Case Law Mandideep Engg & Packaging...j

8/3/2019 Case Law Mandideep Engg & Packaging...j

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J.F. Laboratories Ltd. vs The I.T.O. on 18/2/2005

ORDER

K.K. Boliya, Accountant Member

1. These three appeals filed by the assessee and arising

from the common order dated 4.2.2003 of CIT(A)-V,

Mumbai, are disposed of by this common order as

grounds of appeal are common.

2. The first ground of appeal, which is identical for all

the three assessment years, pertains to the finding of the

Revenue authorities that no expenditure against the

gross interest income earned by the assessee during the

pre-operative period, is deductible Under Section 57(iii)

of the IT Act. The facts may be stated in brief. The

assessee company had undertaken a project for setting

up a 100% export oriented unit for the manufacture of

Amino Acid at M.I.D.C., Kurkumbh. During the

previous years relevant to the three AYs under appeal,

the aforesaid project was in the stage of construction

and setting up and the business of the company was not

commenced. The assessee company had raised funds to

be utilized in the construction of the said project from

various financial institutions and was paying substantial

interest on such funds. The aforesaid funds were partly

utilized for the project construction work and the surplus

funds were invested by the assessee in terms deposits

with a view to earn interest. During the course of

assessment proceedings, it was claimed that whatever


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interest income was earned by the assessee is deductible

from the cost of the project. In the original assessment

made by the AO, this argument was rejected having

regard to the Supreme Court judgment in the case ofM/s Tuticorin Alkali Chemicals & Fertilizers Ltd.

(TACFL) - 227 ITR 172. The AO was of the view that

the gross interest receipts had to be brought to the

charge of tax as income from other sources.

Accordingly, the assessments were completed. The

assessee appealed unsuccessfully to the CIT(A).

3. The assessee company filed appeals before the ITAT

which were disposed of vide consolidated order dated

20.8.2001 in ITA Nos. 6207/Mum/99, 4079/Mum/2000

and 1731/Mum/2000. Copy of this order is compiled at

pages 1 to 6 of the Paper Book. At Para 5 of this order,

it is mentioned that the assessee's counsel conceded that

the issue stands concluded against the assessee by virtue

of the Supreme Court decision in the case of TACFL

(supra), and accordingly the orders of the Revenue

authorities on this issue were upheld by the Tribunal.

However, alternative ground was raised before the

Tribunal to the effect that gross interest earned cannot

be brought to the charge of tax under the head income

from other sources without considering the question of

deductibility of expenditure incurred by the assessee

including interest on borrowed funds from the gross

interest income. In other words, the assessee claimed for

the first time before the Tribunal that the expenditure

which is allowable Under Section 57(iii) should be


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deducted from the gross interest. This ground was

disposed of by the Tribunal at Para 8 of the order in the

following manner:

"We have carefully considered the rival contentions. In

our view, it would not be proper or just to throw out the

assessee's claim at the threshold itself, merely because it

was not put forth in the manner in which it has been

done before us by the assessee. Having regard to the

principles laid down by the Supreme Court in the case

of CIT v. Mahalaxmi Textile Mills Ltd. - 66 ITR 710,

we permit the assessee to raise the plea before us for the

first time, since it arises out of ground No. 2 and is

intricately connected with the same. Further, there is

force in the plea inasmuch as it challenges the action of

the IT authorities in bringing to tax the gross income

which would be contrary to the basic tenets of Income-

tax laws. However, there are no materials before us to

show the extent of such expenditure, which would

qualify for deduction Under Section 57(iii). While,

therefore, admitting the assessee's claim in principle, we

remit the matter to the file of the AO who will verify

whether the assessee has incurred any expenditure for

the purpose of earning of making the income within the

meaning of Section 57(iii), if so, to what extent. The

assessee shall be given adequate opportunity of

furnishing proof or evidence in this behalf. After

hearing the assessee, the AO may decide the assessee's

claim in accordance with law. With these directions, we


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restore the matter to the file of AO and allow the ground

for statistical purposes."

From the above, it is seen that the Tribunal approved in

principle the proposition that if any expenditure

including interest paid on borrowed funds is allowable

Under Section 57(iii) against the gross interest income,

the same has to be allowed. For quantification of such

expenditure, the issue was restored to the AO for all the

three years.

4. The AO has considered in detail the legal aspects ofthe issue and has ultimately recorded a finding that the

Supreme Court decision in the case of TACFL was

squarely applicable and no expenditure is allowable

Under Section 57(iii) for the simple reason that such

expenditure cannot be said to be laid out or expended

wholly and exclusively for the purposes of making or

earning such income. The AO was of the view that thefunds were raised by the assessee with the purpose of

project construction and not for the purpose of

investment in term deposits. The assessee's claim was,

therefore, outright rejected by the AO without going

into the details furnished by the assessee and without

verifying or recording any finding as to whether the

funds originally borrowed for business purposes wereactually diverted for making investment in term deposits

with a view to earn interest income. This finding of the

AO has been confirmed by the ld. CIT(A) for all the


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three AYs and that is how the issue has come up before

us for adjudication.

5. In the backdrop of the abovementioned facts, Shri

Yogesh Thar, the ld. counsel appearing for the assessee

opened up his arguments by submitting that the Revenue

authorities have exceeded their jurisdiction in entirely

disallowing the assessee's claim and without even going

into the question as to whether part of the expenditure is

referable to earning of the gross interest income. It is

submitted that the issue was restored back to the AO by

the Tribunal for the limit purpose of quantifying of

expenditure deductible Under Section 57(iii). The ITAT

approved that part of the expenditure has to be allowed

Under Section 57(iii) and gross interest income cannot

be brought to the charge of tax. Therefore, the issue was

sent back to the AO. However, the AO has completely

disallowed the claim for deduction Under Section 57(iii)

without going into the factual position, which was

explained before him. The ld. counsel pointed out that

complete details of cost of funds and yield on

investment on pro-rata basis in respect of the three AYs

were submitted before the Revenue authorities. It is

pointed out that the assessee company was having

resources by way of capital as also by way of funds

borrowed from various financial institutions. All these

resources were mixed and therefore the assessee worked

out the details of expenses deductible Under Section

57(iii) on pro-rata basis. The statements of pro-rata

allocation of the cost of borrowings and administrative


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expenses have been reproduced by the CIT(A) at pages

2 to 4 of his order. The ld. counsel for the assessee

argued that the principle of apportionment of expenses

between various sources of income is an accepted andestablished principle of law. He relied on the Supreme

Court decision in the case of Continental Construction

Ltd. v. CIT - 195 ITR 81. He invited our attention to the

relevant ratio of this case, which is reproduced below

from the headnote:

"Contracts of the type envisaged by Section 80-O are

usually very complex ones and cover a multitude of

obligations and responsibilities. It is not always possible

or worthwhile for the parties to dissect the consideration

and apportion it to the various ingredients or elements

comprised in the contract. For purposes of income-tax,

the principle of apportionment has always been applied

in different contexts. Consolidated receipts and

expenses have always been considered apportionable in

the contexts: (a) of the capital and revenue constituents

comprised in them; (b) portions of expenditure

attributable to business and non-business purposes; (c)

of places of accrual or arisal; and (d) of agricultural and

non-agricultural elements in such receipts or payments."

It is submitted by the ld. counsel that in the assessee'scase also the question is how much expenditure is

required to be capitalized as cost of project and how

much expenditure is deductible Under Section 57(iii)

while computing the income under the head 'other


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sources'. It is submitted that the Revenue authorities

have not raised any doubt about the deployment of

borrowed funds in term deposits for earning interest. It

is, therefore contended that the expenditure has to beapportioned appropriately. The ld. counsel also drew

support from the Gujarat High Court judgment in the

case ofH.K. (Investment) Co. Pvt. Ltd. v. CIT - 211

ITR 511, and strongly relied on the ratio of this case,

which is reproduced below from the headnote:

"For the assessment years 1974-75 and 75-76, the

assessee claimed before the ITO that the interest paid by

it for its borrowings should be allowed fully against the

business income and it should not be apportioned

between the business income and the dividend income.

The ITO rejected the contention. The Tribunal held that

the gross amount of interest should be bifurcated

proportionately between (a) interest received from the

firm which constituted business income, and (b)

dividend income taxable under the head 'other sources'.

On a reference:

Held, (i) that in view of the provisions of Sections 36(1)

(iii) and 57(iii) of the IT Act, 1961, the Tribunal was

right in law in not allowing the claim of the assessee

that the entire interest payment should be allowed asbusiness expenditure for the AYs 74-75 and 75-76.

There was nothing on record to establish that the entire

amount of interest was paid in respect of capital

borrowed for the purposes of the business."
http://indiankanoon.org/doc/411708/http://indiankanoon.org/doc/411708/


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Shri Yogesh Thar further submitted that for the purposes

of the Income Tax Act, what is important is the actual

use of the borrowed funds and not the motive at the time

when the funds are borrowed. He relied on the SupremeCourt decision in the case of India Cement Ltd. v. CIT -

60 ITR 52. Our attention was invited to the observations

of the Hon'ble Supreme Court at page 63 of the Report,

which are extracted below:

"A loan may be intended to be used for the purchase of

raw material when it is negotiated, but the company

may, after raising the loan, change its mind and spend it

on securing capital assets. Is the purpose at the time the

loan is negotiated to be taken into consideration or the

purpose for which it is actually used? Further suppose

that in the accounting year the purpose is to borrow and

buy raw material but in the assessment year the

company finds it unnecessary to buy raw material and

spends it on capital assets. Will the ITO decide the case

with reference to what happened in the accounting year

or what happened in the assessment year? In our

opinion, it was rightly held by the Nagpur Judicial

Commissioner in Nagpur Electric Light and Power Co.

v. CIT that the purpose for which the new loan was

required was irrelevant to the consideration of the

question whether the expenditure for obtaining the loan

was revenue expenditure or capital expenditure."


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The ld. counsel also led us through the statement of

allocation of cost of borrowing and administrative

expenses which are compiled in the Paper Book.

6. The ld. DR, Shri Mahesh Kumar strongly supported

the orders of the Revenue authorities and emphasized

the phraseology of Section 57(iii), which may be

reproduced below:

"57. The income chargeable under the head "Income

from other sources" shall be computed after making the

following deductions, namely :--

(iii) any other expenditure (not being in the nature of

capital expenditure) laid out or expended wholly and

exclusively for the purpose of making or earning such

income"

The ld. DR contended that admittedly the funds were

raised by the assessee for the purposes of setting up and

construction of the project. Thus, all the borrowed funds

were intended to be used only for the aforesaid business

purpose and such expenditure has to be capitalized

having regard to the Supreme Court decision in the case

of TACFL. It is argued that obviously the loans were

not raised for making investment in term deposits.

Therefore, the interest paid by the assessee cannot be

said to be laid out or expended wholly and exclusively

for the purposes of making or earning interest income.

Shri Mahesh Kumar relied on the Delhi High Court

judgment in the case of Siddho Mal & Sons v. ITO -


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122 ITR 839. The relevant part of the ratio of this case

is reproduced below from the headnote:

"The word 'wholly' in Section 10(2)(xv) refers to the

quantum of expenditure but the word 'exclusively' refers

to the motive, objective and purpose of the expenditure.

An expenditure is to be allowed if it satisfied the test of

commercial expediency and commercial expediency has

to be judged from the point of view of assessee who

knows best how his business has to be run but such a

point of view has to be a prudent and reasonable pointof view which is free from an apparent taint of

excessiveness, collusiveness or colourable discretion.

Thus, on the one hand, it is not for the ITO to judge

whether the assessee could have avoided to reduce a

particular expenditure but on the other, an unreasonably

high or excessive expenditure would normally and

correctly caution the ITO to examine it more carefullyand, if combined with other circumstances, it leads to

the conclusion that the motive behind the expenditure is

to unduly benefit some one, the ITO is well within his

rights to come to a finding that the expenditure is not

exclusively for the purposes of business.

Relationship by itself, without more, cannot lead to theinference of excluding the possibility of a payment

being wholly and exclusively for the purpose of

business. Dealing with relatives in contrast with or in

preference to strangers is neither prohibited by law nor


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can be tabooed. Indeed, it is natural to do so but this

does not give a licence to cover up dishonest

transactions or impermissible transfers. The courts and

authorities are not to wear blinkers to overlook orcondone the passing off of public revenue to one's own

kith and kin by subterfuge or clandestine or clever

devices clothed in legalistic jargon. Instead it is their

duty to lift the veil of apparent legality and get to the

truth or substance of a transaction to deal with it in

accordance with law. It is only appropriate, indeed

normal, that dealings involving transfer of funds to nearand dear ones need to be looked into with care and

caution and necessary inferences drawn if there are

abnormalities attaching to such transactions.

It is not for the Court to go into appreciation of evidence

of circumstances attaching to a transaction to determine

whether the Tribunal was justified in arriving at the

finding that a certain payment was not exclusively for

the purpose of the business of the assessee as this is

wholly a question of fact and not of law."

The ld. DR further relied on the Bombay High Court

decision in the case of CIT v. Globe Theatres Pvt. Ltd. -

122 ITR 240 and invited our attention to the relevant

part of the ratio of this case, which is reproduced fromthe headnote:

"In order to decide whether a particular amount is laid

out or expended wholly or exclusively for the purposes


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of the assessee's business, the test to be applied is: Has

the expense been incurred with the sole object of

furthering the trade or business interest of the assessee,

unalloyed or unmixed with any other consideration? Ifthe expense is found to bear an element other than the

trade or business interest of the assessee, the

expenditure is not an allowable one. To arrive at the

conclusion that the expenditure was dictated solely by

business consideration one has to consider the nature of

the business, the way it is conducted and any likelihood

of the business being adversely affected or its interestbeing promoted by the refusal or the incurring of the

expenditure, as the case may be. When the assessee

place all the facts and circumstances before the revenue

authorities, the latter must examine the same and must

make up their minds as to whether the expenditure was

necessitated or justified by commercial expediency. The

ultimate finding that the expense is allowable UnderSection 10(2)(xv) is an inference of law to be deduced

from the facts of the case. The question is a mixed one

of law and fact."

The ld. DR also brought to our notice the ITAT,

Mumbai Bench order dated 30.9.2004 in the case of Ms.

Ila R. Ambani in ITA Nos. 4340 and 9341/Bom/90,

copy of which has been filed. At Para 8 of this order, it

has been observed by the assessee that in order to

examine the deductibility of an expense under Section

57(iii) what is to be examined is whether or not such an

expenditure is incurred 'wholly and exclusively for the


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purpose of making or earning such income'. The

expenditure must be incurred for the purpose of earning

the income.

The ld. DR also relied on the Supreme Court decision in

the case of Smt. Padmavati Jaikrishna v. ACIT - 166

ITR 176 for the proposition that unless the loan is

incurred for meeting the liability connected with the

source itself, it would ordinarily be difficult to entertain

the claim for deduction of interest paid thereof Under

Section 57(iii). Finally, Shri Mahesh Kumar invited our

attention to the ITAT, Indore Bench decision in the case

ofMandideep Engineering and Packaging Industries

Pvt, Ltd. v. DCIT - 77 ITD 307. It is submitted that this

is a direct decision on the issue and the ld. DR invited

our attention to the short headnote of this case, which is

as under:

"Section 57 of the IT Act, 1961 - Income from othersources - Deductions - AY 91-92 -Assessee borrowed

funds for its business purposes but same were not used

for its business purpose but were invested somewhere

else on which interest was earned by assessee and

interest income was treated as income from other

sources - Whether deduction claimed Under Section 36

can be allowed to be deducted from income from othersources while computing income Under Section 56 -

Held, no - Whether interest paid could be termed as

expenditure incurred wholly and exclusively for earning

income from other sources - Held, no - Whether


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assessee would be entitled for netting between interest

income and interest paid on borrowed funds - Held, no."

The ld. DR also submitted that the judgments which

have been relied upon by the ld. counsel for the assessee

were rendered in different contexts and therefore the

ratio of these cases cannot be directly applied to the case

of the assessee.

7. We have given a careful consideration to the

elaborate arguments submitted on behalf of the assessee

appellant as also on behalf of the Department and havegone through the facts in the light of the legal position

as emerging from the various judicial pronouncements

with which we have been assisted by both the parties.

There is no gainsaying the fact that the Tribunal, while

restoring this issue to the AO vide its order dated

20.8.2001, felt that if the pre-operative expenses

including interest on borrowed capital have beenincurred directly for earning the interest income,

appropriate deduction Under Section 57(iii) has to be

allowed. The Tribunal directed the AO to allow

opportunity to the assessee and to verify as to whether

the assessee has incurred any expenditure for the

purposes of earning or making the income within the

meaning of Section 57(iii) and if so, what is the extentof such expenditure. At Para 8 of the order, the Tribunal

made it abundantly clear that the assessee's claim was

admitted in principle. In other words, the principle of

apportionment of expenditure allowable Under Section


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57(iii) is inherent in the order of the Tribunal. In our

view, the scope of the AO in the restored matter was

limited to ascertaining the quantum of expenditure

which is allowable Under Section 57(iii) as directed bythe Tribunal. The Tribunal, while restoring the matter

was well aware of the fact that all the expenses are

consolidated and expenses which are allowable Under

Section 57(iii) have to be identified, which can be done

only by apportionment on a logical and concrete basis.

While completing the fresh assessment on this issue, the

AO did not carry out any exercise to verify as towhether the details of apportionment filed by the

assessee before him are accurate or whether such details

suffer from any factual errors. The AO did not apply his

mind to this question, but right from the very beginning,

he proceeded with the assumption that the assessee's

claim is not allowable at all Under Section 57(iii).

Besides, the observation made by the Tribunal in theirorder dated 20.8.2001, we find the principle of

apportionment of the expenses finds support from the

cases relied upon by the ld. counsel for the assessee in

the case of Continental Construction Ltd. (supra). The

Hon'ble Supreme Court held that the principle of

apportionment has always been applied in different

contexts. It was further observed by the Supreme Courtthat when the receipts and expenses are consolidated,

such receipts and expenses have always been considered

apportionable between the following categories:


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a) Capital and Revenue constituents comprised in the

consolidated receipts and expenses.

b) Portion of expenses for business and non-business

expenditure.

c) Agricultural and non-agricultural elements in such

receipts and payments.

The Hon'ble Gujarat High Court, in the case of H.K.

(Investment) Co. Pvt. Ltd. (supra), categorically held

that the common expenses have to be apportioned asallowable separately under Sections 36(1)(iii) and

57(iii). The Supreme Court, in the case of India Cement

Ltd. (supra) observed that what is important is the actual

use of the loan and not the intention or motive at the

time of raising the loan. In other words, if a loan is

raised for one purpose, but the same is utilized for some

other purposes, while considering the deductibility ofinterest on such loan, the actual user must be considered

rather than the motive or intention at the time of raising

the loan. The mandate of this decision is very clear.

8. The ld. DR has laid great emphasis on the

phraseology of Section 57(iii) and has relied upon the

Bombay High Court decision in the case of Globe

Theatres Pvt. Ltd. (supra) and the Delhi High Court

decision in the case of Siddho Mal & Sons (supra). In

these cases, the Hon'ble Courts were called upon to

adjudicate the deductibility of certain expenses under

Section 10(2)(xv) of the Indian Income-tax Act, 1922,


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which corresponds to Section 37(1) of the IT Act, 1961.

In these cases, it was observed that while deciding as to

whether a particular amount is laid out or expended

wholly or exclusively for the purposes of business, itmust be considered as to whether the expense has been

incurred with the sole object of furthering the trade or

business interest of the assessee, unalloyed or unmixed

with any other private or non-business consideration. If

the expenditure is partly attributable for non-business

purposes, the same cannot be allowed as a legitimate

business expenses. In our view, the ratio of these casesprescribes that before allowing any expenditure or part

thereof Under Section 37(1), it must be ensured that the

expenditure has been incurred wholly and exclusively

for business purposes and that any part thereof is not

referable to non-business or personal purposes.

Difficulty arises where a consolidated account is

maintained for the expenditure, part of which isdeductible Under Section 37(1) [or for that matter Under

Section 57(iii)]. In such cases, would it be reasonable to

disallow the entire expenditure on the ground that a

fraction of the expenditure does not pertain to business

purposes. In our view, such a strict interpretation would

defeat the very purpose of Section 37(1) or Section

57(iii). In such a situation, in our view, the expenditurehas to be apportioned and it is well known that the

principle of apportionment is normally applied by the IT

Department in such cases. For example, if expenses like

telephone expenses, motor car expenses, traveling


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expenses etc. are found to contain personal element also,

the disallowance is made on estimate basis to cover such

personal element. In other words, the expenditure is

apportioned between legitimate business expenditureand personal expenses. It is true that the ITAT, Indore

Bench, in the case ofMandideep Engineering &

Packing Industries Pvt. Ltd. (supra) has taken a different

view and they have held that the expenditure cannot be

apportioned for the purposes of Section 57(iii).

However, we find that the cases which have been cited

before us on behalf of the assessee appellant were notconsidered by the Indore Bench. The principle of

apportionment has been accepted by the Supreme Court

in the case of Continental Construction Ltd. (supra) and

by the Gujarat High Court in the case of H.K.

(Investment) Co. Pvt. Ltd. (supra). The ld. DR has relied

on the Supreme Court decision in the case of Smt.

Padmavathi Jaikrishna (supra). In this case, the assesseederived income from other sources in the shape of

interest, dividend etc. Out of the interest of Rs. 26,986/-

paid by the assessee on monies borrowed, the ITO

disallowed a sum of Rs. 10,239/- on proportionate basis

on the ground that to that extent the loan was used to

discharge the assessee's liability for payment of income-

tax, wealth-tax and annuity deposits. In thesecircumstances, it was held by the Supreme Court that

the Department was justified in disallowing the interest

on the loan, which was not incurred for the purpose of

making investment yielding interest and dividend


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income. Similarly, in the case of Ms. Ila R. Ambani, the

ITAT, Mumbai Bench observed that the interest paid on

loan used for acquiring jewellery cannot be said to have

been incurred for making or earning income chargeableto tax Under Section 56. In our view, the assessee's

claim for apportionment is clearly supported from the

various judicial pronouncements and we feel that the

view expressed by the ITAT, Indore Bench, with due

respect, cannot be accepted having regard to the

Supreme Court and Gujarat High Court decisions relied

upon by the ld. counsel for the assessee. Further, asalready mentioned above, the principle of

apportionment was already accepted by the Tribunal

when the matter was restored back to the AO and in our

view, the AO was duty bound to verify the details filed

before him to find out what portion of the expenditure is

referable to the loan on which interest income is earned,

which is chargeable to tax Under Section 56. Thesedetails have been reproduced by the ld. CIT(A) at pages

2 to 4 of his order and for proper understanding of the

factual position, it would be worthwhile to reproduce

below the statement of average/ad-hoc allocations of

cost of borrowing and administrative expenses for the

relevant AYs as under:

Particulars Amount (Rs.) Assessment Year 93-94:

----------------------

Pre-operative income 33,36,289/-


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Weighted Investment Funds (annualized) (I)

2,85,14,902/- (Funds Invested x Period / 365)

Average annualized yield 11.70%

Carrying cost of rupee funds raised (A) 1,15,58,750/-

(details as per separate statement)

Weighted Funds Raised (annualized) (B) 8,79,44,267/-

(Total Funds used x Period utilized / 365)

Cost of Funds raised (C) = A/B 13.14%

Cost of Funds invested I + C 37,47,790/-

Administrative Costs (X)

(As per company accounts for the year)

(to the extent related to corporate finance activities)

Salaries and wages (20%) 12,04,135/- 2,40,827/-

Printing and stationary (25%) 1,11,809/- 27,952/-

Postage and telephone (25%) 4,86,182/- 1,21,546/-

Corporate publicity charges (20%) 20,14,766/-

4,02,953/-Conveyance, vehicle and local

traveling (20%) 4,76,620/- 95,324/-

Professional expenses (25%) 1,68,383/- 42,096/-


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Sundry expenses (10%) 9,78,260/- 97,826/- -----------

10,28,524/-

-----------

Assessment Year 94-95:

Pre-operative income 1,29,76,992/- (details as per

separate statement)

Weighted Investment Funds (annualized) (I)

8,03,10,239/- (Funds Invested x Period / 365)




Weighted Funds Raised (annualized) (B) 21,97,66,255/-

(Total Funds used x Period utilized / 365)









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Postage and telephone (25%) 5,05,055/- 1,26,264/-

Corporate publicity charges (20%) 2,24,180/- 44,836/-

Conveyance, vehicle and local

traveling (20%) 16,47,434/- 3,29,487/-

Professional expenses (25%) 3,35,621/- 83,905/-

Sundry expenses (10%) 14,02,103/- 1,40,210/- ----------

13,37,062/-

------------

Assessment Year 95-96:

Pre-operative income 38,96,882/- (details as per

separate statement)

Weighted Investment Funds (annualized) (I)1,96,97,856/- (Funds Invested x Period / 365)




(Total Funds Used X Period utilized / 365)Weighted Funds Raised (annualized) (B) 23,66,25,200/-




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Postage and telephone (10%) 8,45,693/- 84,569/-

Corporate publicity charges (20%) 73,909/- 14,782/-

Conveyance, vehicle and local

traveling (10%) 18,76,695/- 1,87,670/-

Professional expenses (25%) 3,53,794/- 70,759/- Sundry

expenses (10%) 15,47,375/- 77,369/- -----------

10,06,968/------------

From the above details, it appears that, since

consolidated details of expenses have been maintained,

apportionment has been done by the assessee on pro-rata

basis. It is seen that the assessee company has also taken

into account the various administrative expenses. Onestimate basis, the assessee company has apportioned

these administrative expenses as pertaining to earning of

interest income. In our view, all the administrative

expenses have been primarily incurred for the purpose


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of assessee's business and the assessee company is not

required to incur such administrative expenses for

earning interest income, which flows from the term

deposits made with the Banks. Therefore, in our view,the administrative expenses or part thereof cannot be

allowed Under Section 57(iii). Only interest expenditure

is required to be apportioned to the investment which

are yielding interest income to the assessee. The AO is,

therefore, directed to work out the quantum of interest

expenditure, which is allowable Under Section 57(iii) on

pro-rata basis as per the details already made availableby the assessee and reproduced by the ld. CIT(A) in his

order, in respect of all the three AYs. Opportunity shall

be allowed to the assessee.

9. In ITA No. 2986 for the AY 93-94, the ground No. 2

raised by the assessee is as under:

"The ld. CIT(A) erred in not adjudicating the groundraised before him of inclusion of the additional tax of

Rs. 3,83,673/- levied Under Section 143(1A), in the

demand raised in consequence of the impugned

assessment."

10. We find that no such ground of appeal was ever

raised by the assessee before the CIT(A) as per groundsof appeal accompanying Form No. 35, which is on

record. Naturally, the ld. CIT(A) had no occasion to deal

with this issue. The ground raised before us does not


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arise from the orders of the Revenue authorities and

therefore the same is rejected.

11. The last ground of appeal, which is common for all

the three AYs, pertains to levy of interest Under Section

234B and 234C. This ground is admitted to be only

consequential and therefore the AO is directed to

recalculate the interest chargeable Under Section 234B

and 234C while giving effect to this order.

12. In the result, while the appeals in ITA Nos. 2984 and

2985 are allowed, the appeal in ITA No. 2986 is partlyallowed.

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