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2018 (7) TMI 1087 - AT - Income TaxAddition on account of transfer pricing adjustment made in the Transport segment - Held that - In the given facts and circumstances, we are of the opinion that the assessee s application for additional evidence including expert technical opinion provided by the assessee and the report of the Valuation Officer need to be examined at the end of the TPO/AO on the facts relevant for the year under consideration. Even if the AO/TPO has found the additional evidence as supporting the Departmental view for the A.Y. 2006-07, that does not per se operate as res judicata for other years. The facts of each year need to be separately examined in the light of the additional evidence before jumping to any conclusion. We are concerned with additional evidence which has not been examined by the AO/TPO in the light of the facts for the relevant year. Our view in restoring that matter to the AO/TPO for a fresh adjudication of this issue is fortified by the judgment of the Hon ble Calcutta High Court in CIT vs. Trimline Vyapaar Ltd. (2014 (5) TMI 748 - CALCUTTA HIGH COURT) in which it has been held that additional evidence cannot be permitted to be adduced without making an opportunity to the AO. In that case, the Tribunal decided the issue in assessee s favour by relying on additional evidence without confronting it to the AO. The Tribunal order was set aside by holding that consideration of additional evidence, without giving any opportunity to the AO to examine the same, is gross violation of principles of natural justice. Depreciation on leasehold improvement - Held that - Spirit and text of Explanation 1 to section 32 is that any capital expenditure by the assessee on a building not owned by him, in which he carries on the business, shall be considered as building owned by him for the purposes of section 32, to the extent of the amounts spent on the construction of structure or doing of any work in or in relation to and by way of renovation or extension or improvement to the building. It therefore, follows that in order to bring any amount within the ambit of Explanation 1 to section 32, it is paramount that the expenditure incurred by the assessee on the premises in the capacity of non-owner should firstly be in the nature of capital expenditure and then it should fall within any of the clauses as discussed above. If these conditions get satisfied, as is the case under consideration, then the amount incurred for such works falls under Explanation 1 to section 32. In other words, the amount so incurred would be capitalized entitling the assessee to depreciation as per the eligible rate. The facts of the instant case precisely fall within the ambit of Explanation 1 to section 32. In view of the foregoing discussion, we uphold the impugned order treating such amount as capital expenditure, eligible for depreciation. Receivable treated as an international transaction - Held that - Applying the decision in Kusum Health Care (2017 (4) TMI 1254 - DELHI HIGH COURT), the Hon ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterized as international transactions. In view of the above decision in Avenue Asia Advisors (2017 (9) TMI 1295 - DELHI HIGH COURT), we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Assessing Officer/TPO
Issues Involved:
1. Transfer pricing adjustment in the Transport segment for various assessment years. 2. Treatment of leasehold improvement expenses as capital expenditure. 3. Addition on account of transfer pricing adjustment for 'Interest on outstanding receivables' from the AE. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment in the Transport Segment: Assessment Year 2005-06: The issue pertains to the confirmation of a transfer pricing adjustment of ?5,14,02,502/- made by the Assessing Officer (AO) in the Transport segment. The assessee, a wholly-owned subsidiary of Carrier Corporation, USA, applied the Transactional Net Margin Method (TNMM) with the Profit Level Indicator (PLI) of Operating Profit to Operating Revenue/cost. The AO and Transfer Pricing Officer (TPO) rejected the internal comparable (Refrigeration non-AE segment) used by the assessee, citing functional differences. The TPO used Subros Ltd. as a comparable, leading to the adjustment. The Tribunal remitted the matter back to the AO/TPO for fresh adjudication, emphasizing the need to examine additional evidence, including expert technical opinions. Assessment Year 2009-10: The AO made a transfer pricing adjustment of ?7,56,79,236/- in the Transport segment. The TPO rejected the internal comparable (Refrigeration non-AE segment) used by the assessee and selected five external comparables. The Tribunal remitted the matter back to the AO/TPO for fresh adjudication, allowing the assessee to present additional evidence. Assessment Year 2010-11: The facts and circumstances were similar to the previous year, and the Tribunal remitted the matter back to the AO/TPO for fresh adjudication, allowing the assessee to present additional evidence. Assessment Year 2011-12: The facts and circumstances were similar to the previous years. The Tribunal remitted the matter back to the AO/TPO for fresh adjudication, allowing the assessee to present additional evidence. Assessment Year 2013-14: The facts and circumstances were similar to the previous years. The Tribunal remitted the matter back to the AO/TPO for fresh adjudication, allowing the assessee to present additional evidence. 2. Treatment of Leasehold Improvement Expenses as Capital Expenditure: Assessment Year 2009-10: The AO treated leasehold improvement expenses of ?55,10,000/- as capital expenditure. The Tribunal upheld this view, citing that the expenses were incurred for significant renovations and improvements, which are capital in nature. The Tribunal referenced the Supreme Court's decision in Ballimal Naval Kishore vs. CIT and the jurisdictional High Court's decision in Bigjo’s India Ltd. vs. CIT, which supported the treatment of such expenses as capital expenditure. Assessment Year 2010-11: The Tribunal directed the AO to grant depreciation on the capitalized leasehold improvement expenses, following the decision for the previous year. 3. Addition on Account of Transfer Pricing Adjustment for 'Interest on Outstanding Receivables' from the AE: Assessment Year 2011-12: The AO made a transfer pricing adjustment of ?38,31,848/- for interest on outstanding receivables from the AE. The Tribunal referred to the Delhi High Court's judgment in Pr. CIT vs. Kusum Health Care Pvt. Ltd., which emphasized the need for a proper inquiry into the impact of receivables on the working capital. The Tribunal remitted the matter back to the AO/TPO for fresh adjudication, considering the principles laid out in the judgment. Conclusion: The Tribunal consistently remitted the matters related to transfer pricing adjustments in the Transport segment back to the AO/TPO for fresh adjudication, allowing the assessee to present additional evidence. The treatment of leasehold improvement expenses as capital expenditure was upheld, with directions to grant depreciation. The issue of interest on outstanding receivables was also remitted back for fresh adjudication, following the principles laid out by the Delhi High Court.
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