Appeal allowed for depreciation, set-off granted, but transfer pricing addition dismissed. Verification emphasized

The appeal filed by the assessee was allowed for statistical purposes. The disallowance of depreciation on assets given under finance lease was remanded back to the Assessing Officer for verification. The non-allowance of set off of brought forward depreciation loss was directed to be granted by the AO. However, the transfer pricing addition on account of re-characterization of payment made towards administration and support services was dismissed by the Tribunal. The Tribunal emphasized the need for verification by the AO/TPO regarding the expenses incurred by the assessee and the benchmarking requirements under the TNMM for computing the arm's length margin of the international transaction.

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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.

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