JCB India Ltd. Vs DCIT (ITAT Delhi)
Reassessment of ₹166.09 Crore TP adjustment for royalty payments to Non-UK Entities in AY 2017-18 was remanded back to TPO
Conclusion: Reassessment of JCB India’s transfer pricing ( TP ) adjustment of Rs. 166.09 crore for royalty payments made to non-UK associated enterprises ( AEs ) for the assessment year 2017-18 was remanded back to TPO for determining the arm’s length price ( ALP ) for non-UK entities as assessment year 2017-18 was not covered within APA period.
Held: Assessee was a subsidiary of J.C. Bamford Excavators Ltd. ( UK ), which manufactured earthmoving and construction equipment in India. Assessee’s assessment was selected for scrutiny for assessment year 2017-18. AO made a transfer pricing adjustment of Rs. 1.66 billion related to royalty payments, increasing JCB India’s assessed income from Rs. 10.32 billion to Rs. 11.98 billion. Assessee entered into Mutual Agreement Procedure ( MAP ) agreements with the UK, which covered royalty payments for prior years, but the assessment year 2017-18 was not covered by the MAP. Assessee challenged the transfer pricing adjustments related to royalty payments made to Associated Enterprises ( AEs ), specifically in countries outside the UK ( like the US and Germany ). Assessee’s counsel argued that the royalty rate of 5% agreed in the APA for the period 2018-19 to 2022-23 should be applied for 2017-18, as the transactions were similar and contended that the same approach used in MAP for earlier years should apply to the assessment year under review. Revenue argued that since the assessment year 2017-18 was not covered by the MAP proceedings, the MAP rates should not be applied to royalty transactions with non-UK entities like those in the US and Germany. Further, Revenue contended that the rights under agreements with UK entities differed from those with non-UK entities, so the MAP rate settled for UK entities could not be extended to non-UK entities. It was held that the issue to be decided in the present Appeal was regarding royalty paid to non UK entities as assessee had not entered into APA/MPA proceedings for Assessment Year 2017-18 with UK entities. It was the case of the Assessee that no royalty adjustment should be made with non-UK entities and alternatively had also prayed for application for APA/MPA signed for assessment year 2018-19 to 2022-23 for the year under consideration as well. Admittedly, for assessment year 2017-18 was not covered within APA period. In previous rulings, similar cases were remanded back to the Transfer Pricing Officer ( TPO ) for determining the arm’s length price ( ALP ) for non-UK entities. Taking a consistent view of the matter, the issue was remitted in dispute to the file of the AO/TPO for fresh consideration on similar lines.
