Interest under Section 244A is not payable on tax refunds arising from matters settled under KVSS.

The assessee (Hindustan Zinc Ltd.) filed a declaration for A.Y. 1993-94 under the Kar Vivad Samadhan Scheme, 1998 (KVSS) to settle outstanding interest demands of approximately Rs. 20.30 crores

Under the scheme, it paid Rs. 10.15 crores in full and final settlement of tax arrears (specifically interest under Sections 234B and 220(2))

In a parallel proceeding on January 23, 2008, the ITAT allowed the assessee to set off brought forward losses of Rs. 5.53 crores from A.Y. 1992-93 against the income of A.Y. 1993-94 and directed a tax refund

Crucially, that 2008 order stipulated that the assessee would not be entitled to interest on this refund to the extent the amount was covered by the KVSS declaration

While the Assessing Officer (AO) gave effect to the set-off but denied interest u/s 244A, the CIT(A) reversed this on December 18, 2008, directing the AO to grant interest

The Revenue appealed to the ITAT, which set aside the CIT(A)’s order and restored the AO’s denial of interest

1. Whether the claim of the assessee towards interest under Section 244A of the Income Tax Act in respect of the year under consideration is legally tenable?

Section 244A of the Income Tax Act, which provides for interest on tax refunds

The doctrine of finality of judgments, noting that a prior order of a superior tribunal (ITAT) which was not challenged becomes binding on the parties

Principles of the Kar Vivad Samadhan Scheme (KVSS), 1998, as established in the Finance (No. 2) Act, 1998, regarding the "full and final settlement" of tax arrears and the consequent extinguishment of liabilities

The Court observed that the ITAT's initial order dated January 23, 2008, specifically prohibited interest on the refund to the extent it was covered under the KVSS declaration

The assessee failed to challenge this specific direction, allowing it to attain finality

The Court reasoned that since the interest liability settled under KVSS (approx. Rs. 20.30 crores) far exceeded any potential interest payable on the tax refund relatable to the Rs. 5.53 crore set-off, the condition for denying interest was satisfied

The CIT(A), as a lower quasi-judicial authority, erred by issuing a direction that directly contravened the final order of the superior ITAT

Even if the ITAT’s 2008 directive was arguably wrong on merits, the assessee’s failure to appeal meant it was bound by the "fate accomplish" of that finality

The High Court affirmed the ITAT’s order dated October 13, 2009, which restored the Assessing Officer's denial of interest under Section 244A. The appeal was dismissed.