The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) ruled that premiums on Forward exchange contracts can be deducted as an expense.
CLP Wind Farm (India), the assessee carried on the business of generation of power and during the impugned year it had claimed expenses amounting to Rs. 38,96,97,000/- on account of forward cover premium. The foreign exchange, he stated was required for repayment of foreign currency loans taken by way of external commercial borrowings to develop its various projects in the renewal energy sector being carried out at various locations.
The foreign exchange forward contracts were entered for repayment of foreign exchange loans/external commercial borrowing taken by the assessee for its projects in the renewable energy business.
It was contended by the assessee that the claim was by Accounting Standard AS-11 issued by the ICAI in this regard and the absence of any bar in the Act regarding the applicability of the Accounting Standard, the treatment as per Accounting Standard was applicable.
A Coram of Ms Annapurna Gupta, Accountant Member and Ms Madhumita Roy, Judicial Member observed that AS-11 prescribes the method of accounting for the same and it recommends the premium paid on foreign exchange forward contracts to be amortized as expense or income over the life of the contracts.
The recommendation by AS-11 of writing off the premium on forward exchange contractsas expense means writing it off as revenue expenditure in the profit and loss account.
The Tribunal held that the assessee is entitled to claim the amortization of premium paid onforeign exchange contracts amounting to Rs. 38,96,97,000/- and allowed the appeal of the assessee.
The appellant was represented by Shri S. N. Soparkar Sr. Adv & Shri Dhrunal Y Bhatt and the respondent was represented by Shri Alokkumar.
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