Can you please ensure that the carriage return (0x0A) is not already present in the source file on the remote. You can check it by executing xxd command on the server like this:
xxd /remote/file.txt
Do you experience the same behavior using PuTTY's psft.exe utility?
You can download the file like this:
psftp.exe -pw password user@host
get /remote/file.txt c:/local/file.txt