Cross currency swap -- Payment of interest allowability under Section 36(1)(iii) -- Hedging whether speculative in nature 

Facts: Assessee had taken two ECB loans from overseas denominated in JPY. To protect the downside of the currency/interest rate risk they had taken a cross currency swap with Bank of Tokyo, Mitsubishi UFJ whereby they would be paying a fixed interest in INR. The interest payment was split into two parts and claimed under Section 36(1)(iii) with the premium part also being claimed as interest; as underlying of premium is also financing charges. AO/DRP held the swap as speculative in nature under Section 43(5) and disallowed the interest. On higher appeal to ITAT -

Held in favour of the assessee that the cross currency swap was pure hedging transaction thus non-speculative in nature. The entire swap interest cost was to be allowed under Section 36(1)(iii) as interest.

Case: Mitsubishi Electric Automotive v. ACIT 2023 TaxPub(DT) 537 (Del-Trib)