ITAT Grants Cummins India ₹210 Cr Relief, Deletes ₹12.7 Cr TP Adjustment, Upholds 10AA & 80JJAA Claims Despite One‑Day Delay in Return Filing [Read Order]

The PuneBench of the Income Tax Appellate Tribunal (ITAT) has delivered a landmark order in the case of Cummins India Limited, granting the multinational engine manufacturer tax relief of over ₹210 crore for AY 2018‑19.

The ruling addresses multiple contentious issues, including transfer pricing adjustments on royalty payments, denial of deductions under Sections 10AA and 80JJAA due to delayed return filing, and weighted deduction claims under Section 35(2AB).

The Assessing Officer (AO) and Transfer Pricing Officer (TPO) had made an upward adjustment of ₹12.7 crore on royalty payments made by Cummins India to its Associated Enterprise (Cummins Inc., USA). The TPO segregated royalty payments into domestic and export sales, noting that export royalties were charged at significantly higher rates (up to 8%) compared to domestic sales (1–5%), despite the same technology being used.

Applying the Comparable Uncontrolled Price (CUP) method, the TPO fixed the arm’s length royalty rate at 2.75% and proposed an adjustment.

The Dispute Resolution Panel (DRP) upheld this approach, rejecting Cummins India’s contention that royalty payments were integral to its manufacturing activity and should be benchmarked under the Transactional Net Margin Method (TNMM) on an aggregated basis.

However, the ITAT relied on the Bombay High Court’s July 2023 ruling in Cummins India’s own case for AYs 2015–16 to 2017–18, which categorically held that once TNMM is accepted as the most appropriate method for the manufacturing segment, royalty payments cannot be carved out and benchmarked separately under CUP.

Applying this ratio, the Tribunal deleted the ₹12.7 crore adjustment, holding that the aggregation approach was correct and consistent with earlier years.

The Centralised Processing Centre (CPC) had denied Cummins India’s claim for deduction under Section 10AA, citing a one‑day delay in filing the return of income. The return was filed on December 1, 2018, instead of the statutory due date of November 30, 2018.

The CIT(A) allowed the claim, noting that the audit report in Form 56F had been filed on time and that Section 10AA did not mandate timely return filing for AY 2018‑19. The ITAT upheld this view, emphasising that the requirement to file returns before the due date was introduced only by the Finance Act, 2023, effective AY 2024‑25.

The Tribunal observed that technical glitches on the income‑tax portal caused the delay and that substantive eligibility under Section 10AA was not in dispute.

Similarly, CPC had denied Cummins India’s claim under Section 80JJAA, which provides deductions for employment of new employees, citing the same one‑day delay. The CIT(A) allowed the claim, noting that Form 10DA was filed on time and all supporting documents were submitted within the statutory deadline.

The ITAT upheld this relief, citing precedents such as Symbiosis Pharmaceuticals P. Ltd v. DCIT (Chandigarh ITAT), which held that procedural delays should not defeat substantive compliance.

The AO denied Cummins India’s claim for weighted deduction on R&D expenditure under Section 35(2AB) due to the non‑availability of the DSIR certificate (Form 3CL) at the time of assessment. The assessee later obtained the certificate.

The ITAT remanded the matter back to the AO for verification, directing that the claim be allowed if the certificate and expenditure were found genuine.

The Tribunal also directed the AO to recompute book profits under Section 115JB correctly, rather than merely adopting CPC figures, and noted that penalty initiation under Section 270A was consequential.

The Tribunal highlighted that technical delays of a few hours or one day should not deprive taxpayers of substantive benefits, particularly when statutory compliance, such as audit reports and certificates were completed on time.

In conclusion, the two-membered bench of Astha Chandra (Judicial Member) and Manish Borad(Technical Member) deleted ₹12.7 crore TP adjustment, allowed ₹196.96 crore deduction u/s 10AA, allowed ₹60.72 lakh deduction u/s 80JJAA and remanded ₹13.10 crore deduction u/s 35(2AB) for verification.

In total, Cummins India secured tax relief exceeding ₹210 crore, with the Tribunal dismissing Revenue’s appeal and allowing key grounds raised by the assessee.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates