HYUNDAI MOTOR INDIA LTD , SRIPERUMBUDUR TALUK, KANCHIPURAM Vs. DEPUTY COMMISSIONER OF INCOME TAX, GREAMS ROAD, CHENNAI

JUDGEMENT

(1.) This appeal is against the final order passed in WP.No.22508 of 2017 dated 16.07.2018.

(2.) The facts of the case briefly are summarized below. The appellant company is engaged in the business of manufacturing, selling and servicing passenger vehicles and related spare parts / CKD parts in the domestic as well as overseas markets. The assessee / appellant company (M/s.Hyundai Motors India Ltd) has exclusive rights of the Holding company (M/s.HMC Korea) abroad to produce cars in this country. The brand name and logo are the Holding Company's property while the end product is made in India. The matter of dispute is in the e-return filed for the assessment year 2008-2009 in which the first respondent as the Transfer Pricing Officer (TPO) found the royalty paid by the assessee / appellant company to the Holding Company was higher (3.47%) than the average royalty rates of four comparable companies (2.54%) thus concluding that the Arm's length price of the royalty paid was in excess and therefore Rs.106.67 crores was disallowed ie., in other words added to the taxable income. The Draft Assessment Officer passed the order under Section 143/3 of IT Act read with Section 92 CA. The assessee / appellant company filed its objections in form 35 A before the Dispute Resolution Panel (DRP), Chennai which rejected the objections. A rectification petition was filed before the DRP disputing the inconsistency in arriving at the royalty expenses. However, the final assessment order was passed on 29.10.2012 without considering the objections of the assessee / appellant company. An appeal in form 36 B was filed by the assessee / appellant company with the Income Tax Appellate Tribunal (ITAT). The Dispute Resolution Panel (DRP) issued revised order stating that certain mistake had crept in while calculating the adjustment and consequently the disallowance was scaled down from Rs.106.67 crores to Rs.86.88 crores. ITAT upheld this revised adjustment order of the DRP. Subsequently, a Miscellaneous Petition was filed by the appellant company before ITAT on 12.05.2016 which prompted the ITAT to correct and modify its earlier order and direct the TPO to verify whether the petitioner's rate of royalty payment is lesser than the rate prevailing in the industry. The TPO which revisited the royalty payment part opined that the assessee / appellant company relied on Wikipedia and not any authentic source to substantiate its contentions regarding the average royalty rate in the Industry and therefore, reiterated the decision on the disallowance of Rs.86.88 crores, on account of royalty paid. Irked by this order of the TPO, a Writ Petition No.22508 of 2017 was filed by the assessee / appellant company in which Single Judge of this Court dismissed the petition by stating that it was premature and the assessee / appellant company had not exhausted all the available remedies before approaching this Court. Hence, this appeal against the order of the Single Judge of this Court.

(3.) The learned senior counsel for the assessee / appellant Mr.Rubal Bansal for Mr.S.P.Chidambaram, learned counsel would contend that the Single Judge of this Court had failed to appreciate the fact that the first respondent TPO had two different yardsticks for two different assessment years to arrive at the average royalty paid in the Industry. It was further argued by the learned counsel that while for the assessment year 2007-08, it was accepted by the TPO that royalty rates called out from the Wikipedia is valid and based on which the ITAT had decided in allowing the entire royalty paid as allowance, a different yardstick was adopted this year (2008-09) not allowing the same. This speaks volumes of the arbitrary and illogical reasoning by the TPO. His further contention that the Single Judge had dismissed the Writ Petition merely because he felt that the remedies available to the assessee / appellant company as IT assessee were not exhausted, is also erroneous. It was also contended that the entire process of appeal in all the possible forms was undergone only to be referred back to the TPO on the aspect of verifying the actual industrial average royalty paid in the automobile sector and whether it is higher than the royalty paid by the appellant company. The TPO went much beyond the ITAT order thus exposing the lack of any proper scientific approach in determining this all important aspect of Arm length price as regards the royalty paid. Further, the denial of natural justice by the TPO by not issuing a show cause notice aggravated the matter, it was contended.