The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) directed the 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.
JCB India Limited, the assessee is a subsidiary of J.C. Bamford Excavators Ltd. ( UK ), which manufactures earthmoving and construction equipment in India. The assessee’s assessment was selected for scrutiny for assessment year 2017-18.
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The 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. The 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.
The 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 ).
The 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.
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On the other hand, the department counsel 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.
The department 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.
The two-member bench comprising M. Balaganesh ( Accountant Member ) and Yogesh Kumar U.S. ( Judicial Member ) considered the MAP agreement and APA for other years, noting that they had set the royalty rate at 5% for transactions with UK entities.
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The Tribunal agreed that 2017-18 was not covered by either the MAP or APA and noted the precedents set by the coordinate benches. 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.
Therefore, the tribunal decided to remit the case back to the TPO for fresh consideration. The TPO was directed to follow similar lines as in previous rulings where adjustments were made for non-UK transactions. The assessee’s appeal partly allowed for statistical purposes.
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