M/S MUNJAL SALES CORPORATION vs COMMR.OF INCOME TAX,LUDHIANA

The Supreme Court addressed the disallowance of interest claimed under Section 36(1)(iii) and Section 40(b)(iv) of the Income-tax Act, 1961, in relation to interest-free advances made by the assessee to sister concerns. The Court held that the advances were made from borrowed funds, thus disallowing the deductions claimed by the assessee for the assessment years 1994-95, 1995-96, and 1996-97. The judgment affirmed the decisions of the Punjab and Haryana High Court and the Tribunal, emphasizing the necessity of establishing a nexus between borrowed funds and interest-free advances for deduction eligibility.