JUDGMENT : G.T. Nanavati, J. The petitioner is an assessee under the Income-tax Act, 1961. After considering the return filed by the petitioner for the year 1972-73, the Income-tax officer made an assessment under section 143(3) of the Act on August 6, 1974. Aggrieved by the order whereby the assessee's claim for development was rejected, the petitioner filed an appeal to the Appellate Assistant Commissioner who dismissed the same. The appeal filed before the Appellate Tribunal also met with the same fate. Thereafter, the Commissioner of Income-tax, in exercise of his powers under section 263, issued a notice dated July 8, 1976, calling upon the petitioner to show cause why the order of the Income-tax officer in so far as he failed to disallow the interest payment attributable to the capital borrowed but diverted to the loans advanced to the firm of M/s. Desai Shah Construction Co. of Anand, Desai Shah Construction Co., Nadiad, Desai Shah Construction Co., Baroda, and Swastik Construction Co., for non-business purposes. The Commissioner, by his order dated July 22, 1976, held that the Income-tax officer should have held that the loans and advances made to the said firms were not in the course of business and that the assessee had stopped charging interest entirely on non-business considerations and, therefore, he enhanced the assessment for the assessment year 1972-73 by withdrawing the allowance of interest on borrowed capital proportionate to the advances for non-business purposes. Aggrieved by that order, the petitioner filed an appeal before the Income-tax Appellate Tribunal. The Tribunal was of the view that section 36(1)(iii) of the Act permits deductions of interest paid on capital borrowed for the purpose of business. It does not specify the method and manner in which the capital borrowed should be utilised in the course of the assessee's business. Therefore, even if the assessee had borrowed money but made the advances without interest in the course of his business, no disallowance could be made in respect of interest paid on the capital borrowed. The Tribunal also agreed with the contention of the petitioner that the funds on which no interest was charged represented the outstandings from the associate firms and, therefore, it was entitled to the benefit of set off. The Tribunal, taking this view, allowed the appeal filed by the petitioner. That was on February 27, 1978. 2. The Tribunal also agreed with the contention of the petitioner that the funds on which no interest was charged represented the outstandings from the associate firms and, therefore, it was entitled to the benefit of set off. The Tribunal, taking this view, allowed the appeal filed by the petitioner. That was on February 27, 1978. 2. Thereafter, on March 25, 1982, the Income-tax officer, after recording his reasons, issued notice to the petitioner under section 148 of the Act for reassessing the income of the petitioner for the assessment year 1972-73 on the ground that certain income chargeable to tax had escaped assessment. The petitioner was called upon to furnish necessary information as regards return of income of the company in respect of which it was assessable for the said year. The petitioner has filed this petition challenging the said notice and has also prayed for a writ of mandamus restraining the respondents permanently from taking any further action pursuant to the said notice. 3. The main contention taken in the petition is that the Income-tax officer had no material before him to entertain the belief that any income had escaped assessment and, therefore, he had no reason to entertain the belief required by section 148(2) of the Act. During the course of hearing of this petition, learned advocate for the respondent produced a copy of the reasons recorded by the Income-tax officer before issuing the impugned notice ; those reasons disclose that the assessee had not disclosed the interest accrued for the assessment year 1972-73 on the advances of Rs. 2,22,469 made to M/s. Desai Shah Construction Co., Baroda, and that the said income had escaped assessment though it was chargeable to tax. It was urged by learned advocate for the petitioner that the question whether the interest which was received was chargeable to tax was in a way considered by the Commissioner while exercising his powers under section 263 of the Act Against this order, the petitioner filed an appeal to the Tribunal and the Tribunal had decided in favour of the petitioner. Thus, the question of the interest amount being chargeable to income-tax was in a way concluded by the Tribunal and, therefore, it was not proper and legal on the part of the Income-tax officer to issue the impugned notice. In our opinion, there is much substance in the contention raised on behalf of the petitioner. Thus, the question of the interest amount being chargeable to income-tax was in a way concluded by the Tribunal and, therefore, it was not proper and legal on the part of the Income-tax officer to issue the impugned notice. In our opinion, there is much substance in the contention raised on behalf of the petitioner. 4. As pointed out above, the Commissioner of Income-tax issued a notice to the petitioner on July 8, 1976, disclosing his intention to make an order under section 263 of the Act. Therein, it was stated that the assessee had advanced loans to the firms of M/s. Desai Shah Construction Co., Anand, M/s. Desai Shah Construction Co., Nadiad, M/s. Desai Shah Construction Co., Baroda and Swastik Construction Co. even though money-lending was not the business of the company. It is further stated in the said notice that no interest was charged on these loans and, therefore, the Income-tax officer had committed an error in allowing the claim for deduction in respect of the interest payments amounting to Rs. 1,16,976 on borrowed money. The finding which was recorded by the Commissioner was that the amounts outstanding were the loans advanced by the petitioner to those firms for non-business purposes, and that the petitioner had not charged interest with a view to reduce the income of the company. The Tribunal did not agree with the finding recorded by the Commissioner and held that merely because no interest was charged, the advances to the associate firms could not be treated as non-business advances. It further held that the amounts outstanding comprised partly of the recovery due for the value of the goods supplied and partly outstanding interest. The Tribunal did not agree with the finding of the Commissioner that the advances to the associate firms were not for the purpose of business. In view of this finding, it is difficult to appreciate how the Income-tax officer entertained reasonable belief that the petitioner had illegally omitted to disclose the income by way of interest accrued and thereby had evaded payment of proper income-tax. In our opinion, in view of the findings recorded by the Tribunal, the Income-tax officer could not have reasonably taken such view and, therefore, the notice issued by him deserves to be quashed and set aside. 5. In the result, this petition is allowed. In our opinion, in view of the findings recorded by the Tribunal, the Income-tax officer could not have reasonably taken such view and, therefore, the notice issued by him deserves to be quashed and set aside. 5. In the result, this petition is allowed. The notice dated March 26, 1981 (Annexure "11" to the petition) is quashed and set aside and the respondent is restrained from taking further action pursuant to the said notice. Rule is made absolute accordingly with no order as to costs.