DCIT, NEW DELHI vs. M/S. J.C.B. MANUFACTURING PVT. LTD., NEW DELHI

being disposed off by way of consolidated order to avoid repetition of discussion.

2. The Appellant, M/s. JCB India Ltd. (formerly known as M/s.

JCB Manufacturing Pvt. Ltd.) (hereinafter referred to as ‘the taxpayer’) by filing the present appeal being sought to set aside the impugned order dated 25.10.2012, passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short ‘the Act’) qua the assessment year 2008-09 on the grounds inter alia that :-

“TRANSFER PRICING MATTERS

Ground 1: Erroneous rejection of the transfer pricing analysis

On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer ('AO'), the Ld. Transfer Pricing Officer (TPO') pursuant to the directions of the 3 CO No.284/Del/2014 Ld. Dispute Resolution Panel (‘DRP') erred in rejecting the benchmarking approach adopted by the appellant in the transfer pricing study and thereby making a transfer pricing adjustment of Rs.9,82,34,197 to the international transaction of export of components from Plant I and Rs.17,098,544 to the transaction of provision of engineering design services from Plant II of the appellant by holding that these international transactions do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 (‘the Act’).

Ground 2: Rejection of economic adjustments conducted by the appellant to compute the operating profit from the international transaction of export of components

On the facts and in the circumstances of the case and in law, the Ld. DRP/AO/TPO has erred in rejecting the economic adjustments conducted by the appellant for computation of operating profit from international transaction of export of components, while doing so, the Ld. DRP/ AO/TPO has erred in rejecting the need to make economic adjustments to the tested party (instead of adjustments to the comparables) and stating that adjustments are permissible only to com parables and not to the appellant, i.e. tested party, as per provisions of Rule 10B (1) (e) (iii) of the Rules.

Ground 3: Denial of working capital adjustment to the com parables

On the facts and in the circumstances of the case and in law, the Ld. DRP/AO/TPO erred in denying a working capital adjustment to the operating profit margins of the com parables as conducted by the appellant despite the fact that such an adjustment was conducted in the Transfer Pricing documentation as maintained by the appellant in terms of section 92D of the Act read with Rule 10D of the Rules and all the details were submitted before the Ld. DRP/ AO/TPO during the course of assessment proceedings.

On the facts and in the circumstances of the case and in law, the Ld. DRP/AO/TPO has erred in rejecting the Comparable Uncontrolled Price data provided by the appellant in respect of its international transaction pertaining to provision of design engineering services to its Associated Enterprises.

Ground 5: Erroneous computation of adjustment on the entire service income of Design Engineering Services Segment

On the facts and in the circumstances of the case and in law, the Ld. DRP/AO/TPO has erred in computing the adjustment on the entire service income of the Design Engineering Services Segment (Plant III) of the Appellant amounting to Rs.67,388,310, whereas the international transaction pertaining to this segment amounts only to Rs.52,611,526. Thus, the Ld. DRP/AO/TPO have erred by not computing the adjustment on a proportionate basis.

Ground 6: Erroneous selection I rejection of comparables for international transaction of provision of engineering design services

On the facts and in the circumstances of the case and in law, the Ld. DRP/AO/TPO has erred in: a) Rejecting Onward Technologies Limited as functionally not comparable company; despite the fact that relevant CUP data for services procured by the Associated Enterprises from Onward Technologies was submitted by the appellant; b) Considering Rolta India Limited as comparable company; though the same is not functionally comparable.

On the facts and in the circumstances of the case, the Ld DRP/AO/TPO has erred in considering the single year data for the com parables i.e. data for Financial Year ('FY') 2007-08 only and disregarding multiple year data which was considered by the appellant in accordance with the provisions of Rule 10B (4) of the Rules. While doing so, the Ld. DRP/AO/TPO erred in appreciating the fact that the appellant has computed arm's length price for the transaction of provision of engineering design services on the basis of contemporaneous and multiple year data of com parables available at the time of conducting the Transfer Pricing Study and based on the same had offered a suo-moto adjustment of Rs.96,09,029 as income in its return of income, thereby clearly complying with the proviso to Rule 108 (4) of the Rules.

Ground 8: Ignoring the fact that the appellant is entitled to tax holiday under Section 10B of the Act

On the facts and in the circumstances of the case and in law, the Ld. DRP/AO/TPO erred in ignoring the fact that the appellant is entitled to tax holiday under section 108 of the Act on its profits of Plant I and therefore would not have any untoward motive of deriving a tax advantage by manipulating transfer prices of its international transactions.”

“1. Whether on the facts and circumstances of the case & in law, the Ld. members of DRP has erred in directing the TPO / AO to allow adjustment on account of working capital, in respect of plant 1.

2. Whether on the facts and circumstances of the case & in law, the Ld. members of DRP has erred in holding the CUP method as most appropriate for the period 01.04.2008 to 31.12.2008 on the basis of invoice of A.E. ignoring the fact that there was no material difference when the assessee is working as "license manufacturing" or "contract manufacture"

3. That the order of the DRP is erroneous and is not tenable on facts and in law.”

4. The Objector, M/s. JCB Manufacturing Pvt. Ltd., by filing the present cross objections challenged the assessment order dated 29.01.2014 passed by the Assessing Officer qua the assessment year 2009-10 on the grounds inter alia that :-

“1. Under the facts and circumstances of the case and in law, the Ld AO has erred in confirming the Ld. TPO's judgment regarding rejection of transfer pricing approach undertaken by the appellant. In particular, the AO /TPO has erred in: Grounds pertaining to international transaction of export of components from Plant I 1.1 Rejection of economic adjustment conducted by the respondent on account of unabsorbed overheads due to underutilisation of capacity to compute the operating profit from the international transaction of export of components;

7 CO No.284/Del/2014 1.2 Rejection of accounting adjustment conducted by the respondent (to account for differences in rates of depreciation adopted by the respondent vis-a-vis comparables) for computation of operating profit from international transaction of export of components without appreciating that the said rationale is' squarely covered under several judicial precedence from Hon'ble Tribunal;

Grounds pertaining to international transaction of export of equipment from Plant II

1.3 Incorrect consideration of B E M L Limited as a comparable company without appreciating the fact that the same is a public sector undertaking whereas, the selection of public sector undertakings is incorrect, the said rationale is squarely covered under several judicial precedence from Hon'ble Tribunal; and 1.4 Rejection of adjustment for marketing function which was absent in case of the assessee vis-a-vis the comparables as conducted by the assessee in its TP documentation.”

(AY 2008-09) ASSESSEE’S APPEAL

S.No. Nature of Transactions Amount of Method Transactions Adopted 1. Import of raw materials 2,03,11,666 TNMM 2. Export of finished components 1,47,13,85,613 TNMM 3. Export of finished goods 88,09,17,903 TNMM 4. Import of kits 39,72,80,839 CUP 5. Export of raw material / parts 35,02,75,661 TNMM (components) 6. Export of raw material 1,43,87,723 TNMM 7. Purchases of capital assets 25,68,296 CUP 8. Design Engineering Services 5,26,11,526 TNMM 9. Write back of provision for rectification 1,52,34,244 CUP & rework charges 10. Rectification & Rework charges 1,32,22,229 CUP 11. Recovery of expenses 6,91,99,394 CUP 12. Reimbursement of expenses incurred 31,85,15,888 CUP Total 3,60,59,10,982

Sr.No. Name of the Company PLI – OP/TC 1. Tata Technologies Ltd. 18.63% 2. Infotech Enterprise – (Engineering, 15.79% Manufacturing, Industries Products Segment) 3. KLG Systel Ltd. (Life Cycle Solutions Segment) 23.48% 4. Rotla India Ltd. 38.38% Mean 24.07% operating Revenues, operating expenses and operating profit, TPO taken PLI of the comparables at 24.07% as against PLI of taxpayer at (-) 5.86% and proceeded to propose the arm’s length as under:-

Operating Cost of EDC Rs.7,15,86,142 Mean of the OPTC of the comparables 29.93% Arm’s Length price of the international (7,15,86,142 X transaction 129.93/100 = Rs.9,30,11,874 Adjustment over operating income Rs.9,30,11,874 – Rs.6,73,88,310 = Rs.2,56,23,564

CO No.284/Del/2014 (AY 2009-10) ASSESSEE’S CROSS OBJECTION

CO NO.284/DEL/2014 (IN (AY 2009-10) ASSESSEE’S CROSS OBJECTION

ITA NO.6359/DEL/2012 (AY 2008-09)

“1. That the Draft Assessment order dated 21.12.2011 and Final Assessment order dated 25.10.2012, both passed by the learned Assessing Officer are illegal and void-ab-initio, since these have been passed upon an entity which did not exist on the date of passing of these orders.

2. That in any case and in any view of the matter, impugned orders were passed by the lower authorities without assuming jurisdiction as per the law and thus impugned orders passed by the lower authorities including the order by the Hon'ble DRP are nullity in the eyes of law and deserve to be quashed.

3. That in any case and in any view of the matter, the impugned assessment orders have been passed in violation of provisions of Section 170(2) of the Income Tax Act, 1961 and therefore these are not sustainable in the eyes of law.

4. That in any case and in any view of the matter, orders passed in the name of a dead person or a non- existing person is nullity in the eyes of law and may be held so.”

CO NO.284/DEL/2014 (IN (AY 2009-10)

“1. That the Draft Assessment order dated 07.02.2013 and Final Assessment order dated 29.01.2014, both passed by the learned Assessing Officer are illegal and void-ab-initio, since these have

3. That in any case and in any view of the matter, the impugned assessment orders have been passed in violation of provisions of Section 170(2) of the Income Tax Act, 1961 and therefore these are not sustainable in the eyes of law.