TaxTMI 
TaxTMI 
2018 (10) TMI 1168
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing State would apply. 2. Whether on the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 3,33,018610 by holding that in the absence of any restrictive clause in Article 7 of Indo- Mauritius DTTA no disallowance could be made for non deduction of TDS out of operating Contract expenses and that section 40(a)(i) has no application, ignoring the convention in Treaty interpretation that in absence of a specific provision, domestic law of contracting state would apply. 3. Whether on the facts and circumstances of the case, teh CIT(A) has erred in deleting the additions by holding that in the absence of any restrictive clause in Article 7 of Indo-Mauritius DTTA no disallowance could be made for non deduction of TDS and that section 40(a)(i) has no application, ignoring that most Commentaries on Model tax Conventions sate that "since modern commerce organizes itself in an infinite variety of ways, it would be quite impossible within the narrow limits of an article in a double taxation convention to specify an exhaustive set of rules for dealing with every kind of problem that may arise" hence the convention in Treaty interpretatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....516/-. The AO on the employee cost noted that the assessee could not furnish the details of names and address of the employees, duration of the stay of each employee in India and whether TDS has been deducted on salary paid to the said employees. Only the names and amount paid was submitted. In absence of details like whether TDS was deducted on the payment of salary or whether these employees were filed their income tax in India or not, AO held that the entire employee cost cannot be allowed and after invoking the provision of section 40(a)(i), he disallowed the sums amounting to Rs. 4,57,82,240/- (USD 1163,758 @ conversion rate of 39.34). 3. Similarly, with regard to cost relating to travel and entertainment, the AO noted that the assessee was requested to produce the vouchers and bills of expenditure incurred ProjectWise as it was claimed by the assessee that such expenditure has been incurred in as many as 21 projects. However, as noted by him the assessee could only submit copy of ledger account and vouchers and the vouchers and the copy of ledger account do not indicate, whether the expenses were relatable to the business of assessee or whether the same were incurred wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Article and thus, no disallowance could be made on the ground that no deduction of tax at source from salary paid to such employees and provision of section 40(a)(i) cannot be invoked. 6. With regard to disallowance of travel and entertainment cost, Ld. CIT(A) held that during the course of the assessment proceedings the assessee had submitted the expenses reimbursement claim forms with all supporting documents like name of the employee, details of the Indian project for which the expenses have been incurred, amount incurred and other relevant information. The assessee has also submitted the copy of ledger account with all the supporting documents for verification before the AO including the ProjectWise break up for expenses. He held that the stand taken by the AO that assessee has failed to substantiate its claim is not tenable at all in wake of evidences filed before him. Once these details were submitted it was the onus of the AO to rebut the same and without pointing out any error or omission in the details by the AO, he held that such an addition cannot be sustained and accordingly the same has been deleted. Lastly, with regard to the amount paid to various parties for re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rds the salary by the AO was that, firstly, the persons receiving the salary have not filed their income tax return in India; and secondly, TDS has not been deducted on such payments. In this regard it was also brought on record that employees have spent only portion of their time and efforts of the activities and only such portion of the salary was claimed as expenditure for the purpose of determining the profits in India. The basis for disallowing is invoking of section 40(a)(i) which under the terms of article 7 (3) of India and Mauritius DTAA could not have been made, specifically when there is no provision for restriction of the allowing of expenditure as per domestic law. He also relied upon the judgment of ITAT Mumbai Bench in the case of M/s State Bank of Mauritius Limited vs. DDIT in ITA No. 2254/Mum/2005 order dated 3.10.2012. The Tribunal held that there is no restriction on the allowability of expenses subject to the limitations of the taxation laws of India in Article 7 (3) of India Mauritius DTAA. In so far as allegation of violation of Rule 46A, he pointed that no additional evidence was filed during the course of the appellate proceedings and therefore, there is no ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ven duration of the stay of each employee in India and vide earlier letter dated 13th February, 2001 the details of names of each of 11 employees and their exact amount paid has been provided. Thus, the allegation of the AO that the details and the duration of the employees in India has not been given is not correct. In so far as invoking the provision of section 40(a)(i) to make disallowance, we agree with the reasoning given by the Ld. CIT(A) that in terms of Article 7(3) of Indo Mauritius DTAA the restriction provided under the Income Tax Act cannot be read into the treaty. The relevant Article 7(3) of India Mauritius DTAA reads as under: - "3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere." 11. Para 3 of Article 7 provides the determination of profits of PE by allowing the deduction of expenses which are incurred for the purpose of business of the PE including executive and gener....
X X X X Extracts X X X X
X X X X Extracts X X X X
....); secondly, the provision of section 40(a)(i) cannot be invoked while allowing the expenditure in terms of Article 7(3) in Indo Mauritius DTAA as held in the earlier part of the order. Thus, there is no infirmity in the order of the Ld. CIT(A) while deleting the said disallowance. 13. Lastly, coming to the issue of disallowance of expenditure relating to travel and entertainment, first of all from the perusal of the replies filed before the AO, we find that assessee vide letter dated 5th March, 2001 has filed a copy of ledger account for travel and entertainment providing details of the expenditure incurred under this head and also filed vouchers and bills against the expenditure incurred for verification before the AO. These details are appearing from pages 45 to 48 of the paper book which has been filed alongwith the reply before the AO. Assessee has also given ProjectWise break up of expenditure which included the travel and entertainment vide letter dated 13th February, 2001. Now once these details were furnished before the stage of the AO itself, then to hold that these expenditure were not incurred for the purpose of the business would be too farfetched, because incurring....