Top Finance Ministry and CBDT officials, who appeared before the PAC, said the 6 per cent interest given is tagged along with the tax refund.
Money for the tax refund is withdrawn from the Consolidated Fund of India (CFI) with Parliament's approval.
But members pointed that the CAG has raised questions on the practice of tagging the interest money with the refund amount and not seeking Parliament's separate approval to withdraw the interest amount from CFI.
Some members like N K Singh (JD-U), Satish Misra (BSP) and Sanjay Nirupam (Congress) initially supported the CBDT's stand but later agreed that it should seek Parliamentary approval before drawing the interest money, sources said.
"Expenditure of the order of Rs 37,365 crore on interest payments had been incurred over a period of last five years without obtaining approval of Parliament," the government auditor had observed.
The CAG had said that the practice of showing interests as part of the refund amount was continuing for a long time and the Finance Ministry has not taken any steps to rectify it.
The PAC is examining Para 4.1.1 of the CAG Report for the year 2011-12 on 'Accounts of the Union Government, relating to Expenditure Incurred on Interest on Refunds of Taxes.'