ROLL OVER CHARGES IN RESPECT OF FOREIGN EXCHANGE FORWARD CON

RELEVANT EXTRACTS: ** ** ** ** ** ** ** ** ** ** ** ** 18. Having considered the rival submissions and the relevant statutory provisions contained in Section 36(1)(iii), 37(1) and 43A read with Explanation-3 thereto and the authorities cited before the Court, we are of the view that the roll over charges paid by the appellant/assessee to Citi Bank are nothing but the interest or committal charges and as per the decision of the Apex Court in the case of Dy. CIT vs. Core Health Care Ltd. and Dy. CIT v. Gujarat Alkalies and Chemicals Ltd. (Supra), the same are allowable under section 36(1)(iii) of the Act. There is no dispute about the fact that the amount borrowed is used for business purpose. There is also no dispute about the fact that the amount borrowed is used for business purpose. There is also no dispute about the fact that the amount paid by way of roll over charges is in relation to the amount borrowed. The actual cost on asset has no relevancy into section 36(1)(iii) of the Act. The Apex Court has categorically held that the legislature has not made any distinction in section 36(1)(iii) between ‘capital borrowed for revenue purpose’ and ‘capital borrowed for capital purpose’. Under section 36(1)(iii), the only requirement is that the assessee must borrow capital and purpose of borrowing must be for business which is carried on by the assessee in the year of account. Both these conditions are satisfied in the case of assessee. The amount was borrowed for modernization of the existing plant and business was carried on by the assessee during all these years. The balance value of the contracts after deducting the amount withdrawn towards repayment was rolled over for a further period upto the date of next installment. Thus, roll over premium was paid to mitigate the risk involved in possible higher payment due to adverse fluctuation of the rate of exchange. Thus, the nature of expenditure involved was for the business purpose of raising loans on revenue account. The Revenue has disallowed assessee’s claim despite the fact that the interest on such borrowing was allowed by the Assessing Officer. Before the Tribunal, the disallowance was sought to be justified only on the ground of applicability of Section 43A read with Explanation-3 thereto. However, the scope and ambit of the said Explanation-3 is very limited and such charges will be added to the actual cost only in the limited circumstances envisaged in the said section. It cannot be added to the actual cost or it is not required to be capitalized when it has nothing to do with the actual cost. We are, therefore, of the view that the Tribunal has committed an error in disallowing the roll over expenses claimed by the assessee during all these years. The Tribunal’s orders are therefore, required to be reversed and the claim of the assessee in all these years is required to be allowed. Accordingly, we hold that the assessee is entitled to deduction of roll over charges under section 36(1)(iii) of the I.T. Act, 1961. 19. All these appeals are accordingly allowed without any order as to costs.