ORDER
Pramod Kumar, A.M.
1. In this appeal, against CIT(A)’s order dt. 18th Feb., 1999 and in the matter of processing of income-tax return under Section 143(1)(a) of the IT Act, 1961 for the asst. yr. 1996-97, assessee has raised the following effective grounds of appeal:
“The learned lower authorities have erred in holding that the appellant was entitled to interest under Section 244A of the IT Act, at Rs. 50,674 only (for 13 months) as against the claim of the appellant at Rs. 89,655 (for 22 months). The reasons assigned for the said short allowance are wrong and contrary to the mandatory provisions of the Act. Issues relating to allowability of interest being of a highly debatable nature, the AO is not competent to reduce the amount of interest in proceedings under Section 143(1)(a) of the IT Act, 1961.”
2. Heard the parties, perused the records and considered the applicable legal position as also factual matrix of the case.
3. The short point requiring our adjudication is whether or not the CIT(A) was justified in holding that the AO was justified in declining the interest claim under Section 244A of the assessee for a period of nine months, in the course of processing of income tax return under Section 143(1)(a) of the Act.
4. We find that Section 244A(2) categorically provides that, “if the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief CIT or CIT whose decision thereon shall be final”. It is, therefore, not in dispute that the AO may, wherever the delay in grant of refund is attributed to the assessee, decline interest payment for that period but then the AO is certainly not the authority to adjudicate in case a dispute arises on the period of delay to be excluded. In any case, such a decision is inherently a subjective decision which involves sitting in judgment about the cause of delay in issuance of refund, and therefore, by its very nature, it cannot be a unilateral decision without the benefit of having heard the assessee. An issue being decided against the assessee without any opportunity of hearing being given to the assessee, is a classical example of violation of one of the very fundamental principles of natural justice ‘audi alteram partem’, i.e., no person shall be condemned unheard.
5. The question as to whether or not the delay in issuance of refund is attributable to the assessee, as is the scheme of the Act, is to be settled by the Chief CIT or the CIT but then they do not have any specific powers of any post facto remedial measure. It takes us to the question as to how can the scheme of Section 244A(2) be workable, In our understanding, the correct course of action is like this. If an AO, while processing interest claim under Section 244A, forms a prima facie opinion that a part of whole of this delay is attributable to the assessee, he has to issue a show-cause notice requiring the assessee to show-cause as to why interest under Section 244A for that period not be declined. In case, assessee objects to the same and the AO is of the view that the objection raised by the assessee is not justified, this issue is to be settled by the CIT or the Chief CIT, as the case may be, whose decision is final and binding on both the parties. However, in our considered view, it is not open to the AO to take a unilateral and ex parte decision on the issue, as has been done in the case before us.
6. It is also noteworthy that interest under Section 244A is a compensatory interest as, under this section, Revenue is paying interest only on assessee’s money which is in excess of his tax dues and for the period for which such money is lying with the IT Department. When compensatory interest is declined to the assessee; such an action can only be construed as penal in effect. It is difficult to comprehend as to how an action, which is penal in effect, can be taken without giving an opportunity of hearing to the person who is being de facto penalised. We are, therefore, of the considered view that the authorities below erred in declining interest to the assessee for the period for which, in the opinion of the AO, the delay is attributed to the assessee. To this extent, and for the reasons set out above, we modify the orders of the authorities below. The AO shall give effect, accordingly.
7. In the result, the appeal is allowed.