Case Law Details
Apraava Renewable Energy Private Limited Vs ACIT (ITAT Ahmedabad)
The ITAT Ahmedabad allowed the assessee’s appeal relating to disallowance of expenditure on an abandoned wind power project, amortization of forward premium expenses, and depreciation on self-propelled vehicles for AY 2017-18.
The assessee, engaged in generation and sale of electricity, had planned a new wind power project at Yermala, Maharashtra, with a capacity of 148.80 MW through Wind World India Limited (WWIL) on an EPC basis. The project was later abandoned and capital work in progress (CWIP) amounting to ₹60.26 crore was written off as “assets written off.” The assessee claimed that the expenditure comprised finance charges, interest, professional fees, and employee costs, all of which were revenue in nature and did not create any enduring asset.
The Tribunal observed that the abandoned project was in the same line of business already carried on by the assessee and no new business or enduring asset had come into existence. Relying on various High Court decisions, the Tribunal held that the expenditure was revenue in nature and allowable under Section 37. However, the Tribunal noted that the assessee had not adequately produced supporting evidence regarding the genuineness of the expenditure, including details relating to WWIL, loan documents, and reasons for abandonment of the project. Accordingly, the matter was restored to the AO for verification and fresh adjudication.
The Tribunal also examined disallowance of ₹46.65 crore towards amortization of forward premium relating to foreign exchange forward contracts entered for external commercial borrowings. Referring to earlier decisions in the assessee’s own case, the Tribunal held that the accounting treatment was in accordance with Accounting Standard AS-11 and allowed the claim as revenue expenditure.
On depreciation, the Tribunal allowed depreciation at 33.4% on self-propelled vehicles. It observed that the AO had not provided reasons for restricting depreciation to 7.69% and followed earlier Tribunal decisions in the assessee’s own case. The appeal was treated as allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the assessee against the order dated 18.11.2025 passed by Addl/JCIT(Appeal)-2 Chennai [hereinafter referred to as ‘Addl. CIT(A)’] for the Assessment Year (A.Y.) 2017-18 in the proceeding u/s. 143(3) of the Income Tax Act.
2. The brief facts of the case are that the assessee had filed its return of income for A.Y. 2017-18 on 01.11.2017 declaring loss of Rs.5,45,02,286/-. The case was selected for scrutiny under CASS. The assessment was completed u/s. 143(3) on 27.12.2019 at total income of Rs. 1,02,15,38,406/- wherein various additions were made.
3. Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Learned Addl. CIT(A) vide the impugned order and the appeal of the assessee was partly allowed. Th
4. Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:
1. In law and in the facts and circumstances of the case of the appellant, the Ld. JCIT(A) has not provided the appellant with an opportunity of being heard through video conferencing which has led to violation of principles of natural justice.
2. In law and in the facts and circumstances of the case of the appellant, the Ld. JCIT(A) has not followed and considering binding decisions of the courts including decisions in its own case as referred in submission filed before her which clearly suggest that she has not followed binding decisions of superior authorities.
3. In law and in the facts and circumstances of the case of the appellant, the Ld JCIT(A) has erred in confirming the disallowance of Rs. 60,26,20,556/ being write off of expenditure when such expense is allowable u/s 37 The JCIT(A) ought to have allowed the same as revenue expense
4. In law and in the facts and circumstances of the case of the appellant. the Ld JCIT(A) has erred in confirming the disallowance of Rs 46,65,87,660/- on account expenses of forward Premium Amortization when such expenses are allowable u/s 37. The JCIT(A) ought to have allowed the same as revenue expense considering binding decision of Hon’ble Ahmedabad ITAT in its own case.
5. In law and in the facts and circumstances of the case of the appellant, the Ld. JCIT(A) has erred in confirming the disallowance of Rs. 16,87,478/ on account of excess claim of depreciation when such depreciation is duly allowable as per provisions of Income Tax Act. The JCIT(A) ought to have allowed the same.
6. The appellant craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
5. Ground No. 1 and 2 were not pressed by the Ld. Senior Counsel in the course of hearing. Hence both these grounds are dismissed.
6. Ground No. 3 pertains to addition of Rs. 60,26,20,556/- on account of disallowance of assets written off. Shri S. N. Soparkar, the Ld. Senior Advocate, appearing for the assessee, submitted that the assessee company is engaged in business of generation and sale of electricity. It is operating wind power plant of 774 MW capacity at various locations. The assessee company had contemplated to set up a new power plant at “Yermala” in the state of Maharashtra with project capacity of 148.80 MW and for this purpose the project was awarded to Wind World India Limited (WWIL) for setting up of the power plant on Erection, Procurement and Commissioning (EPC) basis. Yermala project was started in financial year 2012-13 and the assessee had incurred several business expenses of revenue nature which were capitalized in the books of account as capital work in progress (CWIP). The said project was abandoned during the year and the CWIP of Rs. 60,26,20,556/- was written off in the books of account as “assets written off”. The Ld. Senior Counsel explained that the entire amount of CWIP written off was revenue in nature and those expenditures did not bring into existence any capital asset or any benefit of enduring nature. Therefore, the assessee had rightly claimed the deduction for “assets written off” u/s. 37 of the Income Tax Act. The Ld. Senior Counsel contended that the AO as well as Ld. Add. CIT(A) were not correct in disallowing this claim. He explained that the expenditure was not incurred in relation to any new business line but was for setting up of a new power plant, which was in existing line of business of the assessee. In this respect he relied upon the various case laws as detailed in the paper-book. As regarding finding of the AO about the genuineness of the expenses, the Ld. Senior Counsel submitted that the assessee was in possession of all the documents required to prove their genuineness and for this purpose the matter may be set aside to the file of the AO, if deemed necessary.
7. Per Contra Shri Sher Singh, the Ld. CIT-DR strongly supported the order of the lower authorities. He submitted that the expenditure was incurred for setting up a new power plant and, therefore, the expenditure was certainly capital in nature. He further submitted that neither the reason for abandoning the project has been explained nor the account statement of WWIL, who was executing the contract on EPC basis, was brought on record. In the absence of any evidence to establish the genuineness of the expenses, the AO had rightly disallowed the claim of the assessee.
8. We have carefully considered the rival submissions. The assessee had debited the amount of Rs. 60,26,20,556/- in the accounts, in respect of “assets written off”. Considering the arguments taken in respect of this ground, we deem it necessary to adjudicate the matter in respect of the following two issues:
i. Whether the claim of the assessee was on revenue account or capital account?
ii. Whether the claim made by the assessee was genuine?
9. So far as nature of expenditure is concerned, the AO has given a finding that the “assets written off” in the P&L account represented finance charges, interest, professional fees and employee cost; which all were in the nature of revenue expense. The contention of the AO is that these expenses, even if revenue in nature, were incurred for setting up a new plant and, therefore, were required to be capitalized with the fixed assets. Therefore, the true nature of the expenditure was capital in nature. The fact that the amount written off in the books of account was in respect of abandoned new power plant of Yermala, which was abandoned during the year, has not been disputed. In the case of DCIT Vs. Gujarat Narmada Velley Fertilizer Co. Ltd. (57 com 250) (Gujarat), the assessee was a manufacturer of fertiliser and its new project did not materialise. The Hon’ble Jurisdictional High Court had held in that case that the expenses incurred towards such abandoned project was revenue expenditure and not capital expenditure.
10. In the case of PCIT Vs. Trigent Software Ltd. (147 com 52) (Bombay), the assessee was engaged in the business of software development and management. It had incurred expenditure in connection with development of new software product and treated the expenditure as part of capital work in progress for the assessment years 2004-05 to 200708. The development of this software was abandoned and the assessee then claimed the whole capital WIP as revenue expenditure. On the basis of these facts, the Hon’ble Bombay High Court had held in that case that the expenditure claimed by the assessee was revenue in nature. The relevant portion of the said judgment is reproduced below:
13. Applying the ratio of the aforementioned judgments in the present case, it can be seen that the appellant is admittedly in the business of development of software solution and management, and therefore, it’s endeavour to develop a new software was nothing but an endeavour in its existing line of business of developing software solutions. Admittedly, the product which was sought to be developed, never came into existence and the same was abandoned. No new asset came into existence which would be of an enduring benefit to the assesse, and therefore, in these circumstances, the expenditure could only be said to be revenue in nature.
The SLP filed by the Department against this decision of Bombay High Court was dismissed by Hon’ble Supreme Court, as reported in 163 taxmann.com 699 (SC).
11. Hon’ble Calcutta High Court in the case of Binani Cement Ltd. vs. CIT [60 com 384 (Calcutta)] had held that the expenditure incurred for construction/acquisition of new facility, which was abandoned at work in progress stage only, was an allowable expenditure.
12. In the case of Tamilnadu Magnesite Ltd. Vs. ACIT [95 com 239 (Madras)] the assessee company had entered into an arrangement with TIDCO for establishment of a Chemical Beneficiation Project for production of high-quality sintered magnesia, an existing product of the assessee. The assessee had entered into an arrangement with banks and co-promoters for setting up of this project and action for acquisition of land and import of machinery was taken. The Government of Tamilnadu had ordered closure of implementation of the said project and as a consequence the expenditure incurred on intangible assets for implementation of project was claimed as revenue expenditure by the assessee which was disallowed by the AO. On this basis of these facts, the Hon’ble Madras High Court had held in that case that since the project undertaken by the assessee was in the same line of business already carried on by the assessee and no new business was set up and also that there was no creation of new asset of enduring nature, the expenditure was allowable as revenue expenditure.
13. In the present case also, the new project undertaken by the assessee for setting up the power plant at Yermala was in the same line of business. Due to the abandonment of the project, neither any new business was set up nor there was creation of any new asset of enduring nature. The expenditures written off in the books of account were all of revenue nature and the assessee did not derive any enduring benefit from those expenditures. Therefore, the AO was not correct in considering the amount claimed in the account “asset written off”, as capital in nature. The entire claim of the assessee was in the nature of revenue expenditure only. Following the settled law on this issue as discussed above and the judicial precedence, we are of the considered opinion that the assessee had rightly claimed the expenditure of Rs. 60,26,20,556 on account of “asset written off” as revenue expenditure.
14. So far as the genuineness of the expenditure is concerned, the assessee had not explained the basis on which the claim for “assets written off” was made in the accounts. Neither the reason for abandonment of the project was explained nor the copy of account of WWIL, the EPC contractor, was brought on record. The AO had given a categorical finding that the contra confirmation of WWIL regarding the agreement, expenses made by them, mode and proof of payment etc. were not brought on record. Similarly, the details of loan taken for the new project and the interest paid thereon, was also not brought on record. On the other hand, the assessee has submitted that it has all the documents in its possession to establish the genuineness of the expenses. In the interest of justice, we, therefore, deem it proper to set aside the matter to the file of Jurisdictional AO with a direction to allow another opportunity to the assessee to explain the basis of claim of “assets written off” made in the accounts and also to produce the evidences for the expenses. The assessee is directed to produce the evidences to establish the genuineness of the claim and also to comply to the directions of the AO in this respect in the course of set aside proceeding. The AO will be free to conduct enquiries, as deemed fit, so as to verify the genuineness of the claim of the assessee. The ground taken by the assessee is allowed for statistical purpose.
15. Ground No. 4 pertains to disallowance of Rs. 46,65,87,660/- in respect of forward premium amortization expense. Shri S. N. Soparkar, the Ld. Sr. Counsel explained that in order to develop its project, the assessee had availed various external commercial borrowings (foreign currency loans). In order to mitigate any foreign currency exposure arising out of fluctuation in foreign currency rates, the assessee had entered into forward exchange contract whereby the foreign exchange rates were fixed so as to minimise possible foreign exchange losses. He explained that for the purpose of accounting such forward contracts, the assessee had separated the forward element and spot element from the forward contract and accounts for changes in the spot element and forward element were in accordance with the Accounting Standard Ind AS-109. The assessee had debited the amortization of forward cover premium to P&L account. The Ld. Senior Counsel submitted that since the accounting was as per the prescribed accounting principle, the AO was not correct in disallowing the claim of the assessee. He explained that the AO had made the disallowance only for the reason that identical claim made by the assessee in the A.Y. 2015-16 was disallowed, which was upheld by the Ld. CIT(A). The Ld. Senior Counsel pointed out that this issue has since been decided in favour of the assessee in A.Y. 2015-16 vide order of Coordinate Bench of this Tribunal in assessee’s own case in ITA No. 1110/Ahd/2018 and ITA Nos. 1605 & 1606/Ahd/2019 dated 31.08.2022.
16. Per contra, Shri Sher Singh the Ld. CIT-DR, supported the order of the lower authorities on this issue.
17. We have considered the submission of the assessee. From the assessment order, it is noted that the AO had disallowed the claim for forward cover premium of Rs. 46,65,87,660/- only for the reason that identical claim made by the assessee in A.Y. 2015-16 was also disallowed. In fact, this issue was involved in all the preceding years i.e. A.Ys. 2014-15, 2015-16 and 2016-17 and the Co-ordinate bench of this Tribunal vide common order dated 31.08.2022 has adjudicated the matter and decided the issue in favour of the assessee. The matter has been discussed elaborately in the order for A.Y. 2014-15 in ITA No. 1110/Ahd/2018 and the finding of the Tribunal as given therein, is reproduced below:
9. We have heard both the parties. The claim in dispute before us relates to premium paid on foreign exchange forward contracts entered into by the assessee amounting in all to Rs.38,96,97,000/- The claim is vis a vis the amortized portion of the forward cover premium, which fact is noted in para 3.1 of the assessment order These foreign exchange forward contracts were entered for the purposes of repayment of foreign exchange loan/external commercial borrowing taken by the assessee for its projects in the renewal energy business, which fact is not disputed Having outlined the facts as above we shall now proceed to adjudicate the issue.
10. The contention of the assessee is that the claim is in accordance with Accounting Standard AS-11 issued by the ICAI in this regard and in the absence of any bar in the Act regarding the applicability of the Accounting Standard, the treatment as per Accounting Standard is applicable.
11. The Revenue on the other hand contradicts the contention of the assessee that the claim is in accordance with AS-11, stating that the standard does not specifically provide 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 may have transactions in foreign currencies or it may have foreign operations. In order to include foreign currency transactions and foreign operations in the financial statements of an enterprise, transactions must be expressed in the enterprise’s reporting currency and the financial statements of foreign operations must be translated into the enterprise’s reporting currency
The principal issues in accounting for foreign currency transactions and foreign operations are to decide which exchange rate to use and how to recognise in the financial statements the financial effect of changes in exchange rates.
Para 36-39 of the Standard deals with Foreign Exchange Contracts as under: Forward Exchange Contracts
36. An enterprise may enter into a forward exchange contract or another financial instrument that is in substance a forward exchange contract, which is not intended for trading or speculation purposes, to establish the amount of the reporting currency required or available at the settlement date of a transaction The premium or discount arising at the inception of such a forward exchange contract should be amortised as expense or income over the life of the contract. Exchange differences on such a contract should be recognised in the statement of profit and loss in the reporting period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such a forward exchange contract should be recognised as income or as expense for the period.
37. The risks associated with changes in exchange rates may be mitigated by entering into forward exchange contracts. Any premium or discount arising at the inception of a forward exchange contract is accounted for separately from the exchange differences on the forward exchange contract. The premium or discount that arises on entering into the contract is measured by the difference between the exchange rate at the date of the inception of the forward exchange contract and the forward rate specified in the contract. Exchange difference on a forward exchange contract is the difference between (a) the foreign currency amount of the contract translated at the exchange rate at the reporting date, or the settlement date where the transaction is settled during the reporting period, and (b) the same foreign currency amount translated at the latter of the date of inception of the 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 effects dealt with the standard relates to premium paid on foreign exchange cover. Thus with respect to the issue before us undoubtedly it is AS-11 which 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 term expense has been used 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, l.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.
Having said so, 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. In other words it is to be seen whether the Act prescribes any specific treatment for the said premium which is to be followed if so prescribed and in the absence of same, the claim is to be allowed as prescribed by the Accounting Standard The Hon’ble Apex Court in the case of Virtual Soft Systems Ltd. (supra) 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 determined on the basis of these accounting standards. The relevant portion of the order of the Hon’ble Apex Court reads as under
“16. In the present case, the relevant Assessment Year is 1999-2000 The main contention of the Revenue is that the Respondent cannot be allowed to claim deduction regarding lease equalization charges since as such there is no express provision regarding such deduction in the IT Act. However, it is apt to note here that the Respondent can be charged only on real income which can be calculated only after applying the prescribed method. The IT Act is silent on such 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 ICAL 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 Guidance Note cannot be used to bifurcate the lease rental to reach the real income for the purpose of tax under the IT Act.”
14. The Act, under section 43A, prescribes the 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, we find is not applicable to the facts of the present case since it is not the case of the Revenue that the foreign exchange loan has been taken for purchasing any asset outside the country.
No other section dealing with the allowability of premium paid on forward contracts has been pointed out by the Ld. DR before us. Therefore as per the decision of the Hon’ble apex court in the case of Virtual Soft(supra), the accounting prescribed by AS-11 will apply, according to which the premium/discount on forward exchange contracts is to be amortized as expense/income. The reliance by the Ld. DR/Ld.CIT(A) on the decision of the Bangalore Bench of the ITAT in the case of Archidply Industrial Ltd vs DCIT (supra) for the proposition that the loan having been taken for meeting capital obligations the premium paid for forward cover also is to be treated as capital in nature, we find is of no assistance to the assessee since the Visakhapatnam Bench of the ITAT in the case of Maddi Lakshmi(supra) held that for determining whether devaluation loss is Revenue or capital, the object for which the currency is obtained is not relevant and what is relevant is the utilization of the amount at the time of devaluation. The ITAT while holding so referred to and relied on the decision of the Hon’ble apex court in the case of CIT vs Woodword Governor India (P) Ltd(2009) 312 ITR 254 (SC) and the Hon’ble Bombay High Court in the case of CIT vs Dempo and Co (P) Ltd (1994) 206 ITR 291.
15. In view of the above, we hold that the assessee is entitled to claim the amortization of premium paid on foreign exchange contracts amounting to Rs. 38,96,97,000/.
18. Respectfully following the decision of the Co-ordinate bench of this Tribunal on this issue, the claim of the assessee towards amortization of forward cover premium of Rs. 46,65,87,660/- is allowed. The ground taken by the assessee is allowed.
19. Ground No. 5 pertains to disallowance of Rs. 16,87,478/- on account of excess claim of depreciation. Shri S. N. Soparkar, the Ld. Senior Counsel explained that the assessee had claimed depreciation on motor vehicle at the rate of 33.40% which was restricted to 7.69% only by the AO. He submitted that identical issue was involved in assessee’s own case in the A.Y. 2016-17 which was decided in favour of the assessee vide order of Co-ordinate bench of this Tribunal in ITA No. 321/Ahd/2022 dated 25.04.2023.
20. Per contra, the Ld. CIT-DR supported the order of the lower authorities on this issue.
21. We have considered the facts of the case and rival submissions. The assessee company is engaged in business of generation and sale of electricity and had opted to claim depreciation on Straight Line Method (SLM) in accordance with the table at Appendix-IA of Income Tax Rules. Accordingly, it had claimed depreciation on “self-propelled vehicles” at the rate of 33.4% as specified in the said Appendix. However, the AO had restricted the claim of depreciation at the rate of 7.69%, which was applicable to “any other asset not covered above”. It is found that the AO has not given any finding as to why the depreciation claimed at the rate of 33.4% on self-propelled vehicles was not correct. Neither any reasoning has been given by the AO for treating the assets on which this depreciation was claimed by the assessee, as being part of “any other assets not covered above”. It is found that this issue was adjudicated by the Co-ordinate bench of this Tribunal in assessee’s own case for A.Y. 2016-17 in ITA No.321/Ahd/2022 dated 25.04.2023 and the claim of the assessee for depreciation on self-propelled vehicles at the rate of 33.4% was allowed. Respectfully following the decision of the Co-ordinate bench, the claim of the assessee in the current year is also allowed. Accordingly, the ground taken by the assessee is
22. In the final result, the appeal of the assessee is treated as allowed.
Order pronounced in the Court on 13/05/2026 at Ahmedabad.
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