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TMI Blog2018 (7) TMI 1087X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading of commercial refrigeration equipments. A return was filed declaring loss of ₹ 6.35 crore. Form No. 3CEB was furnished reporting four international transactions. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the arm s length price (ALP) of these transactions. The TPO, during the course of proceedings, observed that the reported international transactions included Import of raw materials and components ; Import of finished goods ; and Export of finished goods . The assessee applied Transactional Net Margin Method (TNMM) as the most appropriate method with Profit level indicator (PLI) of Operating Profit to Operating Revenue/cost for demonstrating that these transactions were at ALP. The transactions were reported in four segments, viz., Segment A [Trading and assembly of Transport and Bus refrigeration systems]; Segment B [Manufacturing and export of finished goods for associated enterprises (AEs)]; and Segment-C [Manufacturing for unrelated parties]. There is no dispute as regards the Segment-D relating to Marketing support services. The TPO took up transactions relating to import of raw material and components, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed that the products in Segment-C were assembled/manufactured from raw materials and components procured from unrelated parties. It also considered the findings returned by the TPO who found that there was no internal comparable under Segment-A, being, Transport segment and the assessee s application of PLI given in Segment-C relating to Refrigeration (non-AE) segment was not acceptable. In the absence of sufficient discussion in the order of the TPO about the functional profile of the relevant two segments, the Tribunal restored the matter to the AO/TPO with a direction to have opinion of some technical experts on the functions performed by the assessee under these two segments for finding out similarity/dissimilarity between them. The ld. AR submitted that pursuant to such an order passed by the Tribunal, the assessee filed expert technical opinion of Shri Pawanexh Kohli in support of its contention that there was no functional difference between the two segments and, contrary to that, the Officer sought report from Valuation officer, which held otherwise. It was submitted that the Assessing Officer/TPO have held the two segments different by relying on the report of the Val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The SLP filed by the assessee against the judgment of the Hon'ble Calcutta High Court has been dismissed by the Hon'ble Supreme Court, since reported at (2015) 378 ITR 34 (St.) . Taking a holistic view of the matter, we set aside the impugned order and remit the matter to the file of AO/TPO for deciding this issue afresh in the light of the additional evidence which the assessee has filed before the Tribunal. 7. In the result, the appeal is allowed for statistical purposes. Assessment Year 2009-10 8. The assail in this appeal is to the legal tenability of the final assessment order dated 19.12.2013 passed by the Assessing Officer u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called the Act ). The first issue is against the transfer pricing addition amounting to ₹ 7,56,79,236/-. 9. Succi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in ignoring Refrigeration (non-AE) segment for benchmarking the international transaction of the Transport segment. Out of five comparables chosen by the TPO, the DRP directed to exclude Patels Airtemp (India) Ltd. from the list of comparables. The Assessing Officer eventually made transfer pricing addition of ₹ 7,56,79,236/- in the international transaction of Transport segment, against which the assessee has come up in appeal before the Tribunal. 10. The assessee has filed an application under rule 29 of the Income tax Appellate Tribunal Rules, 1963 for this year as well requesting to admit additional evidence, namely, expert technical opinion of Mr. Pawanexh Kohli, report submitted by the Valuation Officer and order passed by the TPO for the assessment year 2006-07 (post-remand proceedings) etc. The ld. AR contended that the expert technical opinion given by Shri Pawanexh Kohli amply brings out that there is no functional difference between the assessee s Transport segment and Refrigeration (non-AE) segment. He insisted that the Tribunal should decide the issue at its own without remitting the matter to the AO/TPO. It was emphasized that the situation for the A.Ys. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed accounts on entity level and not on segment level. Page 87 of the paper book is a summary of segment-wise operating margins drawn by the assessee for the year, which has been prepared by allocating expenses in certain ratios. There is no reference to any such ratios in such computation. A summary of the so-called segment-wise operating income and operating costs etc. was given by the assessee to the TPO, which has been captured on page 3 of his order, as under:- Particulars Air-conditioning Division Marketing Support Services Transport segmentA Refrigeration Division AE segment B Non-AE Segment Total Income 6306528 413420 434766 206479 651565 Total Operating Cost 5898233 242532 490446 129330 752427 Operating Profit 408295 170888 -55680 77149 -100862 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Transport segment deals with: trading and assembling of refrigeration and cooling products for movable systems in which the assessee imports truck refrigeration system and bus air-conditioning system as kits/completely built units for assembly and sale in India. In this segment, the assessee also trades in spare parts of truck, bus and container refrigeration. In contrast, in the Refrigeration segment, the assessee is engaged in manufacture and supply of completely different line of products, namely, breezers, vizi coolers and bottle coolers and cold rooms etc. Two things emerge from it. First, whereas in Transport segment, the assessee is undertaking refrigeration of movable items, such as bus and trucks, in Refrigeration segment, it is undertaking the refrigeration of immovable items, such as, cold rooms. It is axiomatic that both these activities are different in nature. Another important feature which ex facie makes the two segments different from each other is that the assessee is engaged in manufacturing activity in Refrigeration segment, whereas it is an admitted position that the assessee does not carry out any manufacturing activity in the Transport segment. It goes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity. Such a position has also been rightly conceded by the ld. DR. 20. It is pertinent to mention that the ld. AR has contested the comparability of the companies chosen by the TPO and retained by the DRP on the premise that all of them are engaged in manufacturing activity whereas its Transport segment is not into any manufacturing activity. There is an apparent inconsistency in the stand of the assessee in so far as the selection of comparable companies by the TPO is concerned. Por una parte , the assessee is seeking to benchmark its Transport segment by treating its Refrigeration (non-AE segment) as comparable, which is admittedly, engaged in manufacturing activity. Por otra parte, the assessee is seeking exclusion of the companies chosen by the TPO on the raison d etre that they are into manufacturing activity, which is absent in the Transport segment. These are two diagonally opposite and irreconcilable stands, having no meeting ground. 21. Albeit, ex facie it appears that the Refrigeration (non-AE) segment is not comparable with the Transport segment due to the reasons set out in the earlier paras of this order, the assessee is still seeking to rely on certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is one more agreement dated 13th May, 2008 in respect of leasing of Hyderabad property. There is still another lease agreement dated 25th March, 2008 in respect of Bangalore property. The assessee stated through the above letter to the AO that the sum of ₹ 55.10 lac was incurred in respect of the above leased premises. A common filament running through these lease Agreements is that all the properties in question were taken on lease either during the financial year under consideration itself or near to the close of the preceding year. When we examine the nature of work carried out in respect of the above premises taken on lease by the assessee, being, flooring, construction of cubicles, workstations, wiring and other interior works and also purchase of furniture, it becomes vivid that such premises were renovated to make them fit for use in its business. In other words, the amount was spent on complete renovation of such premises. The Hon ble Supreme Court in Ballimal Naval Kishore vs. CIT 1997 224 ITR 414 (SC) has held that the expenditure incurred by the assessee on total renovation of cinema theatre by installing new machinery, new furniture, new sanitary fitting and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either occupancy rights, then the expenditure on i) the construction of a structure; or ii) doing of any work in or in relation to and by way of renovation or extension of, or improvement to the building, shall be considered as structure or work in the nature of building owned by the assessee for the purpose of depreciation. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 2011-12 33. The assessee has assailed the correctness of the final assessment order dated 15.2.2016 passed by the Assessing Officer u/s 143(3) read with section 144C of the Act. The first issue raised in this appeal is against the addition on account of transfer pricing adjustment in the Transport segment. Both the sides are in agreement that the facts and circumstances of this ground are similar to those of the immediately preceding assessment years, namely, 2009-10 2010-11. For this year also, the assessee has filed an application under Rule 29 requesting for the admission of additional evidence. In fact, both the sides adopted their respective arguments made for the A.Y. 2009-10. Following the view taken hereinabove, we set aside the impugned order and remit the matter to the file of AO/TPO to decide this issue afresh in accordance with our directions given for the assessment year 2009-10. 34. The only other issue raised in this appeal is against the addition on account of transfer pricing adjustment amounting to ₹ 38,31,848/- in the international transaction of Interest on outstanding receivables from the AE. The factual matrix of this ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the transfer pricing adjustment on account of interest income short charged or uncharged. It was argued that insertion of the Explanation with retrospective effect covers the assessment year under consideration and hence under/non-payment of interest by the AEs on the debt arising during the course of business also becomes international transactions, requiring the determination of its ALP. He referred to the decision of the Delhi Tribunal in Ameriprise (supra) in which this issue has been thoroughly discussed and eventually interest on trade receivables has been held to be an international transaction. Referring to the discussion in the said order, it was stated that the Delhi Bench in this case has also noted a decision of the Hon ble Bombay High Court in the case of CIT vs. Patni Computer Systems Ltd., (2013) 215 Taxmann 108 (Bom.), which dealt with question of law : (c) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again came up for consideration before the Hon ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd. vs. DCIT (2017) 398 ITR 120 (Del) . Following the earlier decision in Kusum Healthcare (supra) , it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra) , 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 (supra) , 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 for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. Similar view has been taken by the Delhi Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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