Why does Cutter say that Borden was watching Angier drown?

The scene in question only lasts a few seconds, so we don't really know what Cutter saw as he ran up. These two have been deadly rivals for years, he knows they're both capable of anything. Angier engineered the situation to make Borden look guilty, and Cutter made the assumption he was meant to. He could even have thought that Borden started hitting the glass only after he was sure Angier would die, to make it look like he was trying to save him.

The film is meant to be a bit ambiguous, but I don't see any reason not to take Cutter's words at face value -- he's telling the court what he thinks he saw.

Cutter told what he thought he saw. He thought Borden did something to harm Angier on purpose, perhaps to get revenge on him. The movie doesn't present Cutter as someone with ulterior motives, but someone that knew about the magician's insane rivalry.

It's possible that he thought Borden was trying to sabotage Angier's trick once again, which could explain why he stopped Borden from breaking the glass.

There was no point in incriminating Borden as you can see at the end

once he learns Angier was the one trying to frame Borden just to get back at him.

Are you paying close attention? Don't forget this whole movie is about deception and misdirection...