[Stylist] Grammar question: capitalizing a word for emphasis

[Vejas Vasiliauskas]

Hi everyone,
I'm currently taking an awesome short story class. We have to write one short story a week, loosely based off of each week's assigned short story. The final copies are then due as a collection later in the semester, but the drafts are workshopped.
In my most recent short story, two college friends who have been very close in the past meet up for a very, very awkward catch-up, and one of them asks, "Who made THAT rule?" I thought that capitalizing "that" would make it obvious just how incredulous the speaker was. However, my teacher said to italicize the word "that" rather than use all-caps. Of course, I will do as he asks for this class... but is capitalizing words, in general, appropriate for emphasis?
Thanks,
Vejas