Jcb India Ltd., New Delhi vs Assessee

M/s JCB India Ltd., vs DCIT, B1/1-1, 2nd Floor, Circle-13(1), Mohan Cooperative Industrial Estate, New Delhi Mathura Road, New Delhi-110044 PAN-AAACE0078P (APPELLANT) (RESPONDENT)

Appellant by Sh.G.C.Srivastava, Adv. & Sh. Saurabh Srivastava, FCA Respondent by Sh.Judy James, Jr. Standing Counsel

Date of Hearing 17.03.2015 Date of Pronouncement 08 .05.2015

ORDER PER DIVA SINGH, JM

By the present appeal the assessee assails the correctness of the final order passed by the AO dated 29.01.2015 u/s 143(3)r.w.s 144C(1) of the Income Tax Act, 1961 on various grounds. However the limited prayer of the assessee in the peculiar facts and circumstances of the case was that the issue under consideration in the present year has been a subject matter of adjudication by the ITAT in 2006-07 to 2008-09 assessment years and the view has been followed by the Co-ordinate Bench in 2009-10 Assessment Year also. Referring to the consolidated order of the ITAT whose copy is available at Paper Book pages 49-68 on record, it was his limited prayer that the issue in the year under consideration also may need to be sent back to the file of the Transfer Pricing Officer (hereinafter referred to as "TPO") with identical direction. Attention was invited to the submissions advanced before the Co-ordinate Bench on 13.03.2015 in the stay No.-155/Del/2015 wherein considering these facts the Co-ordinate I.T.A .No.-1180/Del/2015 & SA-155/Del/2015

Bench passed the interim order on the said date. Referring to the typed copy available of the said interim order it was pointed out that on the said date also the Revenue was represented by the very same standing counsel and only after considering that facts and circumstances were identical, the Co-ordinate Bench was pleased to direct the fixation of the stay petition alongwith the appeal for hearing on 16.03.2015. Since the ld. Standing Counsel for the Revenue neither agreed nor objected to the prayer of the Ld. AR. In order to afford time to the Revenue, the ld. AR was required to file small synopsis for the benefit of the Revenue as the copy of the interim order dated 13.03.2015 was also not available with the Ld. Standing Counsel. The appeal was accordingly adjourned to 17.03.2015 so as to have the departmental response on the pleadings of the Ld. AR.

2. On the next date of hearing, the Ld. AR again relied upon the synopsis filed and made a similar prayer. Filing a copy of the order dated 11.04.2015 in the case of the assessee it was pointed out that due to a typographical error the assessment year is wrongly mentioned 2008-09 in the cause title however on perusal of the first paragraph of the said order it can be seen that the appeal pertained to 2009-10 assessment years. Referring to the consolidated order which was followed by the Co-ordinate Bench in 2009-10 Assessment year it was submitted that identical issue was restored to the file to the TPO. The said argument it was submitted if accepted following the judicial precedent then it would address Ground Nos.-1,2,3 raised in the present appeal wherein reference to these specific orders has been made in Ground No.-3 which is reproduced hereunder for ready-reference:-

3. "The ld. DRP and the ld. AO (following the directions of the Ld. DRP), erred on facts and in law not appreciating that the issue under consideration is identical to the earlier years (AY 2006- 07 to AY 2008-09) and AY 2009-10 wherein the Hon'ble Bench has allowed the appeals (ITA No.-832/Del/2012, 6051/Del/2012, 95/Del/2012 and ITA No.1946/Del/2014) by adjudicating that appellant had received technology for the product 3DX and referred the matter back to Ld. TPO for determination of arm's length royalty rate using the methods prescribed under section 92C of the Act."

(emphasis provided)

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2.1. Considering the limited prayer of the assessee, the ld. Standing Counsel had no objection if following the judicial precedent the issue is restored.

3. We have heard the rival submissions and perused the material available on record. 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 commenced 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 Bamford 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 major 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, Germany 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

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product ranges 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 have accepted the claim of the assessee that 99% of the parts were dispatched within 24 hours. Parts centres 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 applied 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.1,37,46,72,552 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 AO 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 qua 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 no patents in UK

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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 entity 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. 3.4. Pursuant to this adjustment of Rs.137,46,72,552/-proposed by the TPO which subsequently was 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 addressed 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 assessee 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 fresh 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 is allowed for statistical purposes."

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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 observations:-

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 ITAT order was produced before DRP but it could not obtain a proper remand or comment from AO. In these circumstances, interest of justice will be served if the similar T.P. issue is also restored back to the file of assessing officer with similar directions 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 be 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

4. It is seen that the assessee has also agitated the following grounds in the present proceedings:-

4. "That on the facts and circumstances of the case and in law, the Ld. AO/Ld/ DRP has erred in rejecting the benefit of adjustment of brought forward losses and unabsorbed depreciation to the extent of Rs.34,53,80,569/- being difference of assessed losses and returned losses [i.e. Rs.17,55,44,06,035- 1,41,00,65,466] without appreciating that the said difference is on account of additions which are pending adjudication in Appeal before the Hon'ble Income Tax Appellate Tribunal.

5. That on the facts and circumstances of the case and in law, the Ld. AO/Ld. DRP has erred in making addition of Rs.2,500/- on account of notional disallowance on investments by invoking Section 14A of the Act read with Rule 8D without appreciating that:-

-The Appellant has not earned any exempt income during the year in question;

- The Appellant has not incurred any expenditure towards earning the exempt income.

6. That on the facts and circumstances of the case and in law, the Ld. AO erred in not allowing the complete credit of taxes deducted at source without assigning any reason.

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7. The ld. AO erred on facts and in law in charging interest under Section 234A, Section 234b, Section 234C and Section 234D of the Act.

8. The Ld. AO erred on facts and in law in initiating penalty proceedings under Section 271(1)(c) of the Act.

That the above grounds of appeal are without prejudice to each other."

5. Qua Ground No.-4 the limited prayer of the Ld. AR was that the AO may be directed to allow the loss as finally determined. Considering the record the said request was not opposed by the Ld. Standing Counsel.

6. We have heard the rival submissions and perused the material available on record. The relevant facts of the case are that during the course of assessment proceedings it was seen that the assessee had claimed loss of Rs.175,54,46,035/- pertaining to M/s JCB Manufacturing Ltd. as a result of the merger of the entity with the assessee company. The assessee was asked to furnish copies of ITRs of the merged company and also give justification for the claim of losses. The assessee vide letter dated 25.02.2004 as per record is found to have given the following reply:-

"It is respectfully submitted that M/s JCB Manufacturing Ltd. has merged into JCB India Ltd. with effect from April 1, 2009 in pursuance to the scheme of amalgamation, as approved by the Hon'ble Delhi High Courts of Bombay and Delhi vide their orders dated February 5th, 2010 and May 26th, 2010 respectively. The copy of the orders have already been filed by our submission dated 23rd October, 2013.

As required copy of Income tax return of erstwhile JCB manufacturing Ltd. for the A.Y. 2009-10 is enclosed as Exhibit 2 for your goodself ready reference. It may be observed from the said Income Tax Return, the total brought forward losses of JCB Manufacturing Ltd. have been claimed in the return of income of JCB India for the captioned assessment year in accordance with the provision of the Act."

6.1. In the said background the prayer of the Ld. AR it is seen is based on the fact that the appellant company claimed loss of JCB Manufacturing Limited ("amalgamating company") as returned to be set off and carry forward. The AO made TP adjustment and reduced the loss in the assessment order. The appeals against TP adjustments are stated to be pending before the ITAT in the case of JCB Manufacturing Limited. The fact that only assessed loss is to be carried forward is not in dispute. In the

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afore-mentioned facts and circumstances, the limited prayer of the assessee is allowed.

7. Qua Ground No-5 it was submitted that in view of the smallness of the amount, the ground is not being pressed. Apart from the above, no other ground was pressed. In view of the same the appeal of the assessee is allowed for statistical purposes.

8. In view of the above the stay petition becomes infructuous.

9. In the result the appeal of the assessee is allowed for statistical purposes and the stay petition becomes infructuous.

The said order was pronounced in the Open Court on 08th May, 2015.

Sd/- Sd/- (N.K.SAINI) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: the 08 May, 2015 *Amit Kumar*

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT NEW DELHI

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Date

1. Draft dictated on 21.04.2015 & PS 22.04.2015

2. Draft placed before author 23.04.2015 PS

3. Draft proposed & placed before the JM/AM second member

4. Draft discussed/approved by Second JM/AM Member.

5. Approved Draft comes to the PS/PS Sr.PS/PS .05.2015

6. Kept for pronouncement on PS

7. File sent to the Bench Clerk PS .05.2015

8. Date on which file goes to the AR

9. Date on which file goes to the Head Clerk.

10. Date of dispatch of Order.

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