Aravind Kumar, J.

1. The Revenue is in appeal challenging the correctness and legality of the order passed by Tribunal in IT(SS)A No. 181/Bang/2002 dt. 31st Aug., 2004. The brief facts leading to the filing of this appeal are as follows:

The assessee is carrying on business of moneylending and consequent to the search in the premises of one Sri M. Champalal, the husband of the assessee, a notice under section 158BC r/w section 158BD of the(hereinafter referred to as the for brevity) dt. 18th March, 1998 came to be served on the assessee on 24th March, 1998, calling upon the assessee to file the return of income within the stipulated time viz. 7th May, 1998. However, the assessee filed the return of income on 30th Oct., 1998 in Form No. 2B. Thereafter, the assessment order came to be passed under section 158BC r/w section 158BG of thedetermining the total undisclosed income at Rs. 27,36,811 and demanded tax thereunder. The AO also noticed that return was filed beyond the time stipulated under the notice issued under section 158BC of thei.e. beyond 7th May, 1998 and accordingly, calculated the interest upto 30th Oct., 1998 @ 2 per cent per month by raising a demand. This order of assessment came to be questioned by the assessee before the first appellate authority which came to be confirmed by order dt. 22nd Oct., 2002 which is at Annex. B.

The assessee being aggrieved by the same filed further appeal before Tribunal, Bangalore Bench in ITA No. 181/Bang/2002. The Tribunal on re-examination of the fact and considering the submissions made, held that the interest is chargeable on the sum found payable by the assessee as per the assessment order as reduced by taxes paid prior to due date of filing of return of income and accordingly, allowed the appeal in part. However, on facts it noticed that the AO was in error with regard to adjusting the tax paid by the assessee as well as her husband and accordingly, directed the AO to verify the facts as to in whose case advance tax has been paid and to what extent and accordingly, directed the AO to rework by giving credit to the respective accounts and remitted the matter to the AO for the said purpose. It is this order which is now assailed by the Revenue in this appeal.

2. We have heard Sri M.V. Seshachala, learned counsel appearing for the appellants Revenue and Sri A. Shankar, learned counsel appearing for the respondent assessee.

3. We notice from the order sheet that, this appeal has been admitted on 16th Nov., 2007 for considering the following substantial questions of law:

(i) Whether the Tribunal was correct in holding that the interest under section 158BFA(1) of the Act, is levied to compensate the Government for withholding the taxes by the assessee and if the assessee has paid the taxes, the said interest cannot be levied

(ii) Whether the AO and the CIT(A) had correctly levied interest under section 158BFA(1) of the Act, by holding that as the assessee was bound to file the return of income within 7th May, 1998 and as the return was filed on 30th Oct., 1998, the delay was liable to charge with mandatory interest, as per section 158BFA(1) of the Act, for belated filing of the return

4. Sri Seshachala, learned counsel for the Revenue, would submit that in the notice issued under section 158BD of thewhich has specifically mentioned the last date for filing of the return as 7th May, 1998; and in respect of the same, the assessee has filed return of income on 30th Oct., 1998 and as such, the AO was justified in levying interest towards the said period i.e. 7th May, 1998 upto 30th Oct., 1998 as contemplated under section 158BFA(1) of thewhich came to be confirmed by the first appellate authority and accordingly, submits that the questions of law are required to be answered in favour of the Revenue by betting aside the order of the Tribunal.

5. Per contra Sri A. Shankar, learned counsel appearing for the assessee would submit that the interest is payable in respect of the income or sum which the AO finds payable as per the assessment order and after reducing the tax already paid by the assessee. He would submit that the payment of interest being compensatory in nature, it cannot be automatic even in circumstances when taxes have been paid and in support of his submission he has relied upon the judgment of the Supreme Court in the case of CIT v. Pranoy Roy : [2009] 222 CTR (SC) 6 : [2009] 19 DTR (SC) 102 : [2009] 309 ITR 231 (SC).

6. Having heard the learned counsel for the parties it would be of benefit to extract the relevant provisions of the viz. section 158BFA(1) which reads as under :

158BFA. Levy of interest and penalty in certain cases. -(1) Where the return of total income including undisclosed income for the block period, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of January, 1997 as required by a notice under clause (a) of section 158BC, is furnished after the expiry of the period specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest @ (one per cent) of the tax on undisclosed income, determined under clause (c) of section 158BC, for every month or part of a month comprised in the period commencing on the day of immediately following the expiry of the time specified in the notice, and-

(a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or

(b) where no return has been furnished, on the date of completion of assessment under clause (c) of section 158BC.

7. From the order of the Tribunal it is noticed that the assessee has paid total tax amounting to Rs. 12,50,000 i.e. on 16th Oct., 1997 and 25th Nov., 197 in a sum of Rs. 5,00,000 and 7,50,000 respectively. There is no dispute that these taxes have been paid prior to the issue of notice dt. 18th March, 1998 and served on the assessee on 24th March, 1998. It is mentioned in the said notice that the last date for filing the return of income was 7th May, 1998 and return was filed on 30th Oct., 1998. The AO while examining levying of interest has proceeded to hold that on the entire, tax determined by assessment for the block period, the interest is to be levied under section 158BFA(1) of thefor the belated period of filing of the returns. On examination of the section, we find that what is contemplated or required under the abovesaid section for levy of interest is that, when the notice under clause (a) of section 158BC of theis issued, the assessee becomes liable to pay simple interest @ 2 per cent of the tax on undisclosed income, determined under clause (c) of section 158BC for every month or part of a month comprised in the period, which in effect would mean that, in order to compensate the Revenue as it would be deprived of the tax for the said period, the interest would be attracted. Hence, to accept the contention of the Revenue that interest is to be levied on the entire t ax payable would be contrary to the provision of section 158BFA(1) of the. In the case of Pranoy Roy (supra) it has been held by their Lordships as follows:

Since the tax due has already been paid which was not less than the tax payable on the returned income which has been accepted, the question of levy of interest does not arise.

8. In the light of the said observation by their Lordships and applying the said observations enunciated therein to the facts of the present case, we find that the Tribunal while holding that the interest is available (sic - leviable) only on the sum found payable by the assessee as per the assessment order as reduced by the tax paid prior to the due date of the filing of the return of income has also observed that if the assessee has paid any tax prior to the issue of notice or prior to the last date of filing of the returns as required under notice issued under sub-section (1) of section 158BD of the Act, even the said amount will have to be given set off for the purpose of calculation of interest and for this exercise being done, the matter has been remitted by the Tribunal to the AO and we do not find any infirmity either on facts or on legality of this issue. Hence, we confirm this said order of the Tribunal. In view of the above finding, we answer the question of law in the facts and circumstances of the case insofar as question No. 1 in the affirmative by holding that the Tribunal was correct in holding that interest under section 158BFA(1) of theis levied to compensate the Government for withholding the taxes by the assessee and for the said period of withholding only and it cannot be levied for the entire tax payable which ultimately has been paid prior to the issuance of the said notice. Insofar as question No. 2 is concerned, we find that insofar calculation and computation is concerned, the Tribunal has found on facts that the AO has not given set off to the tax paid prior to the issue of notice and remanded the matter for reworking of the same to the AO and thus, the question of paying interest on the entire tax component for the period 7th May, 1998 to 30th Oct., 1998 does not arise in the instant case and accordingly, the said question is answered partly in favour of the assessee and against the Revenue in the circumstances of the case. However, it is made clear that in the event the AO on computation were to find that any tax was due and payable on computing the taxability, he would be entitled to levy the same in accordance with section 158BFA(1) of thewhich is automatic and as observed by the Tribunal in its order dt. 31st Aug., 2004. Accordingly, the appeal is disposed of.