K.P.T. Thangal, Vice President. - These appeals are by the revenue and the assessee, pertaining to assessment year 2001-02.

2. The first ground of objection by the revenue is against the order of the CIT(A) in deleting the expenditure incurred for earning dividend income under section 14A of the Income-tax Act, 1961.

3. The assessee filed the return declaring income at Nil on 30-10-2001 along with tax payable under section 115JB at Rs. 68,10,396. While framing the assessment order under scrutiny assessment, Assessing Officer noticed that the assessee received dividend income of Rs. 4,49,731 but it was claimed exempt under section 10(33) of the Act. Assessee was asked why the interest income and 1 per cent of managerial expenses attributable to earning of exempt dividend income should not be disallowed. In reply, the assessee stated that the entire receipt of exempt income was dividend received from UTI amounting to Rs. 3.30 lakhs. These investments in UTI were made years back and were made out of assessee’s own funds and not out of the borrowed funds. Hence, it was submitted that no portion of interest expenditure incurred during the year could be attributed to the investment made in UTI in the earlier years. Similarly, there was no expenditure incurred during the year to earn the said dividend, it was submitted. The Assessing Officer held that the assessee has not given any bifurcation of expenses incurred for earning dividend income and by virtue of provisions of section 14A, expenditure incurred by the assessee for earning income which is exempt, proportionately to be disallowed. Coming to the quantum of interest attributable for earning dividend, Assessing Officer held that, as rightly mentioned by the assessee, it was difficult to say that the monies invested in the shares and securities has come from totally assessee’s own funds or from borrowed funds. He held that the assessee has used reserves and surplus funds for making the investments. Since both the borrowed funds and own funds were kept by the assessee without appropriate bifurcation, Assessing Officer made the impugned disallowance. Aggrieved by the above, assessee approached the first appellate authority.

4. The learned CIT(A) deleted the addition made by the Assessing Officer, observing as under :—

"The next ground of appeal is directed against the disallowance of interest and administrative expenses under section 14A by attributing the same to the earning of dividend income. It was claimed by the appellant that the investment in the dividend yielding shares were made out of own funds and therefore no interest expenditure was attributable to the dividend income. The Assessing Officer has not believed the said statement of the appellant and has proceeded on the hypothesis that borrowed as well as own funds must have invested in dividend yielding shares. Since the Assessing Officer has not substantiated his claim that the investment in shares have been made out of borrowed funds the disallowance of aforementioned interest under section 14A is hereby deleted."

5. Considering the rival submissions, we are of the view that the order of the learned CIT(A) is to be upheld on this issue. These investments were made in the earlier years and not during the year under consideration. The assessee is having sufficient own funds and also interest bearing funds. In the absence of any evidence to show that the assessee had made the investment during the year under consideration out of interest bearing funds, we have no reason to disturb the order of the learned first appellate authority on this point. The appeal by the revenue, hence, on this ground fails and it is dismissed.

6. The second ground of objection by the revenue is against the order of the CIT(A) in directing the Assessing Officer to make adjustments in the opening stock when addition is made on account of unutilized portion of CENVAT to the closing stock. According to the revenue, learned CIT(A) ignored the decisi