IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER Assessment Year: 2013-14 JCB India Ltd., Vs ACIT, B-1/1-1, 2^nd Floor, Circle-13(1), Mohan Cooperative Industrial New Delhi.

Estate, Mathura Road, New Delhi – 110 044. PAN: AAACE0078P (Appellant) (Respondent) Assessee by : Shri Vishal Kalra, Advocate;

Shri Ankit Sahani, Advocate; &

Shri Yishu Goel, AR Revenue by : Shri Dharamvir Singh, CIT-DR Date of Hearing : 26.12.2024 Date of Pronouncement : 21.02.2025

ORDER

PER ANUBHAV SHARMA, JM This appeal is preferred by the Assessee against the final assessment order dated 29.07.2022 passed by the Dy. Commissioner of Income Tax, Circle 13(1) (hereinafter referred to as the Ld. AO) u/s 144C/254/154/143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for assessment year 2013-14.

2. Heard and perused the records. The background and relevant facts of the case, are that JCB India Limited (‘JCB India’ or ‘Appellant’) is a subsidiary of J.C. Bamford Excavators Ltd., U.K (‘JCB UK’) and is engaged in manufacturing and trading of excavators/loaders/construction equipment, spares and components. Assessee has claimed that since establishment of the Appellant, JCB UK had licensed its proprietary technology to Appellant through various collaboration agreements. The Appellant had entered into Technology Transfer Agreements (‘TTA’) with its Associated Enterprises (‘AEs’) to receive requisite technology and know-how to enable it to manufacture technological advanced products of earthmoving and construction equipment.

3. During the Assessment year (“AY”) 2013-14, the Appellant entered into various international transactions with its AEs. The summary of international transactions is as follows:-

Segments/business Most Net profit JCB India’s Comparables activities Appropriate indicator price/ price/operating Method operating margin margin

1. Component Manufacturing Class I Transactional Operating 8.29% 3.73%

Import of raw material, Net Margin Profit (OP)/ components and spares Method Total Cost Export of components (TNMM) (TC)

rectification and rework Class II Comparable On cost to cost basis Reimbursement and Uncontrolled recovery of expenses Price (CUP)

Method

2. Equipment manufacturing A. Under contract manufacturing arrangement

3.1 The Transfer Pricing Officer (‘TPO’) accepted all the international transactions except the transaction of payment of royalty in relation to licensed manufacturing segment of the Appellant on various models. The details of the royalties paid to the AEs is shown below:

3.2 To benchmark the royalty transaction, the Appellant selected CUP as the most appropriate method and computed average royalty rate of 4 comparable agreements at 6.37% of net sales. Accordingly as per the assessee, royalty rate of 6.37% or less paid by Appellant was in accordance with the arm’s length standard prescribed under the Indian TP Regulations. Accordingly, it was concluded by the assessee that the value of the international transaction pertaining to payment of royalty by Appellant at 5% is at arm’s length.

3.3 Further, as a corroborative analysis, the transaction of payment of royalty has been benchmarked under TNMM in the TP documentation. The case of assessee is that given the payment of royalty is intrinsically linked with equipment licensed manufacturing segment of the Appellant, the international transactions under license manufacturing segment were benchmarked in aggregation under TNMM, including the transaction in the nature of payment of royalty. According to the assessee, under the corroborative analysis conducted by the Appellant, the average mean of OP/ Sales margin earned by the comparable companies is 6.16% as against the Appellant’s margin of 11.57%. Therefore, based on the corroborative analysis also, it was concluded that the value of the international transaction pertaining to payment of royalty by Appellant