The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) examined whether interest received on income-tax refund qualifies for deduction under Section 80-IA of the Income Tax Act, 1961. The dispute arose from partial disallowance of the assessee’s Section 80-IA claim by the Assessing Officer for AY 2014–15.
Case Details
- Forum: Income Tax Appellate Tribunal, Hyderabad Bench
- Assessment Year: 2014–15
- CIT(A) Order Date: 30 May 2025 (CIT(A)-52, Mumbai)
- Assessee’s Business: Development, operation, and maintenance of industrial and non-industrial parks
Facts of the Case
- The assessee filed its return declaring:
- Total income: ₹4,68,76,570
- Section 80-IA deduction claimed: ₹26,73,12,820
- Book profit (MAT): ₹28,05,74,172
- The case was selected for scrutiny and notice under Section 143(2) was issued.
- The Assessing Officer:
- Recomputed total income at ₹5,07,75,345
- Restricted deduction under Section 80-IA to ₹26,62,22,377
- Disallowed a portion of deduction relating, inter alia, to interest on income-tax refund, holding it to be not derived from eligible business.
Issue for Consideration
Whether interest on income-tax refund can be treated as income derived from the eligible business and thus qualify for deduction under Section 80-IA.
Held by ITAT Hyderabad
The Tribunal held that:
- Interest on income-tax refund is inextricably linked to the business income of the eligible undertaking.
- Such interest arises as a consequence of excess tax paid on business profits of the eligible unit.
- Therefore, interest on refund forms part of business income eligible for deduction under Section 80-IA.
The ITAT allowed the assessee’s claim, setting aside the disallowance made by the Assessing Officer.
Key Takeaway
📌 Interest on income-tax refund, when directly connected to profits of an eligible undertaking, qualifies for deduction under Section 80-IA.