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In a set aside case, being relevant to A.Y. 1989-90 or any earlier year, the assessee made a claim for interest u/s 244(1A) on money refundable for the period from the date of first order of assessment until the date of passing of fresh order of assessment. Following the Supreme Court ruling in the case of Modi Industries Ltd. V. CIT (216ITR759/82TAX377) the Delhi High Court in the case of Sag Construction Associates (107TAX384) held that after such decision there is no more res integra. The Court held that with the passing of the order of assessment, without regard to the fact that the assessment order was set aside by the AAC, the amount of TDS lost its such character and the same was deemed to have been paid in pursuance to the order of assessment.  Further the Delhi Bench of the ITAT in 58ITD293 upheld a well-settled legal proposition that the judgment of Hon’ble Supreme Court can be a valid foundation for making a rectification order. Even if the assessee has made a claim for grant of interest under a wrong provision of law or even if no such claim has been made, it is obligatory on the revenue authorities to grant refund as well as interest which is required to be allowed to the assessee in the light of principles of law laid down by the Hon’ble Supreme Court. The Bench also held that the payment of advance tax has material significance only till the initial regular assessment for the purpose of section 214 and that thereafter it has no separate existence by itself.


Further the Kerala High Court in the case of Commissioner of Income-tax Vs. Ambat Echukutty Menon(173itr581) held that in the absence of any express or implied prohibition in section 244 of the Act if the interest collected under section 220(2) of the Act also becomes refundable along with other amounts on the passing of an order in appeal and section 240 envisages refund of such amount, the interest refunded is also entitled to interest under section 244 of the Act.


In so far as the grant of refund is concerned clause (a) under proviso to section 240 require holding back of refund in a set aside case until such time the fresh assessment is made. The Supreme Court in the case of Commissioner of Income-tax Vs. Chittoor Electric Supply Corporation (212ITR404) also upheld the Kerala High Court view in the case of New Woodlands v. CIT (138ITR795) that refund becomes due only after fresh assessment and therefore the interest is payable upon the expiry of three months after the date of the fresh assessment order and not the appellate order or the original order. However in respect of a case where the fresh order of assessment is made after 1st day of October, 1975 the interest shall be payable from the date of payment (if such sum is paid on or after 31st day of March, 1975) till the date on which the refund is granted as also upheld by the Supreme Court in 216ITR 759.

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