2021 (10) TMI 734 - AT - Income Tax

Court upholds nonresident company's deduction for Russia expenses in India contracts.

Deputy Director of Income Tax, Circle-3 (1) International Taxation, New Delhi Versus M/s Joint Stock Company Centrodorstroy

The court dismissed the revenue's appeals regarding the deductibility of expenses incurred in Russia for contracts in India by a nonresident company. The ... Expenses incurred in Russia for realization of contracts in India - deductibility of expenses against income attributable to Indian PE when these expenses are claimed to have been entered in books of accounts of head office in Russia - CIT(A) allowing partially claim of expenses on the ground of additional evidences admitted for the assessment year 2006-07 - AO disallowed these expenses on the ground that no details thereof were furnished and also no TDS was made and therefore these were not to be allowed as deduction u/s. 40(a)(i) - HELD THAT:- Having admitted the additional evidences, the ld. CIT(A) further went ahead in determining whether the expenses are allowable under the provisions of the Income Tax Act and also with specific reference to TDS and Section 40(a)(ia). The ld. CIT(A) examined the various expenses like salary for Russian specialists, cost of equipment transportation, depreciation of equipment deployed in India, supply of spare parts, taxes paid for equipment and other project expenses. Having examined, the ld. CIT(A) allowed/disallowed various heads of expenditure. Hence, the grounds taken up by the revenue that the ld. CIT(A) erred in admitting the additional evidences cannot be held to be valid on facts of the case. Further, the grounds of the revenue that the ld. CIT(A) erred in allowing the claim of the expenses cannot be held to be valid as the ld. CIT(A) has verified each and every expenses claimed by the Assessee before allowing the same. - Decided against revenue. Issues Involved:Deductibility of expenses incurred in Russia for realization of contracts in India.Analysis:The present appeals were filed by the revenue against the orders of the ld. CIT(A)-XXIX, New Delhi dated 05.03.2013. The issues involved in both appeals were identical and were heard together. In ITA No. 3563/Del/2013, the revenue raised grounds related to the allowance of expenses incurred in Russia for realizing contracts in India. The Assessee, a nonresident company incorporated in Russia, declared a loss and claimed expenses incurred in Russia for contracts in India. The Assessing Officer disallowed these expenses citing various reasons such as non-entry in Indian books of accounts, lack of TDS, and absence of audit in India. The main issue was the deductibility of these expenses against income attributable to Indian Permanent Establishment (PE). The Assessee contended that expenses were incurred by the parent company in Russia for Indian projects and were supported by documents certified by Russian auditors. During appellate proceedings, additional evidence was submitted to support the expenses, which were not furnished during the assessment stage. The ld. CIT(A) admitted these additional evidences under rule 46A due to the Assessee's inability to produce them earlier. The ld. CIT(A) examined the nature of expenses and allowed/disallowed them accordingly, considering TDS and Section 40(a)(ia) provisions. The revenue's grounds challenging the admission of additional evidences and allowance of expenses were dismissed as the ld. CIT(A) thoroughly verified each expense before allowing them. Consequently, both appeals of the revenue were dismissed.This judgment addressed the issue of deductibility of expenses incurred in Russia for contracts in India by a nonresident company. The Assessing Officer disallowed these expenses due to various reasons, including lack of entry in Indian books of accounts, absence of TDS, and no audit in India. The Assessee argued that the expenses were related to Indian projects and supported by certified documents from Russian auditors. Additional evidence supporting the expenses was submitted during appellate proceedings, which the ld. CIT(A) admitted under rule 46A. The ld. CIT(A) scrutinized each expense and determined their allowability under the Income Tax Act, considering TDS and Section 40(a)(ia) provisions. The revenue's challenges regarding the admission of additional evidences and allowance of expenses were dismissed as the ld. CIT(A) thoroughly examined and verified each expense before making a decision. Consequently, both appeals of the revenue were dismissed.