Interest on unsecured loan deduction u/s 36(1)(iii)

1. Sec 36(1)(iii) deals with interest expenses in respect of the acquisition of an asset. Any interest paid from the date of acquisition and up to the period when the asset was first put to use will not be allowed as deduction. 
2. Anyway in your case loan was obtained for the purchase of inventory. Sec 36(1)(iii) also covers this asset. However, interest should have actually been paid in order to claim deductions. 
3. As per sec 43B interest expenses should have actually been paid for claiming the same as deductions. Since in your case no interests were paid. It will not be allowed as deduction. Your auditor was right in this matter.
Please correct me if the above solution has an alternative view.