Sorry but there is no way, at this time, to remove purchased (include free) apps on iTunes AppStore. Same problem with the Mac AppStore.
I've already asked for this feature at iTunes Feedbacks, and you can do the same to do understand tomake Apple understand what we want.
The ability to hide purchases from the iOS app store should cover most real-life situations where you would normally delete a past purchase. It also protects those who have lost control of their accounts and someone maliciously deletes past purchases. The idea that the past is unchangeable, but we wish to hide some items from prominence works for many.