Allowability of interest expenditure under mercantile accounting accepted where genuineness was not doubted and issue was only timing.

Interest expenditure on unsecured loans was held to be genuine and incurred for business purposes; the dispute concerned only the year of allowability under the mercantile system of accounting. As no adverse finding was recorded on the genuineness of the claim and the matter was revenue neutral, the addition was not justified. The disallowance was deleted and the assessee succeeded.

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Issues: Whether the disallowance of excess interest expenditure of Rs. 2,37,375 claimed on unsecured loans was sustainable on the ground that the amount related to a subsequent year and whether the addition made by the Assessing Officer and affirmed by the first appellate authority was liable to be deleted.

Analysis: The interest payment was not found to be bogus and the expenditure was accepted as incurred for business purposes. The controversy was confined to the year of allowability of the interest expenditure under the mercantile system of accounting. The Court noted that the disputed exercise was revenue neutral and that no adverse finding existed on the genuineness of the expenditure. In these circumstances, the addition was not warranted.

Conclusion: The disallowance of Rs. 2,37,375 was deleted and the addition was set aside, in favour of the assessee.

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