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| The Tax Publishers2022 TaxPub(DT) 5905 (Ahd-Trib) : (2023) 198 ITD 0690 INCOME TAX ACT, 1961
Section 37(1)
Explanation 3 to section 43A requires cost of such assets to be computed with reference to the rate agreed in the foreign exchange forward contracts if any entered. The said section was not applicable to the facts of assessee's case since it was not the case of AO that foreign exchange loan was taken for purchasing any asset outside the country. No other section dealing with allowability of premium paid on forward contracts was pointed out by AO. Therefore, accounting standards prescribed by AS-11 would apply, according to which premium/discount on forward exchange contracts was to be amortized as expense/income. Therefore, assessee was entitled to claim amortization of premium paid on foreign exchange contracts.
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Business expenditure - Forward cover premium for foreign exchange fluctuation - AO invoked section 43A -
Assessee carried on the business of generation of power and claimed expenses amounting to Rs. 38,96,97,000 on account of forward cover premium for foreign exchange entered into by assessee-company to mitigate any foreign currency exposure arising out of fluctuation in foreign currency rate. AO held the same as capital expenditure. Held: Section 43A prescribes adjustments on account of foreign exchange fluctuations to be made to the cost of fixed assets purchased outside India which requires payment to be made in foreign exchange. Explanation 3 to the said section requires cost of such assets to be computed with reference to the rate agreed in the foreign exchange forward contracts, if any, entered. The said section was not applicable to the facts of assessee's case since it was not the case of AO that foreign exchange loan was taken for purchasing any asset outside the country. No other section dealing with allowability of premium paid on forward contracts was pointed out by AO. Therefore, accounting standards prescribed by AS-11 would apply, according to which premium/discount on forward exchange contracts was to be amortized as expense/income. Therefore, assessee was entitled to claim amortization of premium paid on foreign exchange contracts.
Relied:CIT v. Woodword Governor India (P) Ltd. (2009) 312 ITR 254 (SC) : 2009 TaxPub(DT) 1628 (SC) and CIT v. Dempo & Co. (P) Ltd (1994) 206 ITR 291 (Bom-HC) : 1994 TaxPub(DT) 442 (Bom-HC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2014-15 to 2016-17
IN THE ITAT, AHMEDABAD BENCH
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