Interest on excess refund granted at the time of summary assessment [Section 234D] under Scheme of Mandatory Interest :

(1) Under section 143(4), where a regular assessment under section 143(3) or section 144 is made, any tax or interest paid under section 143(1) shall be deemed to have been paid towards such regular assessment and if no refund is due on regular assessment or the amount refunded under section 143(1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded is deemed to be tax payable by the assessee. However, no interest is charged for the period during which the refund amount has been utilised by the assessee.

(2) Therefore, section 234D was inserted to charge interest on excess refund granted at the time of summary assessment.

(3) Sub-section (1) provides that where any refund is granted to the assessee under section 143(1) and no refund is due on regular assessment or the amount refunded under section 143(1) exceeds the amount refundable on regular assessment, then the assessee shall be liable to pay simple interest at the rate of two-third per cent on the whole or the excess amount so refunded for every month or part of the month from the date of grant of the refund to the date of such regular assessment.

(4) Sub-section (2) further provides that the interest chargeable under sub-section (1) shall be reduced, where, as a consequence to the order passed due to rectification, appeal, revisions etc. under sections 154/155/250/254/260/262/263/264 or an order of the Settlement Commission under section 245D(4) of the Income-tax Act, the amount of refund granted under section 143(1) is held to be correctly allowed.

(5) An assessment made for the first time under section 147 or section 153A shall be regarded as regular assessment for the purpose of this section.