This is appeal filed by assessee-company against decision of AAC Ernakkulam, dt. 30th Aug., 1979 and it relates to asst. yr. 1973-74. Only two points are involved in this appeal. first is about validity of reopening made under s. 147 (b) of IT Act and second is about disallowance of Rs. 10,469 representing interest expenditure incurred by assessee company. facts leading to present appeal are as follows: assesses is public limited company. assessment year involved is 1973-74 for which previous year ended by 31st March, 1973. Originally ITO passed his assessment order on 12th Dec., 1974 on total income of Rs. 1,31,860. Under that assessment order interest expenditure of Rs. 10,469 was allowed as deduction inasmuch as ITO had taken net profit figure disclosed in P&L A/c viz., Rs. 53,431. It is common case that while arriving at this net profit figure of Rs. 53,431 in P & L A/c debit of Rs. 10,469 was already considered and adjusted. After completion of original assessment, consequent upon receipt upon receipt of information from audit note of internal audit party to effect that income chargeable to tax had escaped assessment and inasmuch as certain expenses which are capital in nature have been claimed and allowed as revenue in computing total income in original assessment, ITO gave notice of repining under s. 147 (b) of IT Act. extract from audit objection is as follows: "The business of assessee-company was taken over by Kerala State Electricity Board w.e.f. 3rd Dec., 1970. So during previous years relevant for asst. yrs. 1972-73 and 1973-74, assessee has not been carrying on any business activity, income in respect of which is included in total income. only income credited in P&L A/c reliable to business activity is amount received from K.S.E. Board in respect of sale of energy till date of taking over. Most of over-head expenses debited in P&L A/c are not allowable under s. 57 (iii) also. For example, in P&L A/c for 1973- 74 assessment year 1973-74 (year ending 31st March, 1973), amount of Rs. 10,469 is debited under interest paid . This payment of interest was not made on any capital borrowed for investment, income in respect of which is assessed under O.S. interest payment was also not necessitated for realising amount due from Electricity Board. So it appears that interest debited in P&L A/c is relatable to new project under construction. So, question of disallowing overhead expenses allowed in 1972-73 and 1973-74 assessments may be considered. Asst. yr. 1973-74: Interest received on Govt. securities as per certificate filed is Rs. 1296. As against this only Rs. 1105 has been assessed." This audit objection is dt. 15th March, 1975. Previously assessee- company ran Ernakulam Electric Undertaking. However, said undertaking was taken over by Kerala Electricity Board on 3rd Oct., 19709. sum of Rs. 21 lakhs received as compensation for Kerala Electricity Board was deposited by assessee-company in banks. So also it has been receiving amounts representing arrears of electricity charges due to assessee- company from consumers which were realised by its successor viz., Kerala Electricity Board upto date of taking over of undertaking. bank deposit fetched amount of Rs. 1,07,750 as interest in previous year relevant to assessment year under consideration. assessee-company wanted to set up valve factory at Bangalore. For that purpose assessee- company was in search of industrial plot in Peenya Industrial Estate at Bangalore. It had tried to secure plot on long lease basis. Ultimately it succeeded to secure Plot No. 26 in Peenya Industrial Estate from Mysore Industrial Areas Land Development Board at estimated cost of Rs. 1,75,000. assessee-company paid Rs. 35,000 as initial deposit and it secured option to pay balance of Rs. 1,40,000 in 10 equal instalments of Rs. 14,000 each. instalment amount was subsequently reduced from Rs. 14,000 to Rs. 13,960. It is in respect of securing balance of Rs. 1,40,000 and interest of Rs. 10,469 had to be incurred (at 7 1/2 p.a.) In accounting year relevant to asst. yr. 1973-74 assessee was able to set up it valve factory in Peenya Industrial Estate, for sake of brevity valve factory business set up by assessee-company in Peenya Industrial Estate is being mentioned as Bangalore business of assessee. In accounting year relevant to asst. yr. 1973-74 assessee had not set up its Bangalore business. It was only in process of acquiring industrial plot at Bangalore to se up its business. However, assessee company was having huge deposits in banks of about Rs. 21 lakhs comprising either compensation received from Kerala Electricity Board or rears due to assessee-company from consumers till take over of assessee-company, subsequently collected by Kerala Electricity Board and made over to assessee-company after take over. During accounting year relevant to asst. yr. 1973-74 assessee-company was being credited with interest over its bank deposits. According to original assessment order dt. 12th Dec., 1974 assessee was deriving income under heads (i) interest on securities, (ii) business and (iii) other sources. As already stated original assessment was completed against it on total income of Rs. 1,31,860. Instead of withdrawing amount of Rs. 1,40,000 from its bank deposits and paying some towards purchase of industrial plot from setting up its Bangalore business assessee borrowed amount of Rs. 1,40,000 at 7 1/2 p.a. interest and thus it incurred liability of Rs. 10,469 for accounting year relevant to asst. yr.1973-74 towards interest payment over borrowals. As already stated in original assessment this amount of Rs. 10,469 was allowed as deduction. Thus this allowance was not specifically mentioned in assessment orders and though ITO did not give any reasons for its allowance in original assessment order it is seen that said allowance was very much evident from fact that ITO who completed original assessment had taken net profit figure from P&L A/c at Rs. 53,431 . printed balance sheet as well as P&L A/c for Asst. yr. 1973-74 was filed before ITO. Admittedly net profit amount of Rs. 53,431 was arrived at in P&L A/c of assessee only after adjusting Rs. 10,469 towards interest expenditure incurred by assessee-company. If interest amount is disallowed then ITO would have added it to returned income. absence of any such addition in original assessment would leave no one in doubt and that fact alone would give us impression that amount of Rs. 10,469 was allowed as deduction. assessee-company filed its objections for reopening assessment for asst. yr. 1973-74. objections filed on 14th May, 1977 before ITO were furnished to us in paper compilation. reassessment was however completed against assessee on total income of Rs. 1,39,541. reassessment order was dt. 29th June, 1978. first para of said assessment reads as under: "This is proceeding initiated under s. 147 (b) of IT Act consequent to receipt of information from audit note of Internal Audit Party that income chargeable to tax had escaped assessment, inasmuch as certain items of expenses which are capital in nature have been claimed and allowed as revenue in computing total income." From above para, it was argued by ld. counsel for assessee that present is case of complete non-application of mind by ITO whil framing reassessment order. He further argued that ITO simply referred to audit note and completed reassessment in accordance with instructions noted therein. According to him there is no information placed before ITO or any such information came into his possession. It is actually reappraisal of available record and re-determination of point at issue. ITO who framed reassessment did not form any opinion of his own and he did not lay down law. opinion of Internal Audit Party about non- allowability of deduction of Rs. 10,469 cannot constitute information and in support of this contention ld. counsel for assessee cited before us decision of Hon ble Supreme Court in Indian and Eastern Newspapers Ltd. vs. CIT (1979) 12 CTR (SC) 190: (1979) 119 ITR 996 (SC) where it was held that internal audit party is not competent to lay down any law and much less its opinion about question of law is binding on ITO and therefore such opinion does not constitute any information on basis of which reopening may be resorted to under s. 147 (b) of IT Act. ld. Departmental Representative countered arguments of assessee s counsel by submitting that ITO who had framed original assessment did not apply his mind on this use. He did not consider relevant material on record. Consideration of material is nothing but applying his mind to material on record. ld. Departmental Representative cited for this proposition Kerala High Court decision in CIT vs. Kerala State Industrial Development Corporation Ltd. 1978 CTR (Ker) 340: (1979) 116 ITR 158 (Ker). T h e ld. Departmental Representative further submitted that assessee- company had no doubt filed printed balance sheet and at p. 14 of printed annual report one will come across profit and loss account of assessee company as on 31st March 1973. It is also no doubt true that amount of Rs. 10,469 was shown as debit. However, there is no recital accompanying this debit of Rs. 10,469 and one cannot know that it represents interest paid on borrowings taken by assessee for setting up of its Banglore business. So also, ld. Departmental Representative contends that no material is placed to show that it represents such borrowal for assessee s Bangalore business. No clarification was obtained by ITO about interest payment of Rs. 10,469 and no information was there before ITO who originally completed assessment that this amount of Rs. 10,469 represents interest on borrowals made for acquiring only industrial plot for assessee-company s Bangalore business. Therefore, according to learned Departmental Representative as there was no application of mind by original ITO while allowing Rs. 10,469 as deduction it cannot be said that there was either reappraisal of same set of facts or predetermination of same issue in different way by subsequent ITO and on that ground reopening cannot be held to be bad. ld. Departmental Representative also argued that in above circumstances ratio of Hon ble Supreme Court in Indian & Eastern Newspaper Ltd. vs. CIT (supra) does not apply to facts on hand. Further ld. Departmental Representative stated that note of Internal Audit Party merely advised ITO that disallowance may be considered. There was no mandatory directions given by Internal Audit Party about disallowance which ITO had faithfully followed. Further, ld. Departmental Representative brought to our notice extract from order sheet entered dt. 14th March, 1978. He gave extract of that ordersheet entered in paper compilation. In that extract ITO before issuing notice under s. 147 (b) r/w. 148 after referring to Internal Audit Party s objection dt. 15th March 1978 held that objections are found correct and subsequent to such finding only he happened to issue notice under s. 147 (b) and s. 148. Therefore, ld. Departmental Representative argued that ITO did not automatically issue notice of reopening on strength of mere Internal Audit Party s objection. He had exercised his independent volition and came to conclusion that Internal Pary s objection is correct and then only he issued notice of reopening. He did not blindly follow Audit Part s note. In those circumstances it cannot be argued successfully that his assumption of jurisdiction under s. 147 (b) or his act of reopening is bad under law. In support of his contention ld. Departmental Representative cited recent Madras High Court decision in M. A. Murugappan vs. CWT (1984) 42 CTR (Mad) 35: (1985) 153 ITR 626 (Mad). ld. counsel for assessee again countered argument of ld. Departmental Representative by stating that allegation that ITO who originally completed assessment did not consider any material before allowing Rs. 10,469 as deduction towards interest expenditure is not, factually correct. It is also contended that assuming without admitting original ITO failed to consider relevant facts before allowing deduction of Rs. 10,469 does not automatically give jurisdiction to successor ITO to reopen matter on same issue. Thus, after having considered rival contentions on point exhaustively we are inclined to agree with submissions of ld. counsel for t h e assessee. Firstly we hold that ITO while allowing Rs. 10,469 as deduction had applied his mind to facts on record, had gathered information about nature of interest before allowing it and after fully satisfying himself about its allowability only he allowed it as deduction. At our request ld. Departmental Representative produced original records before us. learned counsel for assessee pointed to us fact that ITO tick-marked each and every item of debit noted in P&L A/c and having written alongside tick-marking words filed details at page 14 of Annual Report representing P&L A/c. We found from original records that comments made about P&L A/c by ld. counsel for assessee to be correct. entries in P&L account especially debit entries were tick-marked and in printed copy of P&L A/c which is supplied to ITO for his assessment filed containing words "filed details written across tick markings at p. 14 of printed P&L A/c. We fully agree with ld. counsel of assessee when he argued that tick marking shown to us are proof positive to show that ITO closely verified every item which was tick marked and he consciously and deliberately came to conclusion about correctness of figure of net profit arrived at in P&L account at Rs. 53,431. We are also one with ld. counsel for assessee when he stated that in this state of record fair play counsel for assessee when he stated that in this state of record fair play demands that unless ITO who completes original assessment comes forward with affidavit that he did not apply his mind to certain deductions which were found claimed in P&L A/c argument that ITO who originally completed assessment failed to consider deductions found noted in P&L account cannot be given credence to. It is usual for taxing authorities to tick mark entries as and when they are satisfied about their deductibility. We also found that this is usual practice that after obtaining full information abourt deduction claimed if ITO is satisfied about its allowability than only he would accept net profit figure. Otherwise he would add such of deductions claimed which he wanted to disallow. So from state of records argument that ITO who made original assessment must have satisfied both about nature as well as allowability of interest expenditure of Rs. 10,469 and after having satisfied himself only be ITO in all probability should have taken net profit figure at Rs. 53,431 appears to plausible and acceptable. Therefore, in view of state of record before us we are unable to give credence to argument of ld. Departmental Representative that ITO who originally completed assessment did not apply his mind to allowability of Rs. 10,469 and therefore we hold that Kerala High Court decision reported in CIT vs. Kerala State Industrial Development Corporation Ltd. 1978 CTR (Ker ) 340: (1979) 116 ITR 158 (Ker) does not apply to facts on hand. It is no doubt true that Kerala High Court held following in above decision: "To inform means to impart knowledge and detail available to ITO in paper filed before him does not by its mere availability become item of information. It is transmitted into item of information in his possession only if and only when its existence is realised and its implications are recognised. If there was non-advertence of mind on earlier occasion and advertence on later one that would be sufficient to form foundation for reassessment." We have come across decision of Madhya Pradesh High Court in Ram Kishan Oil Mills. vs. CIT (1965) 56 ITR 186 (MP) in which while deciding about validity of reopening under s. 34(a) (b) of IT Act, 1922, Hon ble High Court held as follows at p. 192 of reported decision: "It predecessor of ITO did not apply his mind to question of deduction of interest amount, and his successor did, that does not mean that successor ITO came into possession of information justifying reopening of assessment under s. 34 (1) (b). On other hand, justification of application of mind for issue of notice under s. 34 (1) (b) only indicates that notice was issued because of change of opinion." Thus assuming without admitting that original ITO did not consider deduction in all its implications whereas his successor did, does not mean that successor ITO came into possession of information justifying reopening of assessment. Obviously this investigation should be done by Successor ITO only after he is allowed to set his foot on valid reopening. Before reopening he should have information. Subsequent investigation made by ITO after reopening cannot constitute information for reopening. Therefore, it appears to us that argument of ld. Departmental Representative that original ITO did not apply his mind and, therefore, there is justification for reopening does not appear to be correct under law. We have already held that ITO who originally completed assessment considered allowability of deduction in all its facets and implications and after thoroughly satisfying himself only he allowed deduction. We are also of view that opinion of Audit Party that interest income earned by assessee company was to be treated as income from other sources and interest payment of Rs. 10,469 was not incurred for purpose of earning interest income from other sources and therefore said interest expenditure is not allowable under s. 57 of IT Act is opinion expressed on question of law and its opinion should not constitute information to validly reopen assessment under s. 147 (b) and same is held by Hon ble Supreme Court in (1979) 119 ITR 996 (SC) (supra). In headnote Hon ble Supreme Court held that opinion of Audit Party on point of law should not be regarded as information enabling ITO to initiate reassessment proceeding under s. 147 (b). Therefore, we hold that ratio of Supreme Court clearly applies to facts of case on hand and consequently our conclusion that reopening under s. 147 (b) is not valid follows. valid follows. Our above conclusion itself would be sufficient to dispose of appeal. However, as matter was argued even on merits also in order to complete record, we give our decision even on merits. first argument is that interest expenditure should be adjusted towards interest income. In this case interest of Rs. 1,06,645 and dividend of Rs. 6,431 both totalling to Rs. 1,13,076 was receive by assessee. Out of this, amount of Rs. 10,469 which is interest expenditure is sought to be deducted. According to assessee s counsel, this sort of deduction is allowable under s. 57(2) (iii). This argument is countered by ld. Departmental Representative by stating that scope of s. 57 (iii) is narrower than s. 37(1) of IT Act. Under former provision only such expenditure laid out wholly and exclusively for purpose of making or earning income from other sources. It is contended that interest expenditure of Rs. 10,469 is not spent for realisation of interest income of Rs. 1,13,076. learned Departmental Representative brought to our notice Commentary of Chaturvedi and Pithisaria, Vol.2 3rd Edn. page 1786 where it is held as follows: "At same time, by use of word for purpose of , it is obvious that there must be nexus between character of expenditure and making or earning of income. It expenditure is not for that purpose, or is unrelated to or unconnected with activity or earning such income it would not be allowed as deduction." Several case law were cited in support of this proposition by ld. authors. ld. Departmental Representative also brought to our notice decision of Bombay High Court in Bai Bhuriben Lallubhai vs. CIT (1956) 29 ITR 543 (Bom). In that case for years 1949-50 and 1950-51 assessee earned interest on fixed deposits. In accounting year relevant to those assessment years he borrowed various sums of money for purchasing jewellery as well as for meeting advance tax payment and she had to pay interest on these borrowal. assessee claimed to deduct interest payments from interest earnings. Bombay High Court ultimately held that purpose for which assessee borrowed money had no connection whether direct or indirect with income she earned from bank deposits and that she was not entitled to deduction claimed under s. 12 (2). said High Court further held that it mighty be that assessee s motive was to save her fixed deposits and interest and to m e e t household expenses etc. by means of loan borrowed. But that consideration was entirely irrelevant. On strength of above Bombay decision it was argued by ld. Departmental Representative that borrowing from bank and purchasing industrial plot at Bangalore by assessee- company has nothing to do with electricity business which it had carried on prior to 1972 and therefore interest payment cannot be adjusted against each and other. ld. Departmental Representative also argued that this interest expenditure is not allowable even from business income of that assessee-company. It is significant that assessee earned business income of Rs. 18,324 in accounting year relevant to assessment year under consideration though assessee did not carry on any business at all during said accounting year. business receipts of assessee-company constitute arrears due to it prior to take over period of 1972 and passed on to it by Kerala Electricity Board. Se. 37 allows expenditure laid out wholly and exclusively for purpose of business. This borrowing for purchase of industrial plot at Bangalore is not expenditure laid out wholly and exclusively for purpose of earning business income of assessee and therefore it cannot be allowed as business expenditure. ld. counsel for assessee countered arguments of ld. Departmental Representative sating that argument that there was no causal connection between earning interest income and incurring interest expenditure is not correct from facts and circumstances of case. He argued that, in fact interest paid by assessee should be deemed to be for purpose interest of earning income. If borrowal is not made for purchase of industrial plot at Bangalore and instead of borrowing, amounts are drawn from bank deposits, interest which can be derived from Bank deposits would have gone down. Therefore, from facts and circumstances of this case it must be deemed that amounts were borrowed for purchase of industrial plot at Bangalore only to keep interest earring apparatus of assessee intact and thus there was clear connection between interest expenditure and interest income. leared counsel for assessee also cited before us same Commentary in Chaturvedi and Pithisaria, 3rd Edn. Vol. 2 at page 786 where it is stated as follows: "Such nexus or connection may be direct or it may even be indirect. But howsoever indirect connection may be there must be connection between expenditure incurred and income earned." Several authorities were cited to support this proposition. One such authority is found in later Bombay High Court decision in CIT vs. H. H. Maharani Shri Vijaykuverba Saheb of Morvi & Ors. (1975) 100 ITR 67 (Bom). In that case of maharaja of Morvi executed trust deed dt. 6th Oct., 1955 in favour of his son. trust, property comprised of shares and securities and income for trust by way of dividends from shares and interest on securities. creator of trust died within two years after execution of trust deed on 17th Aug., 1957 and because of that fact assets covered by trust deed were considered as part of estate duty of deceased on which estate duty was payable, on 6th Oct., 1955 provisional assessment of estate duty was made against deceased Maharaja which came to Rs. 8,25,000. assessee paid estate duty on 26th March, 1958 by borrowing amount from Bank of India Ltd. trustees had to pay interest of Rs. 23,592 for asst. yr. 1959-60, Rs. 15,666 for asst. yr. 1960-61 and Rs. 9,619 for asst. yr. 1961-62 and whole amount of borrowals was repaid some times in 1962. trustees claimed interest amounts as deductions against their income under heads dividends and interest on securities. In that case Bombay High Court had duly taken into consideration earlier decision in Bai Bhuriben Lalubhai vs. CIT (1956) 29 ITR 543 (Bom) and they found out flowing to one of principles laid down in that case by Bombay High Court as can be seen from decision in (1975) 100 ITR 67 (Bom) at 75. "But in same context, Court has observed that if assessee borrowed moneys in order to maintain or preserve fixed deposit or help her to earn interest then obviously deduction would be permissible under s. 12 (2) of Act. They approved Tribunal s decision which stated that interest on amounts borrowed for purpose of preserving source of income or avoiding dissipation of source of income should also be allowed as deduction under s. 12 (2) of IT Act, 1922. so ld. Counsel for assessee contended that in Bai Bhuriben Lalubhai vs. CIT (supra) borrowing was made only to purchase jewellery and for household expenses and not to preserve source yielding income and expenditure was not incurred to avoid dissipation of source of income whereas in this case it is but essential to borrow funds in order to preserve income yielding source or apparatus. Therefore, there was causal connection between borrowals on one hand and earning interest on other and in support of this proposition ld. counsel for assessee cited before us decision in (1975) 100 ITR (Bom) (supra). After hearing both sides we have to hold that Bai Bhuriben s case is distinguishable from facts of present case and in our opinion, later Bombay decision in H. H. Maharani Shri Vijayakuverba Saheb of Morvi s case (supra) applies to facts on hand. We are further of opinion that instead of borrowing money for purchasing industrial plot at Bangalore if assessee had drawn sale price from its bank deposit their act would have affected interest source to considerable extent. Therefore, we have to hold that borrowing was made only to preserve income yielding asset, and therefore we hold that there was indirect connection between borrowal of moneys by assessee company on one hand and earning interest income and dividend on other. Thus even on merits we hold that interest expenditure of Rs. 10,469 is allowable expenditure under s. 57 (2)(iii) of Act. As regards contention of assessee s counsel that because assessee had derived business income of Rs. 18,324 in accounting year in question amount of Rs. 10,469 should be allowed as deduction under s. 37 (1) from said business income does not carry conviction with us. Under s. 37 (1) only such of expenditure which is laid out wholly and exclusively for purpose of earning business income is allowable as deduction. Here in this case amount of Rs. 18,324 assessed as business income represents nothing but arrears due to assessee from its customers when it had carried on but arrears due to assessee from its customers when it had carried on t h e business of electrical undertaking prior to 1972. No, part of interest expenditure was incurred in order to realise said business income and therefore amount of Rs. 10,469 cannot be allowed as business expenditure. We found that case of assessee can also be supported from decisions Indian Cement Ltd. vs. CIT (1969) 56 ITR 186 (MP) as well as Supreme Court decision in (1966) 60 ITR 52 (SC). In result we allow appeal of assessee both on jurisdiction as well as on merits and set aside orders of lower authorities. *** KAR VALVES LTD. v. INCOME TAX OFFICER