2021 (11) TMI 1155 - AT - Income Tax

Disallowance of depreciation on assets under finance lease - HELD THAT - As decided in own case 2019 (6) TMI 660 - ITAT BANGALORE we set aside the issue to the file of the AO for fresh adjudication in accordance with law. The assessee is directed to produce copies of those agreements which the AO may call for. The AO shall examine these agreements and if the terms conditions mentioned in these agreements are similar to the terms and conditions mentioned in the agreements considered by the Hon ble Supreme Court in the case of ICDS Ltd 2013 (1) TMI 344 - SUPREME COURT and if there are no material variations in the contracts, then depreciation has to be granted to the assessee as claimed. Thus we are inclined to remit the issue to the file of Assessing Officer for fresh decision with similar directions. Not allowing set-off of brought forward depreciation loss - HELD THAT AO has passed the Order giving effect to the Tribunal Order for the AYs 2008-09 2014 (12) TMI 890 - ITAT BANGALORE wherein the AO has provided carry forward of cumulative losses. Further the same has also been utilized against the total income in the draft OGE to Tribunal order passed for the AYs 2011-12 2019 (6) TMI 660 - ITAT BANGALORE In view of the above, the assessee is eligible as per the Order giving effect passed for earlier years to claim the set off of brought forward depreciation loss from prior years. Accordingly the AO is directed to allow the brought forward depreciation loss. TP Adjustment - payment of fees for administrative support services - as submitted bundled approach for benchmarking should be accepted - HELD THAT - This issue came up for consideration in assessee s own case in AY 2015-16 2021 (4) TMI 1361 - ITAT BANGALORE we hold that payment of administrative and marketing support services is part of the operating cost, no separate adjustment is warranted. This ground of the assessee is partly allowed.

Issues Involved:
1. Disallowance of depreciation on assets given under finance lease.
2. Not allowing set-off of brought forward depreciation loss.
3. Initiating scrutiny proceedings in relation to specified domestic transactions.
4. Transfer pricing adjustment on account of re-characterization of payment for administrative support services.
5. Bundled approach for benchmarking.
6. Rejection of benchmarking analysis and selection of non-comparable companies.
7. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Disallowance of Depreciation on Assets Given Under Finance Lease:
The assessee claimed depreciation on networking equipment leased out under a finance lease arrangement. The AO disallowed this claim, citing that the assessee could not be regarded as the owner of the assets based on the decision in Asea Brown Boveri Ltd. The AO disallowed a net sum of INR 138,77,07,776 after reducing the lease rentals received. The Tribunal, referencing its own previous decisions and the Karnataka High Court's ruling, remanded the issue back to the AO for fresh adjudication. The Tribunal directed the AO to examine the lease agreements and verify if the terms are similar to those in the ICDS Ltd. case, where the Supreme Court allowed depreciation.

2. Not Allowing Set-off of Brought Forward Depreciation Loss:
The assessee claimed set-off of brought forward depreciation losses amounting to INR 229,94,53,483. The AO denied this claim, stating that the income for AY 2013-14 and AY 2014-15 had resulted in positive figures. The Tribunal found that the assessee is eligible to claim the set-off based on the Order giving effect to the Tribunal's order for earlier years, directing the AO to allow the brought forward depreciation loss.

3. Initiating Scrutiny Proceedings in Relation to Specified Domestic Transactions:
The assessee argued that the AO/TPO erred by initiating scrutiny proceedings for specified domestic transactions, disregarding the deletion of clause (i) of section 92BA by the Finance Act, 2017. The Tribunal did not specifically address this issue as the grounds were considered academic and dismissed without adjudication.

4. Transfer Pricing Adjustment on Account of Re-characterization of Payment for Administrative Support Services:
The assessee contended that the agreement for administrative support services with Cisco India was bona fide and should not be treated as an international transaction. The Tribunal did not adjudicate on this issue as the grounds were considered academic and dismissed.

5. Bundled Approach for Benchmarking:
The assessee argued that the TPO had accepted the bundled approach of aggregation of payment of fees for administrative support services in preceding years and that there was no change in the functions, assets, and risk analysis. The Tribunal upheld the bundled approach for benchmarking, stating that payment for administrative and marketing support services is part of the operating cost and no separate adjustment is warranted.

6. Rejection of Benchmarking Analysis and Selection of Non-comparable Companies:
The assessee raised issues regarding the rejection of its benchmarking analysis and the selection of non-comparable companies. The Tribunal did not specifically address these issues as the grounds were considered academic and dismissed without adjudication.

7. Initiation of Penalty Proceedings Under Section 271(1)(c):
The assessee contended that the AO erred in proposing to initiate penalty proceedings under section 271(1)(c) for various disallowances/additions. The Tribunal did not specifically address this issue as the grounds were considered academic and dismissed without adjudication.

Conclusion:
The Tribunal remanded the issue of disallowance of depreciation on assets given under finance lease back to the AO for fresh adjudication with specific directions. It directed the AO to allow the set-off of brought forward depreciation loss. The Tribunal upheld the bundled approach for benchmarking and dismissed the remaining grounds as academic. The appeal of the assessee was partly allowed for statistical purposes.

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