DCIT, New Delhi V. M/s. JCB India Ltd., New Delhi

ITA 1119/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5694 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I - 1 NEW DELHI BEFORE SH. N. K. SAINI, AM AND MS. SUCHITRA KAMBLE , JM ITA NO. 1119/DEL/2015 : ASSTT. YEAR: 2010 - 11 DCIT , CIRCLE - 1 3(1) , NEW DELHI VS M/S JCB INDIA LTD., B - 1/I - 1, IIND FLOOR, CO - OPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A A ACE0078P ASSESSEE BY : SH. TARANDEEP SINGH, ADV. REVENUE BY : SH. SANJAY I. BARA , CIT DR DATE OF HEARING : 25 . 06 .201 8 DATE OF PRONOUN CEMENT: 25 . 06 .201 8 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 29.01.2015 PASSED BY THE AO U/S 143(3) R.W.S. 144C(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE HON B LE DRP HAS ERRED IN TAKING T HE VALUE OF ROYALTY PAID BY THE ASSESSEE TO ITS AE ON 3DX MODEL OF MACHINE AT THE RATE OF 0.25% OF SALES. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON BLE DRP HAS ERRED IN TPO'S FINDING THAT THERE ARE HARDLY ANY CHANGES FR OM THE PRODUCT 3S TO 3DX IN TERMS OF PERFORMANCE. THE ONLY FACT THAT HAS BEEN ACKNOWLEDGED IS THAT THERE MAY BE SOME COSMETIC CHANGES TO MODEL 3S TO ARRIVE AT MODEL 3DX. ITA NO. 1119/DEL/2015 JCB INDIA LTD. 2 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON BLE DRP HAS ERRED IN IGNORING THAT FINDINGS BY THE TPO THAT IN A SITUATION WHERE A PERSON IS ITSELF CAPABLE OF DEVELOP A PRODUCT AND HAS ACTUALLY DEVELOPED IT, THEN THERE IS NO REASON FOR IT TO MAKE PAYMENT FOR THAT ROYALTY TO THE THIRD PARTY I.E. IN INDEPENDENT SITUATION IN SIMILAR CIRCUMSTANCES, THERE IS NO CASE FOR MAKING ANY PAYMENT. 4. THE ORDER OF THE HON B LE DRP IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 6. THAT THE APPELLANT C ARVES LEAVE TO ADD, ALTER AMEND OR FOREGO ANY GROUND(S) OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT AN IDENTICAL ISSUE WAS A SUBJECT MATTER OF THE APPEAL BY THE ASSESSEE IN ITA NO.1180/DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11 WHEREIN VIDE ORDER DATED 08.05.2015, THE IDENTICAL ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO (COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD). 3 . IN HIS RIVAL SU BMISSIONS, THE LD. CIT DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE . 4. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAIL ABLE ON THE RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT AN IDENTICAL ISSUE RELATING TO THE VALUE OF ROYALTY P AID BY THE ASSESSEE TO ITS AE ON 3DX MODEL MACHINE WAS A SUBJECT MATTER OF THE ASSESSEE S APPEAL IN ITA NO.1180/DEL/2015 FOR THE ASSESSMENT YEA R 2010 - 11 WHEREIN THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO VIDE ORDER DATED ITA NO. 1119/DEL/2015 JCB INDIA LTD. 3 08.05.2015, THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 3 TO 3.8 WHICH READ AS UNDER: 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON REC ORD. A PERUSAL OF THE RECORD SHOWS THAT PURSUANT TO THE ASSESSEE S RETURN OF INCOME BEING FILED, THE AO REFERRED THE ISSUE TO THE TPO IN REGARD TO THE INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISES (HEREINAFTER REFERRED TO AE ). SINCE IN THE FACTS OF THE PRESENT CASE, WE ARE ONLY CONSIDERED WITH THE INTERNATIONAL TRANSACTION OF ONLY ROYALTY PAYMENT, WE WOULD BE ADVERTING ONLY TO THOSE FACTS. 3.1. IN ORDER TO ADDRESS THE BACKGROUND, WE FIRST REFER TO THE FACTS TAKEN INTO CONSIDERATION BY THE TPO IN HIS ORDER DATED 23.01.2014. A PERUSAL OF THE SAME SHOWS THAT JCB INDIA IS A WHOLLY OWNED SUBSIDIARY OF J.C. BAMFORD EXCAVATORS LTD., UK AND IS PRIMARILY A MANUFACTURER OF EARTHMOVING AND CONSTRUCTION EQUIPMENT. THE ASSESSEE IS FOUND TO HAVE COMME NCED OPERATIONS IN 1979 AND IS A KEY PLAYER IN THE INDIAN EARTHMOVING AND CONSTRUCTION EQUIPMENT INDUSTRY. DURING THE YEAR UNDER CONSIDERATION W.E.F 1 - 4.2009 JCB PUNE MERGED WITH JCB INDIA UNDER THE HON BLE HIGH COURT S APPROVED SCHEME. THE AMALGAMATION SCHEME WAS DULY APPROVED BY HON BLE MUMBAI HIGH COURT AND HON BLE DELHI HIGH COURT ON 5 - 2 - 2010 AND 26 - 5 - 2010 RESPECTIVELY. IT IS SEEN THAT THE TPO ADDRESSING THE BACKGROUND OF THE JCB GROUP TOOK NOTE OF THE FACT THAT IT WAS PROMOTED BY MR. JOSEPH CYRIL B AMFORD FOR MANUFACTURING CONSTRUCTION AND AGRICULTURE EQUIPMENTS IN 1945. THE JCB GROUP HEADQUARTERED IN UNITED KINGDOM AND THE ULTIMATE HOLDING COMPANY WAS TRANSMISSION AND ENGINEERING SERVICES NETHERLANDS BV. THE JCB GROUP HAS BEEN CONSIDERED TO BE A M AJOR PLAYER IN THE GLOBAL CONSTRUCTION AND AGRICULTURAL EQUIPMENT SECTORS AND WAS ONE OF THE WORLD S LARGEST AND MOST SUCCESSFUL CONSTRUCTION EQUIPMENT GROUPS. THE GROUP IS STATED TO HAVING 17 MANUFACTURING PLANTS ACROSS THE UK, THE USA, INDIA, CHINA, GER MANY AND SOUTH AMERICA AND ALSO IS CLAIMED TO HAVING SUBSIDIARIES IN FRANCE, GERMANY, ITALY, NETHERLANDS, BELGIUM, SPAIN AND SINGAPORE. THE GROUP IS FOUND TO HAVING EMPLOYED MORE THAN 6,000 PEOPLE AND MANUFACTURED 220 DIFFERENT MACHINES IN 13 PRODUCT RANG ES HAVING 550 DEALERS WITH 1000 LOCATIONS COVERED WORLDWIDE. JCB GROUP S SERVICE, PARTS AND ATTACHMENTS DIVISION AS PER THE TPO S RECORD CATERED TO THE DEMANDS OF CUSTOMERS FROM 5 CONTINENTS. ADDRESSING THE CAPABILITY OF THE GROUP, THE TPO IS FOUND TO HAV E ACCEPTED THE CLAIM OF THE ASSESSEE THAT 99% OF THE PARTS WERE DISPATCHED WITHIN 24 HOURS. PARTS CENTRES ITA NO. 1119/DEL/2015 JCB INDIA LTD. 4 ARE LOCATED IN PARIS, SAVANNAH, CALIFORNIA AND SINGAPORE TO SUPPORT DEALERS THROUGHOUT THE WORLD. 3.2. REVERTING TO THE ISSUE AT HAND, ON BEHALF OF THE ASSESSEE BEFORE US, IT IS CLAIMED THAT THE ASSESSEE MADE THE PAYMENT OF ROYALTY @ 6.37% OF NET SALES AND BENCHMARKED THE ROYALTY TRANSACTION USING TNMM METHOD. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LD. TPO REJECTED THE METHOD APPLI ED BY THE APPELLANT AND APPLIED CUP METHOD TAKING THE VALUE OF ROYALTY AT NIL. THE TPO AS PER RECORD IN COMING TO THE ABOVE CONCLUSION FIRST ISSUED CAUSE NOTICE ISSUED TO THE ASSESSEE ON THE FOLLOWING REASONING: - THE PAYMENT OF ROYALTY OF RS.1,37,46,72,5 52 DURING THE YEAR WAS EXAMINED IN DETAIL AND IT IS OBSERVED THAT NO SPECIFIC REASON REGARDING THE PAYMENT OF ROYALTY HAS BEEN FURNISHED IN THE TP DOCUMENTATION REPORT. IT IS ALSO OBSERVED THAT ROYALTY CONSTITUTES ABOUT 50% OF THE MANUFACTURING EXPENSES. FURTHER, IT WAS FOUND THAT THERE WERE TWO DIFFERENT RATES FOR PAYMENT OF ROYALTY, I.E.50% FOR DOMESTIC SALES, 8% FOR EXPORTS SALES ON JS75, JS 210 AND 3DX VERSION. 3.3. THE REPLY OF THE ASSESSEE, IT IS SEEN IN RESPONSE THERETO WAS NOT ACCEPTED BY THE A O AS THE TPO FOLLOWED THE VIEW TAKEN IN 2007 - 08 ASSESSMENT YEAR. CONSIDERING THE FACT THAT THE DRP - I (VIDE THEIR ORDER DATED 26.09.2011 IN 2007 - 08 ASSESSMENT YEAR) HAD CONSIDERED THE RELIANCE PLACED BY THE ASSESSEE ON THE REPORT OF PROF. J.P. SUBRAMANYAM THE THEN HEAD MECHANICAL ENGINEERING DEPARTMENT, IIT DELHI AND ON CONSIDERING THE SAME HAD COME TO THE CONCLUSION THAT THE REPORT WAS FLAWED AND DEFECTIVE AS IT DID NOT SPECIFY THE INCREASE IN THE PERFORMANCE OF THE MACHINERY BY ANY QUANTITATIVE FACTOR QU A THE CLAIM OF THE ASSESSEE THAT THE MODEL 3DX WAS A MAJOR TECHNOLOGICAL CHANGE OVER THE EARLIER MODEL 3D. FOLLOWING THE CONCLUSION THAT THERE WAS NO ACTUAL PERFORMANCE RELATED EVALUATION AND ALSO CONSIDERING THE FACT THAT THERE ON FACTS WERE THERE WERE N O PATENTS IN UK EITHER AND INFACT DESIGN REGISTRATION OF KEY PARTS WERE DONE BY CONTROLLER GENERAL OF PATENTS, DESIGNS AND TRADE MARKS OF INDIA IN JUNE 2005. IN THE CIRCUMSTANCES WERE MOST OF THE KEY PARTS ARE REGISTERED IN INDIA, CONTRIBUTION OF UK ENTIT Y WAS CONSIDERED TO BE MINOR AS MAJOR PART OF DESIGNING OF THIS INDIA SPECIFIC PRODUCT , IT WAS CONCLUDED HAD BEEN DONE IN INDIA. IN VIEW OF THESE FACTS THE TPO QUESTIONED THE OCCASION TO MAKE ROYALTY PAYMENTS TO JC BAMFORD. THUS RELYING ON THE REASONS CONSIDERED BY THE DRP IN 2007 - 08 ASSESSMENT YEAR THE TPO IN THE FACTS OF THE PRESENT CASE ADOPTED THE SAME REASONING LEADING TO REJECTION OF ASSESSEE S CLAIM. ITA NO. 1119/DEL/2015 JCB INDIA LTD. 5 3.4. PURSUANT TO THIS ADJUSTMENT OF RS.137,46,72,552/ - PROPOSED BY THE TPO WHICH SUBSEQUENTLY WA S RECTIFIED U/S 154 R.W.S. 92CA(3) ULTIMATELY RESULTING IN THE ADDITION OF RS.1,23,11,07,201/ - MADE BY WAY OF ADJUSTMENT IN TERMS OF THE DIRECTION OF THE DRP. 3.5. IN THE SAID FACTUAL BACKGROUND CONSIDERING THE CONSOLIDATED ORDER DATED 18.09.2013 PASSED BY THE CO - ORDINATE BENCH PERTAINING TO 2006 - 07 TO 2009 - 10 ASSESSMENT YEARS WHICH ORDER HAS BEEN FOLLOWED AGAIN BY THE CO - ORDINATE BENCH IN 2009 - 10 ASSESSMENT YEAR ITA NO. - 1946/DEL/2014 (WRONGLY MENTIONED AS 2008 - 09 IN THE CAUSE TITLE WHICH FACTS STANDS ADD RESSED BY PARA 1 OF THE AFORE - SAID ORDER), WE FIND THAT THE ISSUE IS COVERED BY THE AFORE - SAID ORDER. 3.6. WHILE COMING TO THE SAID CONCLUSION, WE HAVE TAKEN OURSELVES THROUGH THE RECORD AND SEEN THAT SIMILAR ARGUMENTS ON FACTS HAVE BEEN ADVANCED BY THE A SSESSEE IN 2006 - 07 TO 2008 - 09 ASSESSMENT YEARS WHEREIN THE TPO CONSISTENTLY HELD THAT THERE WAS NO NEW TECHNOLOGY. THE SAID ISSUE WHEN IT CAME BEFORE THE ITAT THE CO - ORDINATE BENCH VIDE ITS ORDER DATED 18.09.2012 RESTORED THE SAME VIEW OF THE DISCUSSION HELD IN PARA 10 - 13 OF THE SAID ORDER TO THE TPO WITH THE FOLLOWING OBSERVATIONS: - 14. IN VIEW OF THE ABOVE DISCUSSIONS, AS AGREED BETWEEN THE PARTIES, WE SET ASIDE THE ISSUE OF DETERMINING THE ARMS LENGTH PRICE TO THE FILE OF THE ASSESSING OFFICER FOR FR ESH ADJUDICATION IN ACCORDANCE WITH LAW. BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE GRANTED LIBERTY TO FILE FRESH T.P. STUDY AND FRESH COMPARABLES SO AS TO ARRIVE AT ARM S LENGTH PRICE IN ACCORDANCE WITH LAW. IN THE RESULT THIS GROUND OF THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES. 3.7. SIMILARLY IN 2009 - 10 ASSESSMENT YEAR ALSO IT IS SEEN THAT THE CO - ORDINATE BENCH VIDE ITS ORDER DATED 11.03.2014 RESTORED THE SAME ISSUE TO THE FILE TO THE AO IN SIMILAR FACTS AND CIRCUMSTANCES WITH THE FOLLOWING O BSERVATIONS: - 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE SAME ISSUE IN EARLIER 3 YEARS HAS BEEN SET ASIDE BY THE ITAT AND NO CONSEQUENTIAL ORDERS HAVE BEEN PASSED THEREON BY AO. IT APPEARS THAT THOUGH THE I TAT ORDER WAS PRODUCED BEFORE DRP BUT IT COULD NOT OBTAIN A PROPER REMAND OR COMMENT FROM AO. IN THESE CIRCUMSTANCES, INTEREST OF JUSTICE WILL ITA NO. 1119/DEL/2015 JCB INDIA LTD. 6 BE SERVED IF THE SIMILAR T.P. ISSUE IS ALSO RESTORED BACK TO THE FILE OF ASSESSING OFFICER WITH SIMILAR DIRECTI ONS AS IN EARLIER YEARS. 3.8. IN VIEW OF THE ABOVE JUDICIAL PRECEDENT CITED IN ASSESSEE S OWN CASE WHERE ADMITTEDLY THE SIMILARITY OF FACTS AND CIRCUMSTANCES STANDS ESTABLISHED THE VIEW TAKEN IN THE LEADING ORDER WHEN THE ISSUE FIRST AROSE WILL NEED TO B E FOLLOWED. ACCORDINGLY RESPECTFULLY FOLLOWING THE VIEW TAKEN THE ISSUE IN THE YEAR UNDER CONSIDERATION IS ALSO RESTORED TO THE FILE OF THE TPO WITH IDENTICAL DIRECTION. 5 . SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 08.05.2015, THI S ISSUE IS SET ASIDE TO THE FILE OF THE AO TO BE DECIDED AS PER THE DIRECTIONS GIVEN IN THE AFORESAID REFERRED TO ORDER DATED 08.05.2015. 6 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSES. (ORDER PR ONO UNCED IN TH E OPEN COU R T ON 25 / 0 6 /2018 ) SD/ - SD/ - ( SUCHITRA KAMBLE ) ( N. K. SAINI ) JUDIC IAL MEMBER ACCOUNTANT MEMBER DATED: 25 /06 /2018 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR