S. N. ROTHO A.M.: This appeal has been filed by Department against order dt. 31st May, 1984 of AAC relating to asst. yr. 1977-78. assessee is partnership firm deriving income from business in coal. first ground relates to disallowance of sum of Rs. 1,170 under head postage and telegram expenses and another sum of R. 11,166 under head electricity expenses. assessee was having its business premises in same building as allied concern styled Baldeo Raj Tarachand. There was common electric meter. assessee was using telephone of said allied concern. On 31st Jan., 1976, which was day within previous year under consideration, assessee received Debit Note for aforesaid two items from M/s Baldeo Raj Tarachand. Accordingly, assessee credited these sums to account of concerned party and claimed them as deduction from t h e current profits. ITO disallowed claim on ground that expenses related to earlier years. On appeal, AAC confirmed same. last ground in this appeal relates to disallowance of interest of Rs. 7,435. assessee paid interest to M/s. R. R. Trading and A. K. Trading on loans of Rs. 13,475 and Rs. 45,667 respectively standing to their credits. ITO found that assessee firm had allowed three of its partners to over draw their accounts to tune of Rs. 1,92,957. No interest was charged by firm on aforesaid drawings by partners. ITO calculated interest at 12 per cent on over drawings which came to Rs. 20,000. He held that loans borrowed from M/s R. N. Trading and A. K. Trading on which assessee firm paid interest were given to aforesaid partners and so they were not used for purpose of assessee s business. In this view of matter, he disallowed sum of Rs. 7,435. On appeal, AAC confirmed disallowance. Shri H. Lal, Departmental Representative urged before me that AAC erred in his decision. He stated that telephone and electricity expenses must have been incurred during period of 12 months prior to 31st Jan., 1976 and so they related to earlier previous year. Again, he urged that over drawings by partners were definitely not for purpose of assessee s business and so interest paid by firm to its creditors was rightly disallowed by ITO. Shri Pawan Kumar, ld. Representative for assessee on other hand, supported order of AAC. He pointed out that assessee was maintaining its account on mercantile basis. It did not know t h e amount that it had to pay regarding electricity charges and telephone services until 31st Jan., 1976 when it received Debit Note. Hence, as far as assessee was concerned, aforesaid expenses accrued on that day and so were allowable during year under consideration. Regarding interest payments, he pointed out that borrowings from M/s R. N. Trading and A. K. Trading stood at Rs. 20,500 and Rs. 38,682 even on first day of previous year under consideration and so it could not be said that any part thereof was diverted to partners during previous year under consideration. Apart from above, he pointed out from balance sheet that credit balance of 5 partners amounted to Rs. 3,61,815 while debit balance in accounts of remaining three partners amounted to Rs. 1,92,957 so that taking all partners together as body, fund of partners together as body, fund of partners which remained in firm after meeting aforesaid drawings was Rs. 16,894. In other words, he stated that drawings of three partners must be deemed to have come from capitals brought in by other 5 partners because former is less than later. firm neither paid interest to 5 partners nor did it charge interest from three partners. amounts borrowed from aforesaid two firms by assessee already stood invested in business of assessee. Hence, he urged that there was no justification for disallowing interest under consideration and there was never any such disallowance in past. I have considered contentions of both sides as well as facts on record. I find force in contentions raised for assessee. assessee was maintaining its accounts on mercantile basis. expenses under head electricity charges and telephone must be held to have accrued on 31st Jan., 1976 on which date alone assessee received Debit Note. Similarly, there was enough funds brought in by partners which covers over drawings by other partners. There is nothing on record to show that amounts borrowed by assessee from aforesaid two firms were specifically given to t h e three partners. Hence, in circumstances stated above, benefit of doubt must go to assessee and interest under consideration cannot be disallowed. Hence I uphold order of AAC. In result, appeal is dismissed. *** INCOME TAX OFFICER v. RAJHANS ENTERPRISES