Tribunal Remits Finance Lease, Transfer Pricing Issues for Fresh Adjudication

The Tribunal partly allowed the appeal, remitting issues concerning disallowance of depreciation on assets under finance lease and transfer pricing adjustments back to the Assessing Officer for fresh adjudication with specific directions. The issue of not allowing set-off of brought forward depreciation loss was dismissed as not pressed. The Tribunal directed the AO to consider the interest rate in terms of LIBOR + 2% for interest on outstanding receivables.

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Issues Involved:

1. Disallowance of depreciation on assets given under finance lease.
2. Transfer pricing adjustments related to administrative support services and interest on delayed receivables.
3. Not allowing set-off of brought forward depreciation loss.
4. Interest on outstanding receivables.

Detailed Analysis:

1. Disallowance of Depreciation on Assets Given Under Finance Lease:

The primary issue is the disallowance of depreciation claimed by the appellant on assets leased out under a finance lease arrangement, amounting to INR 232,42,69,223. The appellant argued that the ownership status of the assets leased out under the finance lease should entitle them to claim depreciation. The Tribunal noted that a similar issue had been considered in the appellant's own case for the assessment year 2016-17, where it was held that the appellant is entitled to claim depreciation on financial lease assets if the terms of the lease agreements are similar to those considered by the Supreme Court in the case of ICDS Ltd. The Tribunal remitted the issue back to the Assessing Officer (AO) for fresh adjudication with directions to examine the lease agreements. The Tribunal also noted that the Dispute Resolution Panel (DRP) had directed verification of the principal and interest components of the financed leased assets, which the AO failed to consider.

2. Transfer Pricing Adjustments:

a) Administrative Support Services:

The appellant contested the transfer pricing adjustment made by the Transfer Pricing Officer (TPO) pertaining to administrative support services amounting to INR 11,72,93,944. The TPO treated the payment for administrative support services to Cisco Systems India Private Limited as an international transaction under section 92B of the Act. The Tribunal referred to its earlier decision in the appellant's own case for the assessment year 2016-17, where it was held that the bundled approach for benchmarking should be accepted. The Tribunal reiterated that payment of administrative and marketing support services is part of the operating cost, and no separate adjustment is warranted.

b) Interest on Delayed Receivables:

The TPO also made a transfer pricing adjustment pertaining to interest on delayed receivables amounting to INR 89,11,183. The appellant argued that the outstanding amount gets adjusted in the working capital adjustment and should not be treated as a separate international transaction. The Tribunal, referencing its decision in the case of Swiss Re Global Business Solutions India Pvt. Ltd., held that deferred receivables constitute an independent international transaction and should be benchmarked independently. The Tribunal directed the AO to consider the interest rate in terms of LIBOR + 2%.

3. Not Allowing Set-off of Brought Forward Depreciation Loss:

The appellant raised the issue of the AO not allowing the set-off of brought forward depreciation loss from prior years. However, the appellant did not press this ground, and hence it was dismissed as not pressed.

4. Interest on Outstanding Receivables:

The appellant contested the determination of a transfer pricing adjustment on account of interest on outstanding receivables, arguing that such receivables should not be tested separately or re-characterized as a loan transaction. The Tribunal, referencing its decision in the case of Swiss Re Global Business Solutions India Pvt. Ltd., held that deferred receivables constitute an independent international transaction and should be benchmarked independently. The Tribunal directed the AO to consider the interest rate in terms of LIBOR + 2%.

Conclusion:

The Tribunal partly allowed the appeal for statistical purposes, remitting the issues related to disallowance of depreciation on assets given under finance lease and transfer pricing adjustments back to the AO for fresh adjudication with specific directions. The issue of not allowing the set-off of brought forward depreciation loss was dismissed as not pressed. The Tribunal directed the AO to consider the interest rate in terms of LIBOR + 2% for the interest on outstanding receivables.

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