JCB INDIA LTD,NEW DELHI V. ACIT, CIRCLE-13(1), NEW DELHI

ITA 2327/DEL/2022

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JCB India Ltd., a subsidiary of J.C. Bamford Excavators Ltd., UK, engaged in manufacturing and trading of construction equipment, appealed against the final assessment order passed by the Deputy Commissioner of Income Tax, which included a transfer pricing adjustment on royalty payments made to its non-UK AE, JCB VibromaxGmBH. The TPO had determined the arm's length rate of royalty to be 2%, significantly lower than the 5% agreed upon in the Technology Transfer Agreement (TTA). The Tribunal examined the consistency of the TPO's approach with previous assessments and the principles of the MAP and APA, ultimately finding that the TPO's adjustment was not substantiated by adequate reasoning or evidence.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474539 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Other Referred Cases: Pr. CIT vs Ameriprise India Pvt Ltd, FIS Global Business Solutions India (P) Ltd vs DCIT, Aker Powergas Pvt Ltd vs DCIT, Spencer Stuart (India) (P.) Ltd vs ACIT, DCIT vs Mission Pharma Logistics (India) Pvt. Ltd., AbicorBinzel Production (India) Pvt. Ltd vs DCIT, Tieto IT Services India (P.) Ltd vs DCIT, Radhasoami Satsang vs CIT, CIT vs Neo Poly Pack Private Limited, DIT(E) vs Apparel Export Promotion Council, CIT vs Girish Mohan Ganeriwala, J.P. Morgan Services India Pvt. Ltd vs DCIT, Concentrix Daksh Services India Pvt Ltd vs DCIT, Fidelity Business Services India Pvt. Ltd vs DCIT, ACIT vs EIT Services India (P) Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHARAMVIR SINGH
• Assessee Lawyers: VISHAL KALRA
• Keywords: Transfer pricing; International transaction; Competent authority
• Section: 119; 263; 271(1)(c); 11; 22; 234B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.2327/Del/2022 Assessment Year: 2013-14 JCB India Ltd., B-1/1-1, 2nd Floor, Mohan Cooperative Industrial Estate, Mathura Road, New Delhi – 110 044. PAN: AAACE0078P Vs ACIT, Circle-13(1), New Delhi. (Appellant) (Respondent) Assessee by : Shri Vishal Kalra, Advocate; Shri Ankit Sahani, Advocate; & Shri Yishu Goel, AR Revenue by : Shri Dharamvir Singh, CIT-DR Date of Hearing : 26.12.2024 Date of Pronouncement : 21.02.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Assessee against the final assessment order dated 29.07.2022 passed by the Dy. Commissioner of Income Tax, Circle 13(1) (hereinafter referred to as the Ld. AO) u/s 144C/254/154/143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for assessment year 2013-14. ITA No.2327/Del/2022 2 2. Heard and perused the records. The background and relevant facts of the case, are that JCB India Limited (‘JCB India’ or ‘Appellant’) is a subsidiary of J.C. Bamford Excavators Ltd., U.K (‘JCB UK’) and is engaged in manufacturing and trading of excavators/loaders/construction equipment, spares and components. Assessee has claimed that since establishment of the Appellant, JCB UK had licensed its proprietary technology to Appellant through various collaboration agreements. The Appellant had entered into Technology Transfer Agreements (‘TTA’) with its Associated Enterprises (‘AEs’) to receive requisite technology and know-how to enable it to manufacture technological advanced products of earthmoving and construction equipment. 3. During the Assessment year (“AY”) 2013-14, the Appellant entered into various international transactions with its AEs. The summary of international transactions is as follows:- Segments/business activities Most Appropriate Method Net profit indicator JCB India’s price/ operating margin Comparables price/operating margin 1. Component Manufacturing Class I Import of raw material, components and spares Export of components rectification and rework Transactional Net Margin Method (TNMM) Operating Profit (OP)/ Total Cost (TC) 8.29% 3.73% Class II Reimbursement and recovery of expenses Comparable Uncontrolled Price (CUP) Method On cost to cost basis 2. Equipment manufacturing A. Under contract manufacturing arrangement ITA No.2327/Del/2022 3 Class I Import of raw material, components and spares Export of finished Goods TNMM OP/TC 5.83% 5.27% Class II Reimbursement and recovery of expenses CUP On cost to cost basis B. Under licensed manufacturing arrangement Class I Import of Raw material, components and spares Import of finished goods Import of fixed assets Export of finished goods Export of components and spares Export of sales Promotional material Warranty claims TNMM Operating Profit/ Sales (OP/Sales0 11.57% 6.16% Class II Payment of royalty CUP-Benchmarked using external third party price/rates 5.00% 6.37% Class III Reimbursement and recovery of expenses CUP On cost to cost basis 3. Procurement Support Services Class I Export of components Procurement support services Rectification and rework TNMM OP/TC 56.3% 14.79% Class II Recovery of expenses CUP On cost to cost basis 4. Design Centre Class I Design engineering Services TNMM OP/TC 47.45% 11.23% Class II Reimbursement and recovery of expenses CUP On cost to cost basis Table 2: Summary of economic analysis for specified domestic transactions Nature of SDTs Most Appropriate Method Arm’s length price Payment for services Rendered Other method Refer Section 11 Payment of key managerial Remuneration Other method Refer Section 11 ITA No.2327/Del/2022 4 3.1 The Transfer Pricing Officer (‘TPO’) accepted all the international transactions except the transaction of payment of royalty in relation to licensed manufacturing segment of the Appellant on various models. The details of the royalties paid to the AEs is shown below: Name of the AE Country Model Royalty paid @ 5% (In INR) J.C. Bamford Excavators Ltd United Kingdom (“UK”) 3DX 1,712,215,011 2DX 25,562,495 JCB Heavy Products Ltd. Tracked Excavator 210,539,866 JCB Earthmovers Ltd. Wheel Loader Shovels 49,713,841 JCB VibromaxGmBH Germany Compactor 25,388,509 Grand Total 2,023,419,722 3.2 To benchmark the royalty transaction, the Appellant selected CUP as the most appropriate method and computed average royalty rate of 4 comparable agreements at 6.37% of net sales. Accordingly as per the assessee, royalty rate of 6.37% or less paid by Appellant was in accordance with the arm’s length standard prescribed under the Indian TP Regulations. Accordingly, it was concluded by the assessee that the value of the international transaction pertaining to payment of royalty by Appellant at 5% is at arm’s length. 3.3 Further, as a corroborative analysis, the transaction of payment of royalty has been benchmarked under TNMM in the TP documentation. The case of assessee is that given the payment of royalty is intrinsically linked with equipment licensed manufacturing segment of the Appellant, the international ITA No.2327/Del/2022 5 transactions under license manufacturing segment were benchmarked in aggregation under TNMM, including the transaction in the nature of payment of royalty. According to the assessee, under the corroborative analysis conducted by the Appellant, the average mean of OP/ Sales margin earned by the comparable companies is 6.16% as against the Appellant’s margin of 11.57%. Therefore, based on the corroborative analysis also, it was concluded that the value of the international transaction pertaining to payment of royalty by Appellant is at arm’s length price. 4. Ld. Counsel of assessee has pointed that in the first round of assessment proceedings the TPO in his order dated October 20, 2016, made TP adjustment of INR 1,21,40,52,000 by treating the arm’s length price of royalty paid at 2% as against the 5% royalty paid by the Appellant. The AO passed draft assessment order dated December 29, 2016, making the aforesaid transfer pricing addition. The Dispute Resolution Panel (‘DRP’) vide directions dated September 05, 2017, upheld the adjustment made by TPO. Pursuant to TPO’s effect order, the AO passed its final order dated October 30, 2017, confirming the transfer pricing addition. Aggrieved by the same, the Appellant filed an appeal before this Tribunal and the Tribunal, while disposing off the Appellant’s appeal vide order dated May 29, 2019, held that the issue of payment of royalty made by the Appellant to its AEs in UK had already been settled by the competent authorities of UK & India under MAP and hence the appeal pertaining to royalty payments made to AEs in UK was allowed to be ITA No.2327/Del/2022 6 withdrawn and the payment of royalty made by Appellant to its AE in Germany was remanded back to the TPO. Here itself it will be beneficial to reproduce the relevant part of the order dated 29/05/2019 of the co-ordinate bench:- “Accordingly, we direct Ld. TPO to determine arm’s length price of international transaction entered into by assessee with Associated Enterprise in Germany for A.Y. 2013-14 as per law. Needless to say that proper opportunity shall be granted to assessee to represent its case.” 5. Thereafter in second round of assessment proceedings the AO made a fresh reference under section 92CA(1) of the Act to TPO for determination of ALP of royalty paid by the Appellant to Non UK AE. The TPO determined arm’s length rate of royalty to be 2%, based on identification of single comparable agreement with royalty rate of 3% by application of broad search criteria under ‘Other Method’. The TPO, thereafter, also made adjustment of 1% to the royalty rate in the alleged comparable agreement, and consequently, made substantive adjustment of INR 1,52,33,105 on account of royalty paid to Non UK AE - JCB VibromaxGmBH. The AO passed draft order dated September 29, 2021, incorporating the adjustments computed by the TPO and the DRP upheld the transfer pricing addition vide directions dated June 08, 2022. Pursuant to the same, the AO passed the impugned assessment order dated July 29, 2022 confirming the transfer pricing addition. The assessee is now in appeal raising following grounds:- ITA No.2327/Del/2022 7 “That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in law and in facts in assessing the total income of the Appellant at INR 7,60,09,47,685. 2. That on the facts and circumstances of the case and in law, the order passed by the AO is bad in law and void ab initio since the order passed dated July 29, 2022, is not accompanied with the notice of tax demand and tax computation sheet as required under section/s 156 read with section 143 of the Act, thus barred by limitation 3. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred on facts and in law, in making a substantive transfer pricing adjustment on account of payment of royalty made to associated enterprise (AE') based in Germany (hereinafter referred to as \"Non-UK AE\"), even though the royalty paid to Non-UK AE had been accepted to be at arm's length in past AYs as well as subsequent AYs 4. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred on facts and in law, in making a substantive adjustment of INR 1,52,33,105/- towards transfer pricing adjustment on the royalty amount paid by the Appellant to its Non-UK AE, without appreciating or erring:- 4.1. the economic analysis, benchmarking methodology followed and arbitrarily rejecting/ ignoring the uncontrolled comparable license agreements identified for applying Comparable Uncontrolled Price ('CUP') method in its transfer pricing documentation maintained as per the provisions of the Act, 4.2. the corroborative benchmarking of royalty payment under Transactional Net Margin Method ('TNMM') disregarding the principle of aggregation of benchmarking closely linked transactions, ignoring the settled ratio decidendi; 4.3. in upholding transfer pricing adjustment stating application of Other Method to broaden the selection criteria for comparable agreements and selecting a non-exclusive trademark agreement as comparable to the Appellant's exclusive technology transfer agreement. and not accepting the comparable agreements identified by the Appellant from the TPOS search process: 4.4 misinterpreting the benefits received by the Appellant under the Technology Transfer Agreement and further disregarding the business model and key value drivers of the Appellant; ITA No.2327/Del/2022 8 4.5. misinterpreting disclosures made in the audit report of the Appellant and erroneously alleging that the Appellant is engaged in R&D activities, Import substitution and that the AE does not have patent registered in relation to the licensed products. 5. Without prejudice and on the facts and circumstances of the case and in law, the AO/DRP/TPO erred in computing the ad hoc transfer price of the royalty at rate of 2 percent post certain economic adjustments based on surmises and conjectures de hors the fact that in the comparable agreement selected by TPO, the royalty rate was 3%. 6. Without prejudice, that on the facts and circumstances of the case and in law, the AO/ DRP/TPO have erred by not giving due cognizance to the fact that the Appellant has entered into settlement with the Revenue under a Mutual Agreement Procedure (\"MAP\") between the Competent Authority (\"CA\") of India and CA of the UK under Article 27 of India-UK Double Taxation Avoidance Agreement for AY 2013-14 in respect of royalty payments made to UK based AEs and completely disregarding the fact that the royalty payments to UK based AEs as well as Non-UK AE are similar in nature and parameters agreed in the MAP for UK based AEs can be used to determine the arm's length price for royalty payment made to Non-UK AE. 7. That on the facts and circumstances of the case and in law, the AO has erred in levying interest under sections 234A, 234B and 234C of the Act. 8. That on the facts and circumstances of the case and in law, the AO also erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of income. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal.” 6. Taking into consideration the contentions of both the sides we find that grounds of appeal No. 1 & 2 are general and need no specific determination. The substantial grounds pressed are grounds No. 3 to 6 covering the issue of ALP bench marking of Royalty Payment to non-UK entities, JCB VibromaxGmBH. ITA No.2327/Del/2022 9 6.1 Ld. Counsel has primarily relied a Advance Pricing Agreement (‘APA') for the years AY 2018-19 to 2022-23, which covers royalty transactions with JCB UK entities. The Arm's Length Rate of royalty in the agreement is determined at 5%. It is contended that the Appellant's pre-royalty operating margin in the licensed manufacturing segment falls within the range of 13.5% to 18.5%. Accordingly the Ld. Counsel has stressed for admission and consideration of the additional ground as raised below; “1. That on the facts and circumstances of the case and in law, the Appellant has entered into Advance Pricing Agreement (“APA”) with CBDT for identical international transaction of royalty payment to JCB UK entities for AY 2018-19 to 2022-23 and that applying same parameters agreed in APA, the impugned international transaction of payment of royalty made to non- UK entity (Germany) is at arm’s length price.” 7. The contention of Ld. Counsel is that that the impugned transaction of royalty with non-UK entities being linked to the licensed manufacturing segment are similar in nature, and therefore, drawing support from the APA, the royalty rate of 5% be considered to be ALP. It is further submitted by the Ld. Counsel that the APA has been concluded considering the multiple aspects and has persuasive value for non-covered transactions as well if they are similar in nature. Reliance in this regard is placed on the decision of Hon’ble Delhi High Court in the case of Pr. CIT vs Ameriprise India Pvt Ltd ITA 206 / 2016 wherein proposition has been accepted in relation to application of the APA entered into with CBDT for other years. Reliance in this regard is also placed on the following: ITA No.2327/Del/2022 10 i. FIS Global Business Solutions India (P) Ltd. vs DCIT: [2020] 118 taxmann.com 221 (Delhi – Trib.) ii. Aker Powergas Pvt Ltd vs DCIT: ITA 2213/Mum/2017 iii. Spencer Stuart (India) (P.) Ltd. vs ACIT: ITA No. 7117/Mum/2012 iv. DCIT vs Mission Pharma Logistics (India) Pvt. Ltd.: I.T.A. No. 15/Ahd/2019 v. AbicorBinzel Production (India) Pvt. Ltd. vs. DCIT: ITA No. 139/PN/2014 vi. Tieto IT Services India (P.) Ltd. vs. DCIT: (2018) 92 taxmann.com 8 (Pune-Trib.) 7.1 Then Ld. Counsel has submitted that the DRP/TPO has not followed the principal of consistency, in so far, approach for computing ALP of royalty. In this regard, the Appellant placed on record, a summary chart depicting the approach applied in case of the Appellant over the years:- S. No. Assessment Year Treatment in respect of UK entities for royalty payment of 5% Treatment in respect of German entities for royalty payment of 5% Treatment in respect of USA entities for royalty payment of 5% Royalty Rate agreed as per MAP Proceedings in respect of UK entities 1. 2010-11 Adjustment made only on 3DX model. (refer items 5-7 of the convenience compilation) No addition Not applicable as agreement entered into on 23 October 2013 5% 2. 2011-12 5% 3. 2012-13 5% 4. 2013-14 Impugned AY - Addition made for Germany entity. However, the royalty payment in respect of UK entities was covered under MAP. 4% ITA No.2327/Del/2022 11 5. 2014-15 Adjustment made on 3DX model only (refer items 9-10 of the convenience compilation) No addition No addition 4% 6. 2015-16 3% 7. 2016-17 4% 8. 2017-18 Settled under MAP Pending before TPO (second round of proceedings) 4% 7.2 Ld. Counsel has pointed out that in the similar facts and circumstances for assessment years 2014-15 and 2015-16, the department had sought to make the adjustment in respect of Royalty payment of model other than 3DX by invoking the provisions of section 263 of the Act and the matter travelled to the Tribunal. The Tribunal vide order dated January 19, 2022, quashed the order passed by the PCIT under section 263 of the Act. The Tribunal affirmed that the payment made by the Appellant for Royalty, excluding JCB UK Entities, was at an arm's length. In this regard, Appellant’s counsel has placed reliance on the decision of the Hon’ble Supreme Court in the case of Radhasoami Satsang vs. CIT: [1992] 193 ITR 321 (SC) to impress that even if principles of res judicata is not applicable in assessment proceedings still the principle of consistency needs to be honoured if there is no change of circumstances. As for this proposition reliance is also placed on the following decisions:  CIT vs. Neo Poly Pack Private Limited: [2000] 245 ITR 492 (Del HC)  DIT(E) vs. Apparel Export Promotion Council: [2000] 244 ITR 734 (Del HC)  CIT vs. Girish Mohan Ganeriwala: [2003] 260 ITR 417 (P&H HC) ITA No.2327/Del/2022 12 8. Then contending on the persuasive value of MAP on similar transactions with non-UK AE, it was contended that without prejudice that royalty rate as determined by subsequent year’s APA may be adopted, ld. Counsel submitted that the Appellant for captioned AY, has entered into a settlement with the Revenue under a MAP between the CA of India and CA of UK under Article 27 of India-UK Double Taxation Avoidance Agreement and it has been held in various jurisprudence that ALP of similar transactions can be determined through the same parameters as agreed in the MAP with CA of a different jurisdiction. It was pointed out that the MAP authorities have also resolved the dispute regarding royalty payment to JCB UK entities between 4-5%. Thus, the stand of the Appellant gets fortified further that 5% royalty payment is at ALP and deserves to be accepted as have been consistently accepted in the past and subsequent years and also under APA. Reliance in this regard is placed in the Hon’ble Bombay High Court Judgement in the case of J.P. Morgan Services India Pvt. Ltd[2019] 263 Taxman 141 (Bombay), as affirmed by the Hon’ble Supreme Court in [2020] 119 taxmann.com 414 (SC), wherein it was held as under:- “MAP has been drawn after the consideration of relevant aspects giving rise to transfer pricing adjustment and the CBDT in the later year agreed that such transfer pricing consideration in relation to US based transactions can be safely adopted for the purpose of the assessee's non- US based transactions…therefore, it would be wholly inappropriate to allow the revenue to argue to the contrary” 8.1 Reliance in this regard is also placed on the following: ITA No.2327/Del/2022 13 i. Concentrix Daksh Services India Pvt Ltd vs DCIT [2019] 102 taxmann.com 497 (Delhi - Trib.) ii. Fidelity Business Services India Pvt. Ltd. Vs DCIT: ITA Nos. 5872/Del/2011 iii. ACIT vs EIT Services India (P) Ltd.: [2022] 142 taxmann.com 175 (Bangalore – Trib.) 9. Then on the rejection of benchmarking approach adopted by Appellant with respect to payment of royalty it comes up that in the TP documentation maintained by the Appellant, the international transaction in the nature of payment of royalty was benchmarked under CUP method. The Appellant carried out search on RoyaltyStat’s online database of royalty rates (www.royaltystat.com), wherein non-comparable agreements were eliminated and agreements were selected, which may be appropriate to provide a benchmark for the royalty payable by the Appellant for the patent, technology / technical know-how, and trademark / trade name licenses to the Non-UK AE. The search yielded 4 comparable agreements and the arm’s length royalty rate was determined at 6.37% vis-à-vis the 5% royalty paid by the Appellant. The TPO rejected the comparables selected by the Appellant by observing the following:  Neither the product nor the time or the country is comparable, thereby, defeating satisfaction of CUP method.  All the agreements are specific to US. ITA No.2327/Del/2022 14  Quantum of payment of royalty is different and so are the terms and conditions of the agreements.  The royalty was being paid for patented products, which is not the situation in the case of the Appellant Company. 9.1 Now as with respect to the aforesaid allegations made by TPO, the Appellant’s counsel has submitted that as follows: “Comparable agreements selected by the Appellant are for both technology and trademark which are comparable to the TTAs entered into the by the Appellant with its AE which give right to the Appellant to exploit the technology and trademark of its AE. Appellant would like to submit that the royalty paid under TTA is not merely for the drawings and design, but rather a continuous flow of various IPR such as the underlying technology, know-how, technical information, material specifications, production standards, etc. without which it will not be possible to manufacture various earthmoving and construction equipment. The Appellant also leverages from the technical assistance received from the AE. With respect to allegation made by TPO that all the agreements are specific to US, the Appellant submits that the RoyaltyStat database has been compiled from the US SEC and it is obvious fact that the agreements will be specific to US, but it covers worldwide territory also, including India. For any licensee, the most critical aspect is whether the technology being received provides substantial commercial value and competitive ITA No.2327/Del/2022 15 relevance, rather than its patentability or legal protection. The fact that the Appellant is being able to successfully utilize the technology and manufacture various products and sell them in the Indian market, substantiates that the technology and technical inputs received under the TTAs have significant commercial value for which any third party would have paid royalty of equivalent amount. Further, the Appellant would like to highlight that in the earthmoving and construction equipment industry, no single patent may be filed for the entire earthmoving and construction machine, indeed patents form only a relatively small part of the relevant IP base which extends to IP like such as designs, copyrights, know-how etc. The machine in itself contains numerous parts having separate technology for which patent applications are made. The numerous parts are later assembled to make the machine which is later sold as a product in the market. The AEs of the Appellant holds multiple patents in Germany, being the location of principal manufacturing company and in India for components and parts which are used to make earthmoving and construction equipment.” 10. In this context it was pointed out that the TPO rejected the economic analysis performed by the Appellant and carried out a search using CUP with the India region. The TPO stated that the aforesaid search did not yield any comparable agreement and erroneously came to the conclusion that no independent entity in India is paying any royalty in respect of earthmoving and construction equipment. 11. Ld. Counsel submitted that in absence of any comparable agreement ITA No.2327/Del/2022 16 selected by the TPO under CUP method, the comparable agreement selected by the Appellant should be accepted by allowing sufficient flexibility in the comparability standard so that ends of justice are made. This view of the Appellant was supported on the basis of Organisation for Economic Co- operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (‘OECD Guidelines’) which states that useful information that are not identical to the controlled transactions, should not be dismissed due to rigid standard of comparability. It is submitted that the agreements selected by the Appellant are for similar products covering worldwide territory including India and are valid and subsisting agreements for relevant assessment year under consideration. 12. Ld. Counsel has submitted that the TPO itself changed the method to “other method” and conducted a fresh search which yielded 12 comparables out of which the TPO selected one comparable agreement with a royalty rate of 3%. It is alleged that the TPO on an ad-hoc basis then reduced this rate from 3% to 2% without giving any cogent reason just to bring the royalty rate at par with previous years, wherein the TPO has conducted the similar process however, only to benchmark 3DX model. 13. It submitted by the Ld. Counsel that the payment of royalty is intrinsically linked with licensed manufacturing segment of the Appellant wherein the royalty amount has already been included in the cost base of licensed manufacturing. Accordingly, the Appellant also submitted a ITA No.2327/Del/2022 17 corroborative analysis of benchmarking the international transactions in the nature of payment of royalty using TNMM as the most appropriate method. 14. Further, the transaction of transfer of technology in lieu of royalty payment is an integral part of the licensed manufacturing segment of the Appellant. Therefore, by benchmarking the profit margin earned under licensed manufacturing segment, the transaction of payment of royalty gets automatically benchmarked. Further, in accordance with the TTA, along with the license to manufacture, the Appellant gets access to various IPR such as the underlying technology, know-how, technical information, material specifications, production standards, etc. 15. However, DRP/TPO disregarded the submissions of the Appellant and went on to decide ALP of royalty rate at 2%. The TPO rejected the benchmarking of royalty transaction in aggregation under TNMM by giving reference to the Hon’ble ITAT’s direction for AY 2006-07 to AY 2008-09 in the Appellant’s own case. The rejection of bundled approach by Hon’ble ITAT was in view of Special Bench ruling in LG Electronics: [2013] 22 ITR(T) 1 (Delhi-Trib.) (SB) and not based on a factual analysis. It is submitted that the aggregation of royalty transaction rejected by the Hon’ble ITAT in view of Special Bench Ruling in LG Electronics (Supra) stands overruled as on date by judgement pronounced by Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications India(P) Ltd. v. CIT: [2015] 374 ITR 118 (Delhi). ITA No.2327/Del/2022 18 16. Revenue’s case; This all is countered by the Ld. DR by first relying completely on the orders of ld. Tax authorities below. It was contended by him that Tribunal has already denied the benefit of MAP in first round observing that MAP is not applicable to non-UK entites. It was contended that APA was entered in 2019 but was not pleaded earlier. So same cannot be a legal ground. It was contended by him that the agreement of assessee with Non-UK AE is different as there is no benefit of the Brand to the assessee, which is owned by the UK entity. He relied different clauses of the agreement trying to differentiate the nature of technology transfer and as to how there is no benefit of brand JCB to the assessee. 17. Findings; We have given thoughtful consideration to the submissions and edifying aspects that comes up on the facts is that in the second round of proceedings the learned TPO has taken into consideration the fact that this Tribunal with regard to UK based AE has accepted the MAP and TPO has also reflected in the impugned order that requirement in the second round was to examine the non UK AE transaction yet we find that the TPO preferred to examine the Technology Transfer Agreement dated 5.3.2004 and reproduced the same in the order also. This agreement dated 5.3.2004 is between assessee and the UK AE and not between assessee and the non UK AE. Learned counsel for the assessee has established before us on the basis of the agreement relied by TPO dated 5.3.2004 and its addendum of 2010 and the agreement dated 1.3.2010 which in fact is between the assessee and the non UK AE, that all the ITA No.2327/Del/2022 19 relevant clauses of the two agreements defining “know how” ‘license products”, “grant of license” and “consideration”, “rate of royalty”, clause (iii) “know-how assistance” and “information, trade mark and component” except for Annexure I, which mentions the “licensed products”, are all similarly worded and have similar intent reflecting as to how the non UK AE was to be compensated similarly to UK AE. The agreements establish that the JCB group based in UK entities or non UK entities had entered into identical technology transaction agreement for manufacturing of different licensed products. So far as the rights which assessee had received under two sets of agreements about manufacturing of licensed products in terms of use of trade mark, patent, know-how and license, the same are owned by the said foreign entities as part of the JCB group. We find no force in the contention of learned DR that since the JCB group is based in UK and has the ownership of the brand ‘JCB’, it is only the UK based AE of the JCB group should be entitled to be benefited from compensation for use of the JCB brand and accordingly have higher royalty. The non UK AE are part of the JCB group and if for any licensed products developed and protected in non UK country, the said product is manufactured by assessee in India that also entitles the assessee to use the JCB brand and royalty flows to the group only. The specific clauses relating to trade marking and patents in the technology transfer agreement between assessee and two sets of countries quite apparently make out that both set of the licensors had exclusive ownership of not only the licensed product’s patent etc., but also trade ITA No.2327/Del/2022 20 mark, to which they were respectively entitled to brand goodwill arising out of the production and selling of licensed products by the assessee. 18. There is nothing on record to show that the right to manufacture and marketing of licensed product received from UK AE ‘excavator loader” or the licensed product of non UK AE, JCB, Germany of “soil compactor” require any different sets of technical capabilities to manufacture them or the research and development activity of the two set of licensed products is in any way so distinct that there should be different sets of principles for royalty compensation. Merely on an assumption of robust research and development facility of assessee with regard to some products developed in India, the compensation under the technology transfer agreement with non UK AE cannot be distinguished. The burden on the learned TPO was to establish with categorical evidences that the licensed products were different in material part with regard to technology, market and profitability so as to apply different parameter for compensation as one applicable on UK entities and accepted in MAP. However, without any such exercise, the learned TPO has held the royalty payment to be not at arms’ length. 19. The learned TPO has relied the previous years’ orders wherein TNMM was rejected for bench marking of royalty, however, without taking into consideration the fact of the cases on the basis of different category of licensed product and the quantum of local input. There is nothing to establish that the licensed product of non UK AE have any key part which are developed and ITA No.2327/Del/2022 21 registered in India so as to say that the contribution of non UK entity is minor and the product is India specific only, so the TNMM approach as not accepted in previous your should be discarded for this year in case of Non-UK entities. 20. In the light of aforesaid, when we take into consideration the facts cited before us on the basis of Advance Price Agreement (APA) for identical international transaction of royalty payment to JCB UK entities for A.Y. 2018- 19 to 2022-23 and the MAP settlement with regard to the UK entities for present A.Y. 2013-14. 21. Further, taking into consideration as to how on the basis of these agreements of 2004 with addendum of 2010 with UK AE entities and the agreement of 2010 with non UK entity JCB, Germany, the royalty rates have been accepted in past between 4 or 5% only. 22. Then considering the fact that the TPO itself changed the method to “other method” and conducted a fresh search which yielded 12 comparables out of which the TPO selected only one comparable agreement with a royalty rate of 3% and then only on an ad-hoc basis TPO reduced this rate from 3% to 2% without giving any cogent reason just to bring the royalty rate at par with previous years, wherein the TPO has conducted the similar process however, only to benchmark 3DX model. Apart from above, when we consider the manner in which learned TPO has arrived at the ad-hoc rate of 2% by rejecting the assessee’s bench marking using CUP method and substituting it by “other ITA No.2327/Del/2022 22 methods”, we find that the “other method” was justified in assessee’s own case for A.Y. 2006-07, 2007-08 and 2008-09 for the reason of product having local inputs. There is no such case this year. 23. We further find that, the learned TPO has tried to examine the ALP of the disputed transaction on the basis of one comparable licensor Samsung Heavy Industries Co. Ltd., dealing with industrial equipments and having territory of operation in Korea Republic, for which also the TPO was not much satisfied about and in para 17.10 the learned TPO has observed as follows: 17.10. Out of the above 12 agreements, there is only one comparables i.e. L22795 which may be said to be a good comparable. Although this is also not geographically similar, I propose to choose this as a comparable since this agreement pertains to Asia (Republic of Korea), and no other comparable agreement was found in India. Thus, the following agreement was found to be comparable to the assessee by applying \"other method\": S. No. Source Database Agreement ID/Reference Nol. % of royalty on sales 1 RoyaltyStat L22795 3 24. We find that thereupon, without any finding of fact or finding substantiated by reasoning, in a very arbitrary manner the TPO has held as follows: “It is seen that the AE is charging royalty from the assessee based on sales on the premise that technology transfer is leading to enhancement in sales of the assessee. However, as stated in earlier parts of the order, intense functions being performed by the assessee on its own accord are also playing a crucial role in increase in its sales. Hence, commensurate adjustments need to be made to eliminate the material effects of such ITA No.2327/Del/2022 23 differences, which have arisen due to the additional functions being carried out by the assessee, as listed above. Accordingly, the arm's length rate of royalty payable by the assessee to its AE is held to be 2% by the undersigned to account for such material differences. This rate of royalty aligns with the ITAT observation in assessee' own case that contribution of UK entity was considered to be minor (stated supra).” 25. On the basis of aforesaid, we are of the considered view, that facts and circumstances of the case required the learned TPO to be more objective in his approach to counter the compensation of 4 to 5% accepted in the case of assessee in the MAP proceedings for A.Y. 2013-14 or APA for A.Y. 2018-19 to 2022-23 and the treatment in A.Y. 201-11, 2011-12 and 2012-13 when no addition was made in respect of Germany entities for royalty payment of 4-5%. The MAP proceedings or APA may not have a precedent effect on different assessees but in case of same assessee they at least have far reaching persuasive value and without countering anything on the basis of facts coupled with evidence, the ends of justice require giving assessee benefit of principles of consistency, which are recognized principles for determination of income and adjudication in tax matters. Reliance in this regard can be placed on the judgment of Hon’ble Supreme Court in Radha Swami Satsang (supra). However, the ld. Tax authorities seems to have artificially distinguished the transaction of assessee with Non-UK and UK AEs, to apply a different rate in case of non-UK AE. 26. As a consequence of aforesaid discussion, we are inclined to allow ground nos. 4 to 6 and the additional ground, as raised. The learned TPO is directed to ITA No.2327/Del/2022 24 accept the parameters of determination of compensation as accepted in APA and accordingly benefit the assessee in determination of ALP of disputed transaction with non-UK AE, too. Consequently, the appeal is allowed with consequences to follow the directions above. Order pronounced in the open court on 21.02.2025. Sd/- Sd/- (BRAJESH KUMAR SINGH) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 21st February, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "