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TMI Blog2022 (9) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in juxtaposition with income and its meaning has to be derived in conjunction and consonance with the term income , which undoubtedly is revenue receipts. There is no doubt therefore that the recommendation by AS-11 of writing off the premium on forward exchange contracts as expense means writing it off as revenue expenditure in the profit and loss account. The language of the Accounting Standard is very clear when it recommends amortizing the premium as expense or income. The manner of writing off recommended by the Standard, i.e expense or income itself makes it very clear that it is to be written off in the Profit and Loss account where all expenses and incomes are recorded. The claim of the assessee therefore clearly is in accordance with AS-11 of the ICAI. For allowability of the claim as per AS-11,it is pertinent to see whether there is any bar to the applicability of the same in the Act? - Apex Court in the case of Virtual Soft Systems Ltd. [ 2018 (4) TMI 1472 - SUPREME COURT ] has laid down the proposition that where there is no express bar in Act regarding the application of a Accounting Standard prescribed by ICAI, deductions /claims of assesses are to be det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appeals also. ITA No. 1110/Ahd/2018 for A.Y. 2014-15 4. The grounds raised by the assessee pertaining to the disallowance of forward cover premium in the impugned year reads as under: 1. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in holding that forward cover premium of Rs.38,96,97,000/- claimed by appellant is capital expenditure as against revenue expenditure claimed u/s 37(1) of the Act. The CIT(A) ought to have allowed the same as revenue expense. 5. Drawing our attention to the facts of the case as stated in the orders of the authorities below, ld. Counsel for the assessee pointed out that 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 same, he pointed out, was explained to the Assessing Officer (A.O.), were incurred on account of forward contracts for foreign exchange entered into by the assessee company to mitigate any foreign currency exposure arising out of fluctuation in foreign currency rate. The foreign exchange ,he stated was required for repayment of foreign curren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current assessment year. The most significant point is the fact that the amount in question is intricately linked to the principal component of the instant ECB loan and does not represent interest cost on such borrowings and hence such repayment cannot be claimed as revenue expenditure. Such forward premium which is linked to the equated monthly instalment payments of such loan cannot be allowed as allowable revenue expense as it is directly linked to the principal component of the loan which is on capital account. 7. Ld. Counsel for the assessee reiterated his contentions before us stating that the claim of premium paid on foreign exchange contracts was in accordance with the Accounting Standards issued by the ICAI in this regard and as per the decision of the Hon ble Apex Court in the case of CITVI vs. Virtual Soft Systems Ltd. [2018] 404 ITR 409 holding that where there was no specific bar in the Act regarding application of Accounting Standards prescribed by the ICAI, deduction on the basis of these Accounting Standards was to be allowed. He further reiterated that the claim was in accordance with the accounting standard prescribed by the Act in ICDS issued. He further drew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide for writing off the premium in the Profit and Loss account and only speaks of amortizing the premium over the life of the asset . And the premium being paid for capital purposes could not be allowed as Revenue expenditure. 12. We have gone through the contents of AS-11.The said Accounting Standard is titled Effects of changes in foreign exchange rates and deals with different issues in accounting for foreign currency transactions and foreign operations relating to which exchange rate to use and how to recognize in the financial statements the financial effect of changes in foreign exchange rate. The objective of the Standard brings out the above as under: Accounting Standard (AS) 11* The Effects of Changes in Foreign Exchange Rates ( This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objective and the General Instructions contained in part A of the Annexure to the Notification .) Objective An enterprise may carry on activities involving foreign exchange in two ways. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward exchange contract and the last reporting date. 38. A gain or loss on a forward exchange contract to which paragraph 36 does not apply should be computed by multiplying the foreign currency amount of the forward exchange contract by the difference between the forward rate available at the reporting date for the remaining maturity of the contract and the contracted forward rate (or the forward rate last used to measure a gain or loss on that contract for an earlier period). The gain or loss so computed should be recognised in the statement of profit and loss for the period. The premium or discount on the forward exchange contract is not recognised separately. 39. In recording a forward exchange contract intended for trading or speculation purposes, the premium or discount on the contract is ignored and at each balance sheet date, the value of the contract is marked to its current market value and the gain or loss on the contract is recognised. 13. A bare perusal of the above reveals that AS-11 prescribes how the effects of changes in foreign exchange rate is to be accounted for on transactions undertaken in foreign currency or in foreign country. One of the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch deduction. For such calculation, it is obvious that the Respondent has to take course of Guidance Note prescribed by the ICAI if it is available. Only after applying such method which is prescribed in the Guidance Note, the Respondent can show fair and real income which is liable to tax under the IT Act. Therefore, it is wrong to say that the Respondent claimed deduction by virtue of Guidance Note rather it only applied the method of bifurcation as prescribed by the expert team of ICAI. Further, a conjoint reading of Section 145 of the IT Act read with Section 211 (un-amended) of the Companies Act make it clear that the Respondent is entitled to do such bifurcation and in our view there is no illegality in such bifurcation as it is according to the principles of law. Moreover, the rule of interpretation says that when internal aid is not available then for the proper interpretation of the Statute, the court may take the help of external aid. If a term is not defined in a Statute then its meaning can be taken as is prevalent in ordinary or commercial parlance. Hence, we do not find any force in the contentions of the Revenue that the accounting standards prescribed by the Guidanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in holding that forward cover premium of Rs.43,58,80,000/- claimed by appellant is capital expenditure as against revenue expenditure claimed u/s 37(1) of the Act. The CIT(A) ought to have allowed the same as revenue expense. 18. This ground has already been decided by us in ITA No. 1110/Ahd/2018 for A.Y. 2014-15 in Ground no. 1 therein. In the absence of any changed circumstances the same shall apply mutatis mutandis 19. Appeal of the assessee is allowed. ITA No. 1606/Ahd/2019 for A.Y. 2016-17 20. Ground no. 1 reads as under: 1. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in holding that forward cover premium of Rs.53,49,90,000/- claimed by appellant is capital expenditure as against revenue expenditure claimed u/s 37(1) of the Act. The CIT(A) ought to have allowed the same as revenue expense 21. This ground has already been decided by us in ITA No. 1110/Ahd/2018 for A.Y. 2014-15 in Ground no. 1 therein. In the absence of any changed circumstances the same shall apply mutatis mutandis. This ground is allowed. 22. Ground no. 2 reads as under: 2. In law and in the facts and circumstances of the case, the le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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