- (1.) THE present appeal filed under Section 260A of the Income -tax Act, 1961 (hereinafter referred to as 'the Act'), has been admitted by this court vide order dated November 23, 2006, on the following substantial question of law: Whether, on the facts and in the circumstances of the case, the hon'ble Income -tax Appellate Tribunal was justified in law in concurring with the finding of the learned Commissioner of Income -tax (Appeals) that 'notional interest income' cannot be charged to tax, without appreciating the fact that the Assessing Officer had only disallowed the interest on pro rata basis out of the interest claimed by the assessee on loans diverted to sister concerns and others for the non -business purposes
(2.) BRIEFLY stated the facts giving rise to the present appeal are as follows. The appeal relates to the assessment year 1987 -88. The respondent -assessee has claimed deduction on payment of interest, on the loan taken by it at Rs. 52,46,521. It had not charged interest on the sundry debtors even though it was paying interest. The assessing authority computed a notional interest at Rs. 22,11,906 on the amount of loan advances by the assessee to other persons. After deducting interest of Rs. 8,02,795 the assessing authority added/disallowed a sum of Rs. 14,09,111. In appeal, the Commissioner of Income -tax (Appeals) had deleted the addition/disallowance which order has been upheld by the Tribunal.
(3.) WE find that the Commissioner of Income -tax (Appeals) had found that the respondent -assessee had paid up capital/reserve/surplus of Rs. 6.10 crores on which no interest was being paid and therefore interest -free advances made by it are covered. There is no question of any disallowance of notional interest on loan taken by it. The Tribunal, however, had also recorded a finding that the assessee has not diverted any borrowed fund on which interest was paid for non -commercial purposes and therefore, there is no question of disallowance of interest out of the interest paid by the assessee. The view of the Tribunal is in consonance with the decision of this court in the case of CIT v. Radico Khaitan Ltd. : [2005]274ITR354(All) and of the apex court in the case of S.A. Builders Ltd. v. CIT (Appeals) : [2007]288ITR1(SC) . That being the position the substantial question of law referred to above is answered in favour of the assessee and against the Revenue and consequently the appeal fails and is dismissed.;