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2012 (12) TMI 897 - HC - Income TaxWhether accrued interest on cash basis and payment of interest is allowable on mercantile basis is valid in law. - Whether interest expenditure is allowable on cash basis even though the assessee is following mercantile system of accounting is valid in law. – For same assessment year Assessee switch over from the cash system to the mercantile system of accounting - the receipts and expenditure for the year were maintained under mercantile system of accounting - In respect of interest paid on loans and advances, cash system of accounting was maintained Held that:- Following the decision in case of Carborandum Universal Limited (1983 (8) TMI 39 - MADRAS HIGH COURT) held that switching over from cash system of accounting to mercantile system was on account of statutory compulsion, we have no hesitation in agreeing with the assessee's contention that the interregnum period in the process of switching over would certainly have a mixed system, where there is a cash system of accounting in respect of certain expenditure while the receipts and other expenditure would be maintained under mercantile system of accounting. The revenue has not disputed the fact that the assessee had to follow the mercantile system and during the transition period alone the hybrid system had arisen. In favour of assesse
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