2021 (4) TMI 1361 - AT - Income Tax

Disallowance of depreciation on assets given under finance lease - HELD THAT - This Tribunal in assessee s own case for assessment year 2011-12 and 2013-14 2019 (6) TMI 660 - ITAT BANGALORE considered similar issue by following decision of Hon ble Supreme Court in case of ICDS vs CIT 2013 (1) TMI 344 - SUPREME COURT . Subsequently for assessment year 2014-15 2020 (6) TMI 98 - ITAT BANGALORE and for assessment year 2012-13 in 2020 (10) TMI 1352 - ITAT BANGALORE this Tribunal had remanded the issue back to ld. AO for fresh decision after verifying if the terms and conditions mentioned in the lease agreement are similar to the terms and conditions that are mentioned by Hon ble Apex Court in case of ICDS vs CIT (supra). As directed by this Tribunal that in the event there is no material variation in the context then depreciation must be granted to assessee as claimed. As the department has not been able to bring out any factual difference for the year under consideration vis- -vis the preceding assessment years we also remand this issue back to the Ld.AO with similar direction. Not allowing set off of brought forward depreciation loss - HELD THAT - We note that as the OGE to the orders passed by this Tribunal in the preceding assessment years are pending with Ld.AO the relief granted by this Tribunal was not available with the Ld.AO while passing the impugned order for year under consideration. It is noted that the ld. AO does not dispute regarding availability of set off of brought forward loss to assessee if any in the preceding year while computing income for the year under consideration. Therefore set off of brought forward losses is to be granted if there is loss for assessment years 2008-09 2009-10 and 2013-14 after passing the OGE to the orders of this Tribunal for assessment years 2008-09 2009-10 and 2013-14. Direct the Ld.AO to pass the order giving effect to all the previous years from assessment year 2008-09 to assessment year 2014-15 and thereafter to provide the set off of brought forward losses. TP addition - specified domestic transaction within the ambit of section 92B - re-characterisation of payment made towards administration and support services by assessee to Cisco India - Scope of omitted provisions - HELD THAT - On combined reading of the omitted provisions and the inserted proviso to section 40A it is amply clear that the new proviso to section 40A is a saving clause by virtue of which any specified transaction on or before 01.04.2016 has to be tested as per the provisions of section 92C. We therefore respectfully following the ratio laid down by Hon ble Supreme Court in case of Kolhapur Canesugar works Ltd. 2000 (2) TMI 823 - SUPREME COURT and General Finance Co. 2002 (9) TMI 3 - SUPREME COURT hold that as the transaction under consideration is prior to 1/04/2016 has to pass through the tests laid down under the Transfer Pricing provisions. Assistance staff for administrative support services and marketing and sales support services - whether assessee could have deployed its own employees for the day to day administrative functions and marketing services on its own? - assessee purchases goods from its AE which is sold to third-party customers who approach assessee for financial assistance for purchasing Cisco equipments. As assessee do not have its own staff Cisco India provides administrative support services and marketing and sales support services - HELD THAT - The transaction needs to be bench marked separately and there has to be a segregation based on the customers who approach assessee for financing/leasing after entering into agreement with the AE and the leasing/financing activity that assessee has with the third-party customers independently. In our view only such services that assessee is rendering to third-party for assisting them in financing/leasing wherein the third-party directly enter into agreement with the AE could be considered to be interlinked with the international transaction entered into by assessee with its AE. Assessee has been carrying out these activities in a bundled format in the preceding years which has not been objected by the Ld. TPO/AO. Further that all these expenses incurred by assessee towards administrative expenses and sales and marketing expenses stands subsumed in the operating expenses under TNMM for computing the arm s length margin of the international transaction a separate benchmarking may not be necessary. However all these things deserves verification at the end of Ld.AO/TPO. AO/TPO shall verify the transactions as indicated hereinabove. In the event the expenses are subsumed under TNMM we do not find any necessity for a separate benchmarking.

Summary

Issues Involved:
1. Disallowance of depreciation on assets given under finance lease.
2. Non-allowance of set off of brought forward depreciation loss.
3. Transfer pricing addition on account of re-characterization of payment made towards administration and support services.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Assets Given Under Finance Lease:
The assessee challenged the disallowance of depreciation on assets leased out under finance lease arrangements. The Tribunal referred to its previous decisions for the assessment years 2011-12 and 2013-14, where it followed the Supreme Court's decision in ICDS vs CIT. The Tribunal remanded the issue back to the Assessing Officer (AO) to verify if the terms and conditions of the lease agreement were similar to those mentioned by the Supreme Court. If no material variation was found, the AO was directed to grant depreciation as claimed by the assessee. Thus, this ground was allowed for statistical purposes.

2. Non-allowance of Set Off of Brought Forward Depreciation Loss:
The assessee claimed set off of brought forward depreciation loss amounting to Rs. 1,12,07,33,535/- in its return of income. The AO denied this claim, stating that the income for the relevant assessment years had resulted in positive figures. The Tribunal noted that the AO had not given effect to the orders passed by the Tribunal for the preceding assessment years. Therefore, the Tribunal directed the AO to pass the order giving effect to all the previous years from assessment year 2008-09 to assessment year 2014-15 and thereafter provide the set off of brought forward losses. This ground was also allowed for statistical purposes.

3. Transfer Pricing Addition on Account of Re-characterization of Payment Made Towards Administration and Support Services:
The assessee argued that the specified domestic transaction should not fall within the ambit of section 92B of the Act due to the amendment in Finance Act, 2017. The Tribunal, however, held that since the transaction under consideration was prior to 01/04/2016, it had to pass through the tests laid down under the Transfer Pricing provisions. The Tribunal dismissed this preliminary ground raised by the assessee.

The Tribunal then analyzed the business scenario, where the assessee purchased goods from its AE and sold them to third-party customers, providing financial assistance for purchasing Cisco equipment. The Tribunal noted that the assessee sought administrative and marketing support from Cisco India, which could have been performed by its own employees. The Tribunal found that the transaction needed to be benchmarked separately, considering the customers who approached the assessee for financing/leasing after entering into an agreement with the AE and the independent leasing/financing activity with third-party customers.

The Tribunal observed that the expenses incurred by the assessee towards administrative and marketing expenses were subsumed in the operating expenses under the TNMM for computing the arm's length margin of the international transaction. Therefore, a separate benchmarking might not be necessary, but this required verification by the AO/TPO. The Tribunal directed the AO/TPO to verify the transactions and, if the expenses were subsumed under TNMM, no separate benchmarking would be required. This ground was allowed for statistical purposes.

Other Grounds:
Grounds 11-12 were alternative arguments raised by the assessee, which became academic. Ground 13 was consequential and did not require adjudication.

Conclusion:
The appeal filed by the assessee was allowed for statistical purposes.