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Disallowance of interest - Justification of confirmation by ITAT Analysis: The case involves a question of law referred by the Income Tax Appellate Tribunal (ITAT) regarding the justification of confirming the deletion of a disallowance of interest amounting to Rs. 1,81,000. The respondent-assessee, a company, had advanced funds to its sister concern and the Assessing Officer disallowed the interest paid on overdraft facilities. However, the Commissioner of Income Tax (Appeals) allowed the appeal and deleted the addition based on the respondent's sufficient non-interest bearing funds and previous acceptance of similar practices. The Revenue's appeal before the Tribunal was unsuccessful. The key contention was whether the interest-free advances made by the respondent to its sister concern were justified, considering the availability of non-interest bearing funds with the respondent. The respondent argued that it had its own funds, share capital, reserves, and interest-free advances from other companies, which covered the advances made to the sister concern. The High Court relied on a previous decision and held that if the interest-free loan amount is adequately covered by non-interest bearing funds, the disallowance of interest on borrowed funds is unwarranted. The Court found that the respondent had sufficient funds to cover the interest-free advances, and hence, ruled in favor of the assessee, rejecting the Revenue's claim. In conclusion, the High Court upheld the deletion of the disallowance of interest by ITAT, emphasizing the adequacy of non-interest bearing funds to cover the interest-free advances made by the respondent. The judgment highlighted the importance of considering the overall financial position of the assessee before disallowing interest on borrowed funds.
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