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2021 (2) TMI 1003 - ITAT AHMEDABADAddition u/s 37(1) or 43A - forward contract premium expenses disallowed - AO was of the view that such amount of premium paid by the assessee to secure the amount of instalment, representing the principal amount, of the foreign currency loan cannot be allowed as deduction - HELD THAT:- The provisions of section 43A of the Act deals with the adjustment of the fluctuation in the liability of foreign currency pertaining to the capital assets acquired from outside India. This adjustment on account of change in the rate of exchange is made with respect to the amount/liability actually paid during the year by adding/deducting in the actual cost of imported assets acquired in foreign currency. This adjustment in the liability of foreign currency may result loss or gain to the assessee but the same needs to be adjusted with the capital assets as per the provisions of section 43A - Such loss arising to the assessee, is not deductible in the profit & loss account. In the present case has secured such loss with respect to the liability in foreign currency which may arise at the time of payment by way of taking of forward contract. The assessee to secure the loss on account of foreign currency fluctuation has taken a forward contract and for which it has paid the premium which was claimed as revenue expenditure. Whether such premium paid by the assessee to secure the fluctuation in the foreign currency is subject matter of the provisions of section 43A ? - Provisions of section 43A of the Act deals with the loss/gain with respect to the liability in foreign currency for the assets acquired from a country outside India - it does not deal with respect to the cost incurred by the assessee to secure the loss which may arise at the time of repayment on account of fluctuation in the exchange rate with respect to foreign currency liability which was recorded in the books of the assessee in Indian currency. Thus once the provisions of section 43A of the Act are not applicable on the deduction claimed by the assessee in the given facts and circumstances, there cannot be any disallowance by invoking the provisions of section 43A. As the assessee incurred the cost to secure the foreign currency liability against the exchange fluctuation is akin to insurance policies. Therefore we are of the view that such expenses incurred by the assessee in the course of business are allowable as deduction under section 37(1) of the Act. Assessee has claimed similar expenses in the earlier years which was allowed by the Revenue. Accordingly, we are of the view that the assessee is also entitled for its claim based on the principle of consistency. - Decided in favour of assessee.
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