his right to set off the interest received on the income tax refund against the interest paid on the taxes to the income tax department, is squarely covered by the judgment of the High Court of Bombay in the case of DIT Vs. Bank of America NT & SA [ITA No. 177 of 2012, dated July 03, 2014], wherein it was observed that: "....The Tribunal found that the assessee Bank received interest on refund of taxes paid. It also paid interest on the taxes which were payable. The Assessee sought to set off the interest paid against the interest received and offered the net interest received to tax. Now, the Tribunal has opined that when the exercise carried out by assessee does not result in loss of revenue, there could not be any prohibition for the same...." Therefore, being of the considered view that as the issue involved in the appeal is squarely covered by the judgment of Bombay High Court, and therefore, respectfully following the same, the AO is directed to allow the claim of assessee for setting off the interest on income tax refund of Rs. 2,64,12,688/- against the interest of Rs. 3,67,73,753/- paid to the income tax department on late payment of tax for various years.

(See 2018-TIOL-1095-ITAT-MUM)