INCOME TAX ACT, 1961

Section 32(1)

Depreciation - Allowability - Premium on foreign currency forward contract in relation to indian currency loan coverted into foreign currency loan availed of to acquire capital assets -

Assessee claimed deduction of premium on foreign currency forward contract. AO disallowed deduction Tribunal held that premium paid by assessee was in the course of setting up of a project and therefore, loss, if any, was on the capital field and could not be allowed. However, Tribunal accepted alternate plea of assessee that premium was to be added to cost of capital assets on which depreciation was to be allowed. Revenue's case was that assets were purchased in India based on loan taken in Indian currency only and premium paid on forward contract was not even remotely connected with cost of asset and therefore, question of allowing depreciation did not arise. Held: Though initially loan was borrowed by assessee from State Bank of India in Indian currency, subsequently, loan was converted into a Foreign Currency loan and assessee paid premium on foreign currency forward contract, therefore, it could not be said that loan borrowed in Foreign currency was not even remotely connected with cost of asset when it is an admitted position that loan was borrowed for acquiring a capital asset. Therefore, assessee could not be put to disadvantage on both grounds. Tribunal rightly took note of the facts of case and held that loss suffered in Foreign Exchange Fluctuations would definitely increase cost of the project to the extent of loss suffered by assessee. Therefore, Tribunal was right in allowing the plea of depreciation raised by assessee.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

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