K.C. SRIVASTAVA, A.M. This departmental appeal is directed against order of CIT(A) and relates to asst. yr. 1980-81. only ground relates to question of allowance of interest paid by assessee on loan taken from New Bank of India for purpose of purchase of shares of M/s. Atma Ram Proprieties Pvt. Ltd for Rs. 14,94,000. assessee had claimed interest to extent of Rs. 2,00,926 as deduction on ground that this interest had been paid to new Bank of India on loan taken by assessee mainly for purpose of acquisition of shares of M/s. Atma Ram Properties Pvt. Ltd. It had been contended by assessee before ITO that though assessee had not received any dividends on shares in this year objection of acquisition of these shares was to earn dividend or bonus as and when company declared. ITO, however, was of view that this claim of assessee could not be allowed. ITO found that assessee had given loan of Rs. 9,74,752 to M/s. A.R. Chadha & Co. (India) Pvt. Ltd. on which no interest had been charged by assessee. He also found that there was balance of Rs. 2,25,350 with M/s. Atma Ram Properties Pvt. Ltd. on which again no interest had been charged by assessee. ITO had referred this matter to IAC under s. 144B and he had found that assessee had deposited Rs. 10,00,000 out of bank loan and had purchased shares of Rs. 14,94,000. He also referred to fact that assessee had not charged interest from two companies to which ITO has made reference. He, therefore, upheld order of ITO, when had disallowed claim of Rs. 2,00,926. When matter came before CIT(A) he observed that ITO had acted on assumption that substantial amount of money had been advanced by assessee as interest free loans out of loan taken from New Bank of India. He also found that ITO had worked out disallowable amount to be Rs. 2,62,427 and had made addition of Rs. 61,501 in respect of income from M/s. A.R. Chadha & Co. Pvt. Ltd., which had not been shown by assessee. On ascertaining more facts CIT(A) found that assessee had sold certain shares for R 57,00,000 in immediately preceding year and in order to avoid payment of capital gains he had decided to invest sale proceeds in units of Unit Trust of India. These investments were actually made in course of this year. CIT(A) pointed out that these investments were made out of assessee s account No. 6202 with New Bank of India. CIT(A) also considered other investments and payments by assessee and found that besides shares assessee had also made payment of wealth-tax. total investments and payments made by assessee came Rs. 73,90,260. Whereas Rs. 57,00,000 were available out of sale proceeds of shares assessee had taken loan of Rs. 20,00,000 approximately from New Bank of India in Account No. 1266 to finance purchase of shares and payment of Wealth-tax. It was also noted by him that main ground for disallowance of interest by ITO was that assessee had advanced loans to companies in which he was interested to extent of Rs. 12 lakhs without any interest. ITO had disallowed proportionate interest at rate of 18 per cent on above amount and had adjusted it against interest claimed by assessee as deduction. Before CIT(A) it was pointed out that loan to M/s. A.R. Chadha & Co. Pvt. Ltd. had been advanced in previous year and not in this year. It was also pointed out that amount of Rs. 10,03,861 had been received from above company but on this no interest had been paid. Apart from this assessee had received Rs. 3,75,000 from M/s. Atma Ram Construction Pvt. Ltd. o n which again no interest had been paid. assessee had claimed that he had amounts on which he had not to pay interest and out of this he could have advanced loans to two connected companies. CIT(A) considered facts of case and also made details of case-laws from which assessee had relied. It has been held in various cases including decision of Supreme Court in case of CIT vs. Rajendra Prasad Mody 1978 CTR (SC) 141: (1978) 115 ITR 519 (SC) that interest can be allowed even if no dividend is earned on shares acquired out of borrowed money. He also considered decision of Delhi High Court in case of Seth R. Dalmia vs. CIT CTR (SC) 130: (1977) 110 ITR 644 (SC) and also decision of Calcutta High Court in case of CIT vs. Model Manufacturing Co. (1980) 122 ITR 767 (Cal). Applying above case laws to facts of case, CIT(A) found that shares of M/s. Atma Ram facts of case, CIT(A) found that shares of M/s. Atma Ram Properities Pvt. Ltd. has been acquired out of borrowed money on which interest had been paid. He held that this claim of assessee had to be allowed and he directed ITO to allow deduction on loan taken from New Bank of India and utilised for purchase of shares of Rs. 14,94,000. We have heard ld. departmental representative, who mainly relied on finding given by ITO that assessee had his own funds with connected companies and which could have been withdrawn for investment in shares. He contended that assessee s action in taking interest-bearing loan while its own money was available when payment of interest was scheme to reduce his tax liability. He referred to decision of Supreme Court in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 154 ITR 148 (SC) and contended that such action of assessee should not be encouraged and interest should not be allowed. ld. Counsel for assessee, on other hand, besides relying on order of CIT(A_ has clarified that borrowed money form Bank was used to refinance purchase of shares and interest paid to Bank was allowable in circumstances. He took us through Bank accounts of assessee from which withdrawals were made or investments had been made. It was contended by him that under similar circumstances in connected case of Shri Chander Mohan Chadha, Bench of Tribunal has allowed claim of interest. We have perused assessee s Bank account No. 6202 as well as account No. 1266. In our view, objections raised by Revenue authorities for not allowing interest was without any substance. Even if assessee has money lying in sister concern which no interest was being paid, it was open to assessee to take interest-bearing loan for purchase of shares. Interest has actually been paid to Bank and claim is being made for deduction. It is not case where deduction is being claimed without making payment. analysis of facts as given by ld. CIT(A) clearly brings out that interest had been paid for investment in shares and such interest is allowable having regard to decision of Supreme Court in case of CIT vs. Rajendra Prasad Mody 1978 CTR (SC) 141: (1978) 115 ITR 519 (SC) referred to above. Department does not challenge any other part of CIT(A) s order. We, therefore, uphold order of CIT(A) and dismiss departmental appeal. *** INCOME TAX OFFICER v. A.R. CHADHA