"Government of India has been of the view that non reflection of interest on refund separately as expenditure in the annual financial statement laid before both the Houses of Parliament did not violate any constitutional provision," said a Finance Ministry statement.
The statement comes in response to a report of the PAC which observed that an expenditure of Rs 37,365 crore was made on interest on refunds by the CBDT during 2006-07 to 2010-11 without obtaining approval of Parliament through necessary appropriations.
The Finance Ministry further said it will respond within 6 months to the observations of the report which was tabled in Parliament by PAC Chairman and senior BJP leader Murli Manohar Joshi earlier in the week.
The PAC report said that "despite Constitution prohibiting withdrawals from Consolidated Fund of India (CFI) except under Appropriation made by the legislature, the Department of Revenue has been making payment of interest on refunds without the approval of Parliament".
The Finance Ministry, however, clarified that the practice of not seeking specific appropriation for interest on refund as expenditure and treating it as reduction from gross tax revenue, has been consistently followed since the Income Tax Act came into force in 1961, with the exception of 2001-02 Budget.
It further said that Attorney General in an opinion on the issue in May, 2013, had affirmed that refund on excess tax is not an expenditure under Article 112(1) of the Constitution and such outgo cannot be considered with other operational expenses.
Article 112(1) deals with the presentation of annual financial statement to Parliament.