Relief for taxpayers: Made a mistake in your income tax return? You still get your refund interest, rules ITAT

In a landmark decision, the Mumbai bench of the Income-tax Appellate Tribunal (ITAT) has established that making an error in an income tax return does not forfeit a taxpayer’s entitlement to interest on tax refunds.

The case stems from Assessment Year 2012-13, where a taxpayer initially reported capital gains from an apartment sale as short-term gains. The taxpayer later revised this position, claiming the property as a long-term capital asset eligible for a 20 per cent tax rate under Section 112. The ITAT validated the revised claim, which generated a substantial tax refund.

Statutory interest cannot be denied for filing mistakes

The tax authority had refused to grant interest under Section 244A on part of the refund, arguing that the taxpayer selected a higher tax bracket in the original filing and failed to rectify it through a revised return.

Rejecting the department’s reasoning, the tribunal emphasised that Section 244A guarantees a statutory right to interest on refunds. While Section 244A(2) allows interest to be withheld, that exception applies strictly to periods of delay directly caused by the taxpayer.

The tribunal noted that the assessee did not withhold details, ignore notices, request delays, or hinder the assessment and appeal processes. Consequently, the ITAT instructed the department to release interest on a ₹5.39 crore refund, following standard verification and accounting for any prior payments.

Key implications and regulatory thresholds for taxpayers

The judgment clarifies how reporting errors influence interest payouts on refunds. The tribunal observed that while an inaccurate return might trigger a later claim, the mistake alone does not prove that the taxpayer stalled assessment or appeal proceedings.

Tax experts said that when an erroneous return creates a tax demand that is later corrected during assessment or via a revised return, authorities can only evaluate whether the taxpayer specifically caused procedural delays.

“An erroneous return may furnish the occasion for a subsequent claim, but it does not, by itself, establish that the assessee delayed either the assessment or the appellate proceedings,” the tribunal said.

Furthermore, Section 244A imposes a threshold: no interest is awarded if the refund total falls below 10 per cent of the final tax determined under Section 143(1) or during regular assessment.

In the same proceedings, the tribunal reviewed a separate ₹90.94 lakh refund resulting from an appellate directive. Since the payment exceeded the mandated timeframe, the ITAT ruled the department liable for interest on the delay. Under Section 244A(1A), an extra 3 per cent annual interest applies when refunds stem from enforcing appellate or court orders.