The ITAT has upheld that 'interest on interest' is not applicable in the context of partial refund adjustments as per Section 244A of the Income Tax Act.
“Interest on Interest” Not Applicable on Partial Refund Adjustment
The ITAT has confirmed that the principle of ‘interest on interest’ does not apply when dealing with partial refund adjustments under Section 244A of the Income Tax Act. This ruling specifically pertains to the calculations made by Sony India in relation to its tax refunds.
The tribunal examined the claims made by the assessee and upheld the calculations which clarified that the interest owed derived from the principal amount after any adjustments from previous refunds, rather than representing a compound interest scenario.
By emphasizing the correct interpretation of Section 244A, the ITAT aims to provide guidance on how tax refunds should be calculated without the inclusion of 'interest on interest', which could lead to inflated claims.
Tax professionals should take heed of this decision when advising clients on refund calculations, ensuring that their approaches align with the standards set by the tribunal to prevent disputes and challenges from tax authorities.
Citations
- ITAT Order (2026) ITAT 1449143
