Compound Interest Refund – HC Says No Penalty on Revenue

Case Details: Vidit Kumar Agarwal vs. Arun Kumar - [2025] 174 taxmann.com 279 (Allahabad)

Judiciary and Counsel Details

• Salil Kumar Rai, J.
• Suyash Agarwal for the Applicant.
• Gaurav Mahajan for the Respondent.

Facts of the Case

The applicant filed a writ petition for the payment of interest on the amount seized under Section 132. The High Court directed the revenue to pay interest at the rate of 1.5% per month from the expiry of 120 days from the last authorisation issued against him.

The order was corrected after the department filed an application for correction of the order, and the period for which interest was to be computed was corrected to 120 days. The department complied with the order and paid the interest amount as directed by the Court.

The applicant filed a contempt application, pleading willful disobedience of the order of the High Court. The applicant contended that the amount paid was computed after applying only simple interest, even though, as a consequence of the order, the applicant was entitled to compound interest on the principal amount.

High Court Held

The High Court held that the order was passed under Section 244A(1)(b) read with Section 132B(4)(b), which provides only for the payment of simple interest. No provision under the Income Tax Act has been brought to the Court’s notice that outlines the formula for computing cumulative interest. It is the plea of the applicant that cumulative interest means compound interest.

There is no statutory provision from which any inference can be drawn that cumulative interest means compound interest. In any case, the lack of any statutory provision regarding payment of cumulative interest or the formula to calculate the same leads to the conclusion that the opposite parties cannot be held liable for willful disobedience of the order of this Court.

List of Cases Referred to

• Vidit Kumar Agarwal v. Asstt. CIT [Writ Tax No. 988 of 2018, dated 6-10-2021] (para 1).