K.A Thanikkachalam, J.:— At the instance of the Department, the Tribunal referred the following question, under section 256(1) of the Income-tax Act, 1961, for the opinion of this court, for the assessment year 1976-77:
“Whether, on the facts and in the circumstances of the case and on the materials on record, the finding of the Tribunal that no part of the interest paid by the assessee on the borrowed funds could be disallowed for the assessment year 1976-77, is justified?”
2. The assessee is a private limited company, engaged in the manufacture of cotton yarn. For the assessment year 1976-77, it filed a return admitting a net loss of Rs. 11,38,420. The assessment was completed on November 23, 1978, determining the net loss at Rs. 10,45,083. While completing the assessment, the Income-tax Officer noticed that the assessee had claimed interest payment on the borrowed capital. He also noticed that there were debit balances in the account of the estate of the late Shri G.N Sam, and also in the accounts of two other directors. As the Income-tax Officer had taken the stand in the earlier years that the borrowed funds were advanced to the said directors without charging interest, he took the same stand in this year also and accordingly he quantified the probable amount of interest forgone by the assessee at Rs. 48,875 and disallowed the same. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee and deleted the same. On further appeal, the Tribunal held that it had already considered the issue regarding the disallowance of interest in the case of the same assessee in I.T.A No. 2228/(Mad) of 1977-78 and accordingly confirmed the order passed by the Commissioner of Income-tax (Appeals). Accordingly, the Departmental appeal was dismissed. This question came up for consideration before this court in the assessment years 1969-70 to 1973-74 in the case of the same assessee in the decision in Commissioner Of Income-Tax v. Sujani Textiles (P.) Ltd. [1985] 151 ITR 653, wherein this court held that the interest paid by the company on the borrowed funds which were utilised for non-business purposes cannot be allowed under section 36(1)(iii) of the Act. In view of the above-cited decision, we answer the question referred to us in the negative and in favour of the Department. No costs.