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 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

M/s JCB India Ltd., B1/1-1, 2nd Floor, Mohan Cooperative Industrial Estate, Mathura Road, New Delhi-110044 Vs. DCIT, Circle-13(1), New Delhi
May, 11th 2015
               IN THE INCOME TAX APPELLATE TRIBUNAL
                     DELHI BENCH: `I' NEW DELHI

             BEFORE SMT DIVA SINGH, JUDICIAL MEMBER
                                AND
                SH.N.K.SAINI, ACCOUNTANT MEMBER

                 I.T.A .No.-1180/Del/2015 & SA-155/Del/2015
                         (ASSESSMENT YEAR- 2010-11)

      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)




                                                                            Page 2 of 9
                                                      I.T.A .No.-1180/Del/2015 &
                                                                 SA-155/Del/2015

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

                                                                      Page 3 of 9
                                                           I.T.A .No.-1180/Del/2015 &
                                                                      SA-155/Del/2015

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

                                                                             Page 4 of 9
                                                       I.T.A .No.-1180/Del/2015 &
                                                                  SA-155/Del/2015

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."



                                                                       Page 5 of 9
                                                           I.T.A .No.-1180/Del/2015 &
                                                                      SA-155/Del/2015

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.



                                                                             Page 6 of 9
                                                          I.T.A .No.-1180/Del/2015 &
                                                                     SA-155/Del/2015

       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


                                                                            Page 7 of 9
                                                       I.T.A .No.-1180/Del/2015 &
                                                                  SA-155/Del/2015

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




                                                                       Page 8 of 9
                                                             I.T.A .No.-1180/Del/2015 &
                                                                        SA-155/Del/2015




                                                    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.




                                                                             Page 9 of 9

 
 
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