A.L. GEHLOT, A.M. ORDER These appeals are filed by assessee against separate orders of CIT(A)-VII, Ahmedabad, for asst. yrs. 1992-93 and 1993-94. 2. common grounds raised in these appeals are reproduced as under : "1. learned CIT(A) has erred in confirming calculation of interest under ss. 234B and 234C by invoking provisions of Explanation to s. 140A inasmuch as interest under ss. 234B and 234C has to be calculated as per respective section and not by applying Explanation to s. 140A. 2. assessee further says and submits that calculation of interest in above manner amounts to charging of interest on interest which is not contemplated by law. 3. assessee further says and submits that calculation to s. 140A is in nature of clarification for purpose of appropriation of amount between principal and interest and not for purpose of calculation of interest under ss. 234B and 234C." 3. common ground based on identical set of facts, therefore, same are decided by this common order. 4. Briefly stated, facts of case in asst. yr. 1992-93 are that returned income was processed under s. 143(1)(a) of IT Act, 19 6 1. Interest under s. 234B was levied. Subsequently, AO found that interest was short levied by Rs. 1,21,028. He allowed appellant opportunity of being heard and after duly hearing appellant, he enhanced interest levied under s. 234B. appellant filed appeal against said order. Subsequently, assessment was completed under s. 143(3) of IT Act, 19 6 1 and interest charged under s. 234B was enhanced. 5. dispute under consideration is method/manner of calculation of interest under s. 234B. calculation made by AO is as under : "Tax at 50,80,495 rate of 50% Surcharge at rate of 7, 6 2,075 15% 58,42,5 6 9 Less : 1,82,573 TDS 5 6 ,59,99 6 Less : 23,20,000 23,20,000 Advance tax S.A. payment made 33,00,000 on 29-9-1992 Less: Adjusted towards interest payable on 4,00,800 return under s. 234B (upto Sept., 1992) under s. 1,78,288 5,79,088 27,20,912 234C 6 ,19,085 S.A. payment on 29- 39,95 6 2-1992 Less :Adjusted towards interest payable on return under s. 37,141 2,814 234B from Oct., 1992 to Dec., 1992 6 ,1 6 ,270 Less : Paid on 25-9- 1993 after issue of intimation 5,81,520 under s. 143(1)(a) 34,750 Interest under s. 234B @ 2 per cent p.m. From April, 1992 to Sept., 1992 ( 6 4,00,800 months on Rs. 33,39,99 6 ) From Oct., 1992 to Dec., 1992 (3 37,142 months) on Rs. 6 ,19,038 From Jan., 1993 to Sept., 1993 (9 1,10,929 months) on Rs. 6 ,1 6 ,270 From Oct., 1993 to March, 1993 12,510 (18 months) on Rs. 34,750 5, 6 1,381 Less : Adjusted from 4,37,042 1,23,439 S.A. payment Interest 1,78,288 under s. 234C Less : Adjusted from 1,78,288 Nil S.A. payment 1,58,189 Less : Demand already in force as per notice of 1,21,057 demand dt. 12- 1-1995 Demand created as per 37,132 this order 5.1 Against above calculation of AO, submission of assessee that manner of interest calculation under s. 234B should be as under : "Tax 58,42,5 6 payable 9 Less : TDS (as per 1,82, 6 13 list) 5 6 ,59,95 6 Less :Advance tax 15,00,000 paid on 25- 3-1992 Less :Advance tax 8,20,000 23,20,000 paid on 30- 3-1992 33,39,95 6 Add : Interest payable under s. 234B On 33,39,95 6 @ 2% p.m. from April, 1992 to Sept., 1992 4,00,794 (since Rs. 33 lakhs paid on 29-9- 1992) On 39,95 6 @ 2% p.m. from Oct., 1992 to Dec., 1992 2,44 6 (since Rs. 39,95 6 Paid on 2-12- 1992) 4,03,240 Interest under s. 1,78,280 5,81,520 234C 39,21,47 6 Less : Paid under s. 140A on 29-9- 29-9- 33,00,000 1992 29-12- 39,95 6 1992 25-9- 39,21,47 5,81,520 1993 6 Nil" 6 . learned counsel for assessee submitted that these two appeals have been filed against manner in which interest chargeable under s. 234B was calculated by AO. learned counsel further submitted that appeal against manner in which interest under s. 234B is charged is appealable in view of Supreme Court judgment in case of Central Provinces Manganese Ore Co. Ltd. vs. CIT (198 6 ) 58 CTR (SC) 112 : (198 6 ) 1 6ITR 9 6 1 (SC). It has further been submitted that interest under s. 234B was to be calculated after giving due credit for payment made under s. 140A. learned counsel further submitted that Explanation provides that where payment is made under sub-s. (1) of s. 140A, same is required to be made before due date of filing of return. It, therefore, follows that while filing IT return amount of tax payable under s. 140A or interest payable under ss. 234A to 234C is not paid in full and then difference when paid subsequent to due date of filing of return, such payment will be appropriated first towards interest and then towards principal. Explanation does not override s. 234B(2). Sec. 234B(2) gives credit in respect of payment made under s. 140A till due date and Explanation comes into operation only in respect of payment after due date. This view is supported by Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1 : (1990) 182 ITR (St) 1]. Para 4.1 6 of said circular (on page No. 18 of said report) reads as under : "For delay in filing return of income and for delay or default in payment of advance tax, mandatory interest is now payable under provisions of new ss. 234A to 234C inserted by Amending Act, 1987. Further, under new scheme of assessment also being introduced by Amending Act, 1987, (refer para 5.2 of these Explanatory Notes), if tax and interest due on basis of returned income have been correctly paid, return will be accepted as such and no further action on it will be necessary. For successful implementation of new scheme of assessment, it is necessary that assessee should also pay interest due under provisions of new ss. 234A to 234C along with self-assessment tax before filing return of income. Amending Act, 1987, has, therefore, amended sub-s. (1) of s. 140A to make it mandatory for person to pay before furnishing return, tax together with interest payable under any provisions of Act for delay in furnishing return or any default or delay in payment of advance tax. Proof of payment of such tax and interest is to be attached with return. Further, Explanation has been inserted in said sub-s. (1) to clarify that where assessee pays only part of amount due at time of filing return, such payment shall first be adjusted towards interest payable, and balance, if any, shall be adjusted towards tax payable." learned Authorised Representative submitted that circular clearly provides that where payment is made in part while making payment under s. 140A at time of filing return, balance amount when paid subsequently should be appropriated towards interest first and thereafter towards principal. learned Authorised Representative submitted that appellant-company has correctly calculated interest under s. 234B in accordance with s. 234B(2). learned AO has wrongly applied Explanation on facts of case. While charging interest under s. 234B one should not apply s. 140A as both sections are independent. 7. senior Departmental Representative supported orders of lower authorities and submitted that assessee has given new interpretation to situation whereas provisions are very clear that payment first is to be adjusted towards interest payable and balance, if any, shall be adjusted towards tax payable. learned Departmental Representative urged that order of CIT(A) is in accordance with law, therefore, same may be confirmed. 8. We have heard learned representatives of parties and perused t h e record. controversy under consideration relates to interpretation of Explanation to sub-s. (1) to s. 140A which provides that where assessee pays only part of amount due at time of filing return, such payment shall first be adjusted towards interest payable, and balance if any, shall be adjusted towards tax payable. Now crux of matter is, this : adjustment is to be made, whether at time of making ad hoc payment or at time of filing return of income. Revenue is of view that it should be adjusted at time of ad hoc payment, and assessee s case that it should be adjusted at time of filing return, i.e., when payment under s. 140A is due. For this purpose we have to see relevant provisions of IT Act which are as under : "140A. Self-assessment. (1) Where any tax is payable on basis of any return required to be furnished under s. 139 or s. 142 or s. 148 or s. 153A, as case may be, s. 158BC, after taking into account amount of tax, if any, already paid under any provision of this Act, assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing return or any default or delay in payment of advance tax, before furnishing return and return shall be accompanied by proof of payment of such tax and interest. Explanation. Where amount paid by assessee under this sub- section falls short of aggregate of tax and interest as aforesaid, amount so paid shall first be adjusted towards interest payable as aforesaid and balance, if any, shall be adjusted towards tax payable." "234B. Interest for defaults in payment of advance tax. (1) Subject to other provisions of this section, where, in any financial year, assessee who is liable to pay advance tax under s. 208 has failed to pay such tax, or where advance tax paid by such assessee under provisions of s. 210 is less than ninety per cent of assessed tax, assessee shall be liable to pay simple interest at rate of one and one-fourth per cent for every month or part of month comprised in period from 1st day of April next following such financial year to date of determination of total income under sub-s. (1) of s. 143 and where regular assessment is made, to date of such regular assessment, on amount equal to assessed tax or, as case may be, on amount by which advance tax paid as aforesaid falls short of assessed tax. Explanation 1. In this section, "assessed tax" means tax on total income determined under sub-s. (1) of s. 143 or on regular assessment as reduced by amount of tax deducted or collected at source in accordance with provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. Explanation 2. Where, in relation to assessment year, assessment is made for first time under s. 147 or s. 153A, assessment so made shall be regarded as regular assessment for purposes of this section. Explanation 3. In Expln. 1 and in sub-s. (3) "tax on total income determined under sub-s. (1) of s. 143" shall not include additional income- tax, if any, payable under s. 143. (2) Where, before date of determination of total income under sub-s. (1) of s. 143 or completion of regular assessment, tax is paid by assessee under s. 140A or otherwise (i) interest shall be calculated in accordance with foregoing provisions of this section up to date on which tax is so paid, and reduced by interest, if any, paid under s. 140A towards interest chargeable under this section; (ii) thereafter, interest shall be calculated at rate aforesaid on amount by which tax so paid together with advance tax paid falls short of assessed tax." 9. Under old provisions of sub-s. (1) of s. 140A, assessee was required to pay tax on basis of return, after taking into account taxes already paid at time of filing return. Such tax, known as self- assessment tax, was to be paid before filing return and proof of payment thereof was to be attached with return. old provisions covered limited aspect to paying, at time of filing return, tax only and not "interest" payable by assessee for late filing of return or for default or delay in payment of advance tax. 10. For delay in filing return of income and for delay or default in payment of advance tax, mandatory interest is now payable under provisions of new ss. 234A to 234C inserted by Amending Act, 1987. Further, under new scheme of assessment also being introduced by Amending Act, 1987 (refer para 5.2 of these Explanatory Notes), if tax and interest due on basis of returned income have been correctly paid, return will be accepted as s u c h and no further action in this behalf will be necessary. For proper implementation of new scheme of assessment, it is necessary that assessees should also pay interest due under provisions of new ss. 234A to 234C along with self-assessment tax before filing return of income. Amending Act, 1987, has, therefore, amended sub-s. (1) of s. 140A to make i t mandatory for person to pay before furnishing return, tax together with interest payable under any provisions of Act for delay in furnishing return or any default or delay in payment of advance tax. Proof of payment of such tax and interest is to be attached with return. Further, Explanation has been inserted in said sub-s. (1) to clarify that where assessee pays only part of amount due at time of filing return, such payment shall first be adjusted towards interest payable, and balance, if any, shall be adjusted towards tax payable. 11. Sec. 234B and s. 140A both are separate and independent sections of t h e Act, s. 234B(1) provides general situation of calculation of interest. period for which interest under this section leviable is from 1st day of April next following financial year to date of determination of total income under s. 143(1)/regular assessment. amount on which interest payable is equal to assessed tax or amount by which advance tax paid falls short of assessed tax. facts of controversy under consideration is not related to above general calculation of interest but falls under s. 234B(2). This sub-s. (2) of s. 234B provides calculation of interest where tax is paid by assessee under s. 140A or otherwise before date of determination of total income under s. 143(1)/completion of regular assessment. interest shall be calculated as provided general calculation in s. 234B(1). important thing provided is that simple interest under s. 234B(1) is to be calculated at prescribed rate. difference in calculation interest in that s. 234B(1) and in s. 234B(2) is that in s. 234B(2) simple interest is to be calculated up to date on which tax is so paid. Accordingly interest calculation in case under consideration should be as under : Total Amount amount of tax Amount Rate of Amount on which int. Period payable under paid Interest p.m. Int. payable s. 140A 33,00,000 April, 33,39,95 33,39,95 dt. 29-9- 1992 to 2% 4,00,794 6 6 Sept., 1992 1992 39,95 6 Oct., 39,95 6 dt. 29-12- 39,95 6 1992 to 2% 2,44 6 1992 Dec., 1992 Int. u/s. 234B 4,03,240 Total II 12. Now we shall examine s. 140A, which is to be taken into consideration while filing return. In accordance with s. 140A, assessee is required to pay tax under s. 140A where any tax is payable on basis of any return required to be furnished (s. 139 or s, 142 or as case may be, s. 158BC) after taking into account amount of tax, if any, already paid under any provision of this Act. Thus, at time of filing return tax payable under s. 140A is due and required to calculate tax payable on basis of return to be furnished as under : Sec. 139 or (w.e.f. 27th Sept., 1991) s. 142 or s. 148 or (w.e.f. 1st June, 1999) s. 158BC. After taking into account amount of tax, if any, already paid under any provision of this Act. In case under consideration return is filed on 30th Dec., 1992. According to return of income, calculation of tax payable under s. 140A comes to Rs. 33,39,95 6 of which details is reproduced in para Nos. 5 and 5.1. assessee deposited following ad hoc amount before filing return : Date Amount 29-9-1992 33,00,000 29-9-1992 39,95 6 33,39,95 6 13. At time of filing return of income, Explanation to s. 140A is required to be considered. newly inserted (w.e.f. 1st April, 1989) Explanation to s. 140A(1) takes care of situation where amount paid by assessee under s. 140A(1) falls short of aggregate of tax and interest as mentioned therein. In such situation, amount so paid is first to be adjusted towards interest payable and balance, if any, is to be adjusted towards tax payable. In instant case, adjustment required to be made is as under : total amount deposited 33,39,95 by assessee 6 Less : First adjustment towards interest Under s. 234B 4,03,240 Under s. 234C 1,78,280 (undisputed) 5,81,520 Balance adjustable against 27,58,43 tax amount 6 Amount of tax payable 33,39,95 under s. 140A 6 Short payment of tax under 5,81,520 s. 140A Since assessee has made short payment, therefore, interest is leviable on Rs. 5,81,520 in accordance with s. 234B(2)(ii). This provision is reproduced s above. Thus, this provision required to calculate interest by prescribed rate on balance amount by which tax so paid together with advance tax paid falls short of assessed tax. 14. In light of above discussion, we are of considered view that adjustment towards interest payable under s. 234B is to be considered only at time of filing return of income, i.e., when payment of self-assessment under s. 140A is required to be made. Before that interest under s. 234B is independently required to be calculated only in accordance with provisions provided in s. 234B(i). If at time of filing return it is found short payment after adjustment of interest out of tax paid under s. 140A, further interest is required to be calculated in accordance with s. 234B(2)(ii), on balance amount which is assessed tax minus advance tax and ad hoc payment. 15. Thus, we find that approach of Revenue for calculation of interest under s. 234B is not correct, therefore, orders of lower authorities are set- aside and claim of assessee is allowed. AO is directed to calculate interest under s. 234B as per above discussion. 1 6 . In result, appeals are allowed. *** PATSON TRANSFORMERS LTD. v. DEPUTY COMMISSIONER OF INCOME TAX