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

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 of M/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

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 Incometax 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

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 of the 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 the funds 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 were actually 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

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

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 and established 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's case 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

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 be apportioned appropriately. The ld. counsel also drew support from the Gujarat High Court judgment in the case of H.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 as business 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."

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 Supreme Court 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."

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 -

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 point of 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 carefully and, 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 the inference 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

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 or condone 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 near and 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 from the headnote: "In order to decide whether a particular amount is laid out or expended wholly or exclusively for the purposes

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? If the 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 interest being 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 Under Section 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

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 of Mandideep 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 other sources - 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 other sources 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

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 have gone 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 been incurred 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 extent of 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

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 by the 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 to whether 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 their order 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 Court that when the receipts and expenses are consolidated, such receipts and expenses have always been considered apportionable between the following categories:

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 as allowable 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 of interest 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,

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, it must 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 cases prescribes 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 is deductible 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 expenditure has 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

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 expenditure and personal expenses. It is true that the ITAT, Indore Bench, in the case of Mandideep 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 not considered 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 assessee derived 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 incometax, wealth-tax and annuity deposits. In these circumstances, 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

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 chargeable to 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, as already 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. These details 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/-

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/-

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) Average annualized yield 16.16% Carrying cost of rupee funds raised (A) 2,68,93,204/(details as per separate statement) Weighted Funds Raised (annualized) (B) 21,97,66,255/(Total Funds used x Period utilized / 365) Cost of Funds raised (C) = A/B 12.24% Cost of Funds invested I + C 98,27,713/Administrative Costs (X) (As per company accounts for the year) (to the extent related to corporate finance activities) Salaries and wages (20%) 28,69,456/- 5,73,891/Printing and stationary (25%) 1,53,876/- 38,469/-

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) Average annualized yield 19.78% Carrying cost of rupee funds raised (A) 4,16,54,035/(details as per separate statement) (Total Funds Used X Period utilized / 365) Weighted Funds Raised (annualized) (B) 23,66,25,200/Cost of Funds raised (C) = A/B 17.60% Cost of Funds invested I + C 34,67,589/-

Administrative Costs (X) (As per company accounts for the year) (to the extent related to corporate finance activities) Salaries and wages (10%) 50,23,568/- 5,02,357/Printing and stationary (25%) 2,77,853/- 64,463/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. On estimate 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

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 available by 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 ground raised 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 grounds of 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

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 partly allowed.