ITAT held disallowance of interest on government loans invalid...

ITAT held disallowance of interest on government loans invalid where assessee followed mercantile accounting system. Interest payable on UP Government loans must be recorded despite non-payment, as revenue authorities failed to demonstrate any loan conversion to non-interest bearing status or interest waiver by the government. Without evidence showing loan modification or questioning assessee's consistent accounting method, disallowance contradicts established accounting principles. Interest allowability not determined by loan appropriation, especially when AO did not establish existence of non-interest bearing funds. CIT(A)'s decision sustaining disallowance overturned in assessee's favor, maintaining principle of accounting consistency.

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