Law:

Section:

Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment years 1988-89, 1990-91 to 1992-93 and 1994-95 - Assessing Officer disallowed a part of total interest paid by assessee to bank in its overdraft account on ground that it had been advancing interest-free loans to its sister concern since assessment year 1984-85 - Whether findings of Tribunal, that assessee had substantial capital and interest-free funds available with it, which far exceeded said interest-free advances in relevant assessment years and department had not been able to controvert or disprove it, were based on relevant evidence on record and, therefore, no question of law, much less substantial question of law arose from order of Tribunal - Held, yes FACTS The assessee, a registered firm, engaged in the business of manufacture and sale of tin containers and printers, had been advancing interest-free loans to its sister concern, since the assessment year 1984-85. At the same time, it had been availing of overdraft loan facilities from the State Bank of India against hypothecation of stocks, etc., and was paying interest to the bank. During the course of assessment proceedings, the Assessing Officer required the assessee to show cause as to why a part of interest, proportionate to the loan amount, payable/paid to the State Bank of India and claimed as business expenditure, be not disallowed. Not being satisfied with the explanation furnished by the assessee, the Assessing Officer disallowed a sum out of the total interest paid by the assessee to the State Bank of India in its overdraft account. Aggrieved, the assessee preferred appeals against the disallowance to the Commissioner (Appeals) but without any success. The assessee took the matter in further appeal to the Tribunal. The Tribunal, by the impugned order, had deleted the aforenoted disallowance made by the Assessing Officer. On appeal : HELD The Tribunal found that the department had not been able to controvert or disprove the fact that the assessee had substantial capital and interest-free funds available with it, not only in the preceding years but also in the years under consideration, which far…

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