The Assessing Officer disallowed interest paid by the assessee, alleging that interest-bearing funds were diverted for giving interest-free advances. The High Court, affirming the Tribunal’s order, observed that the assessee had a substantial balance of interest-free funds available in the form of sundry creditors. It held that where mixed funds are available, a presumption arises that interest-free advances are made out of the interest-free funds, provided they are sufficient. Since the assessee’s interest-free funds were sufficient to cover the advances, the interest expenditure was held to be allowable. (AY. 1988-89 to 1990-91)