a) The income-tax dept. refunded part amount of tax to the assessee in the first phase and refunded remaining tax amount in the second phase.
b) The assessee arguedthat it was entitled to interest on balance amount of tax refund paid in the second phase but the AO had not granted the same.
c) Thus, the issue before the ITAT was:
Whether the amount of refund paid in the second phase should be adjusted first against the interest component and thereafter the balance amount should be adjusted against the principal component?
The ITAT held as under:
1) It was not a case of payment of interest on interest. Thus, the CIT (A) had wrongly applied the judgment of Hon'ble Supreme Court in the case of Gujarat Fluoro Chemicals 42 taxmann.com 1 (SC).
2) It is clear that where the amount of tax demanded is paid to the assessee then it shall first be adjusted towards interest payable and balance, if any, adjusted towards whatever tax payable.
3) Now, if we go through section 244A, we find that no specific provision has been brought on the statute with respect to adjustment of refund issued earlier for computing the amount of interest payable by the revenue to the assessee on the amount of refund due to the assessee. Thus, the law is silent on this issue.
4) Thus, the same principle should be applied while granting the refund as has been applied while collecting amount of tax. The revenue is not expected to follow double standards while dealing with the taxpayers.
5) Since the statute itself has already prescribed a particular method of adjustment in the explanation to section 140A(1), then justice, fairness, equity and good conscience demand that same method should be followed while making adjustment for refund of taxes, especially when no contrary provision has been provided.
6) Thus, the AO to re-compute the amount of interest u/s. 244A by first adjusting the amount of refund already granted towards the interest component and balance left,, if any, shall be adjusted towards the tax component. -  72 taxmann.com 348 (Mumbai - Trib.)