M/S. HYUNDAI MOTOR INDIA LTD.,,KANCHEEPURAM vs. ACIT, LTU-2, , CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: This appeal has been preferred by the assessee pursuant to the

directions issued by the Hon’ble Madras High Court order passed for AY

2008-09 in WA No. 2014 of 2018 dated 16.09.2020.

business of manufacturing, selling and servicing passenger vehicles and

related spare parts/CKD parts in the domestic as well as overseas

markets. The assessee has obtained exclusive license from its holding

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 2 ::

company, M/s.Hyundai Motors India Ltd M/s.Hyundai Motors India Ltd, Korea to produce cars in to produce cars in India.

Both the brand name & logo belong to the holding company, which is Both the brand name & logo belong to the holding company, which is Both the brand name & logo belong to the holding company, which is

being used by the assessee. In the relevant AY 2008 being used by the assessee. In the relevant AY 2008-09, the 09, the Transfer

Pricing Officer [TPO] noted that, the royalty paid by the assessee to the noted that, the royalty paid by the assessee to the noted that, the royalty paid by the assessee to the

holding company was 3.47%, which washi holding company was 3.47%, which washigher than the average royalty average royalty

rates of four comparable companies, which worked out to 2.54% and es of four comparable companies, which worked out to 2.54% and es of four comparable companies, which worked out to 2.54% and

therefore held that, the international transaction involving payment of therefore held that, the international transaction involving payment of therefore held that, the international transaction involving payment of

royalty was not at arm’s length. The TPO accordingly made a transfer royalty was not at arm’s length. The TPO accordingly made a transfer royalty was not at arm’s length. The TPO accordingly made a transfer

pricing adjustment of of Rs.106.67 crores. Aggrieved by the draft . Aggrieved by the draft

assessment order passed by the assessment order passed by the Assessing Officer [ Assessing Officer [AO]inter alia

incorporating the aforesaid transfer pricing adjustment, the assessee had incorporating the aforesaid transfer pricing adjustment, the assessee had incorporating the aforesaid transfer pricing adjustment, the assessee had

filed objections before the Dispute Resolution Panel the Dispute Resolution Panel [DRP]. The Ld. DRP is . The Ld. DRP is

noted to have in principle upheld the transfer pricing adjustment to noted to have in principle upheld the transfer pricing adjustment to noted to have in principle upheld the transfer pricing adjustment to

royalty payment but corrected some calculation errors and accordingly royalty payment but corrected some calculation errors and accordingly royalty payment but corrected some calculation errors and accordingly

revised the transfer pricing adjustment from revised the transfer pricing adjustment from Rs.106.67 crores to Rs.86.88 Rs.106.67 crores to Rs.86.88

crores. Aggrieved by the order of the Ld. Aggrieved by the order of the Ld. DRP, the assessee preferred an DRP, the assessee preferred an

appeal before this Tribunal who appeal before this Tribunal whom vide their original order in ITA vide their original order in ITA

No.2353/Mds/2012 dated 22.04.2016 had upheld the transfer pricing No.2353/Mds/2012 dated 22.04.2016 had upheld the transfer pricing No.2353/Mds/2012 dated 22.04.2016 had upheld the transfer pricing

adjustment. Subsequently, the assessee preferred adjustment. Subsequently, the assessee preferred a Miscellaneous a Miscellaneous

Petition[MA No.93/Mds/2016 MA No.93/Mds/2016] before this Tribunal, wherein wherein the assessee

had inter alia contended that the royalty paid by it was 3.6% of the sales contended that the royalty paid by it was 3.6% of the sales contended that the royalty paid by it was 3.6% of the sales,

whereas, the industry average rate for AY 2008 the industry average rate for AY 2008-09 was 4.7% and 09 was 4.7% and

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 3 ::

therefore following the benchmarking methodology upheld in AY 2007 therefore following the benchmarking methodology upheld in AY 2007 therefore following the benchmarking methodology upheld in AY 2007-08

i.e. royalty rate paid was lesser than industry average, royalty rate paid was lesser than industry average, and so, and so, contended

that the transfer pricing adjustment be deleted. This Tribunal is noted to that the transfer pricing adjustment be deleted. This Tribunal is noted to that the transfer pricing adjustment be deleted. This Tribunal is noted to

have disposed of the Miscellaneous Application vide its order dated have disposed of the Miscellaneous Application vide its order dated have disposed of the Miscellaneous Application vide its order dated

06.09.2016 with the following 06.09.2016 with the following directions: -

“6. It is submitted by the learned Authorized Representative that for the “6. It is submitted by the learned Authorized Representative that for the “6. It is submitted by the learned Authorized Representative that for the relevant assessment year also the average rate of royalty in the industry relevant assessment year also the average rate of royalty in the industry relevant assessment year also the average rate of royalty in the industry is 4.7% which is higher than the appellant’s average rate of royalty is 4.7% which is higher than the appellant’s average rate of royalty is 4.7% which is higher than the appellant’s average rate of royalty payment of 3.6%. Therefore there is a payment of 3.6%. Therefore there is a apparent mistake in the order of apparent mistake in the order of the Tribunal which is required to be rectified. the Tribunal which is required to be rectified.

(emphasis supplied) (emphasis supplied)

noted to have re-examined the case records and observed that the examined the case records and observed that the examined the case records and observed that the

aggregate royalty payment of Rs.364.10 crores was made against the net aggregate royalty payment of Rs.364.10 crores was made against the net aggregate royalty payment of Rs.364.10 crores was made against the net

sales of Rs.7275.94 crores and therefore the royal sales of Rs.7275.94 crores and therefore the royalty rate worked out to ty rate worked out to

5% as opposed to 3.6% computed by the assessee. The TPO further 5% as opposed to 3.6% computed by the assessee. The TPO further 5% as opposed to 3.6% computed by the assessee. The TPO further

observed that the industry average of 4.7% claimed by the assessee had observed that the industry average of 4.7% claimed by the assessee had observed that the industry average of 4.7% claimed by the assessee had

no basis and questioned the source and year of this data. He additionally no basis and questioned the source and year of this data. He additionally no basis and questioned the source and year of this data. He additionally

observed that the royalty observed that the royalty of 5% paid to its holding company was higher of 5% paid to its holding company was higher

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 4 ::

than the so-called industry average claimed by the assessee. The TPO called industry average claimed by the assessee. The TPO called industry average claimed by the assessee. The TPO

thus held that, the assessee was unable to show that the royalty paid to thus held that, the assessee was unable to show that the royalty paid to thus held that, the assessee was unable to show that the royalty paid to

its AE was at arm’s length and therefore retained the transfer prici its AE was at arm’s length and therefore retained the transfer prici its AE was at arm’s length and therefore retained the transfer pricing

adjustment of Rs.86.88 crores. adjustment of Rs.86.88 crores.

have approached the Hon’ble Madras High Court in WP No. 22508 of 2017 have approached the Hon’ble Madras High Court in WP No. 22508 of 2017 have approached the Hon’ble Madras High Court in WP No. 22508 of 2017

inter alia contending that the action of the TPO was in excess of the contending that the action of the TPO was in excess of the contending that the action of the TPO was in excess of the

directions given by this Tribunal and that the TPO could not sit in given by this Tribunal and that the TPO could not sit in given by this Tribunal and that the TPO could not sit in

judgment over the directions of this Tribunal. It is noted that, the Hon’ble judgment over the directions of this Tribunal. It is noted that, the Hon’ble judgment over the directions of this Tribunal. It is noted that, the Hon’ble

High Court vide their order dated 16.07.2018 had dismissed the writ High Court vide their order dated 16.07.2018 had dismissed the writ High Court vide their order dated 16.07.2018 had dismissed the writ

petition preferred by the assessee observing that the petition preferred by the assessee observing that the petition preferred by the assessee observing that the assessee had

alternate remedy available and therefore could not approach the Hon’ble alternate remedy available and therefore could not approach the Hon’ble alternate remedy available and therefore could not approach the Hon’ble

High Court. The Hon’ble High Court further observed that, there was no High Court. The Hon’ble High Court further observed that, there was no High Court. The Hon’ble High Court further observed that, there was no

violation on the part of the violation on the part of the TPO in respect of implementing the in respect of implementing the directions

issued by this Tribunal. issued by this Tribunal. The relevant findings of the Hon’ble High Court The relevant findings of the Hon’ble High Court

taken note of by us is as follows: taken note of by us is as follows:-

“10. It is urged before this Court that the ITAT s urged before this Court that the ITAT has not decided the has not decided the matter in respect of the factual details and the particulars involved in matter in respect of the factual details and the particulars involved in matter in respect of the factual details and the particulars involved in the case of the writ petitione e writ petitioner. Contrarily, the ITAT remanded the matter remanded the matter back for re-adjudication. adjudication. When the process of re-adjudication is adjudication is undertaken by the competent authority/respondents, they are undertaken by the competent authority/respondents, they are undertaken by the competent authority/respondents, they are duty bound to verify all the records once again and decide the duty bound to verify all the records once again and decide the duty bound to verify all the records once again and decide the matter on merits and in matter on merits and in accordance with law. On receipt of the accordance with law. On receipt of the order of remand from the ITAT, the respondents had undertaken order of remand from the ITAT, the respondents had undertaken order of remand from the ITAT, the respondents had undertaken the process of scrutiny and the writ petitioner also had the process of scrutiny and the writ petitioner also had the process of scrutiny and the writ petitioner also had participated participated participated in in in three three three personal personal personal hearings. hearings. hearings. The The The documents documents documents

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 5 ::

submitted by the writ petitioner was scruti submitted by the writ petitioner was scrutinised and considered nised and considered in all respects. The objections from the representative of the writ in all respects. The objections from the representative of the writ in all respects. The objections from the representative of the writ petitioner Company also had been considered. By providing all petitioner Company also had been considered. By providing all petitioner Company also had been considered. By providing all opportunities to re opportunities to re-present their case, the Transfer Pricing present their case, the Transfer Pricing Officer(TPO) found that there were certain d Officer(TPO) found that there were certain discrepancies in the iscrepancies in the matter of royalty payment. Thus, there was no violation on the matter of royalty payment. Thus, there was no violation on the matter of royalty payment. Thus, there was no violation on the part of the respondents in respect of implementing the orders part of the respondents in respect of implementing the orders part of the respondents in respect of implementing the orders passed by the ITAT, remanding the matter for re passed by the ITAT, remanding the matter for re-consideration. consideration.

(emphasis supplied) (emphasis supplied)

Madras High Court, the assessee is noted to have filed an appeal against Madras High Court, the assessee is noted to have filed an appeal against Madras High Court, the assessee is noted to have filed an appeal against

the same before the Division Bench of the Hon’ble High Court in WA No. the same before the Division Bench of the Hon’ble High Court in WA No. the same before the Division Bench of the Hon’ble High Court in WA No.

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 6 ::

2014 of 2018, wherein their Lordship’s vide order dated 16.09.2020 has order dated 16.09.2020 has

concurred with the findings of the Single Judge that, where ndings of the Single Judge that, where ndings of the Single Judge that, where an effective

alternative remedy is available to the aggrieved person under alternative remedy is available to the aggrieved person under alternative remedy is available to the aggrieved person under the

Statutewherein the action complained of contains a mechanism for the action complained of contains a mechanism for the action complained of contains a mechanism for

redressal of grievance still holds the field redressal of grievance still holds the field, then a writ petition a writ petition may not be

entertained ignoring the statutory dispensation entertained ignoring the statutory dispensation. The Hon’ble Division . The Hon’ble Division

Bench however gave the liberty to the assessee to approach this Tribunal Bench however gave the liberty to the assessee to approach this Tribunal Bench however gave the liberty to the assessee to approach this Tribunal

against the order of the TPO. The relevant findings of the Hon’ble Division against the order of the TPO. The relevant findings of the Hon’ble Division against the order of the TPO. The relevant findings of the Hon’ble Division

Bench taken note of by us is as Bench taken note of by us is as follows: -

“11. Therefore, this writ appeal is disposed of with the above 11. Therefore, this writ appeal is disposed of with the above 11. Therefore, this writ appeal is disposed of with the above observations with liberty to the assessee / appellant to approach the observations with liberty to the assessee / appellant to approach the observations with liberty to the assessee / appellant to approach the Tribunal within four weeks from the date of receipt of a copy of this Tribunal within four weeks from the date of receipt of a copy of this Tribunal within four weeks from the date of receipt of a copy of this order. We leave all the issues open to be order. We leave all the issues open to be agitated before the Tribunal. agitated before the Tribunal.”

High Court, the assessee has preferred this appeal before us. High Court, the assessee has preferred this appeal before us. High Court, the assessee has preferred this appeal before us.

principally urged that the Ld. TPO had exceeded her jurisdiction by not principally urged that the Ld. TPO had exceeded her jurisdiction by not principally urged that the Ld. TPO had exceeded her jurisdiction by not

following the specific directions issued by this Tribunal in its MA order following the specific directions issued by this Tribunal in its MA order following the specific directions issued by this Tribunal in its MA order

dated 06.09.2016. The Ld. AR submitted that t dated 06.09.2016. The Ld. AR submitted that the TPO was unjustified in he TPO was unjustified in

re-examining and re-computing the royalty rate paid by the assessee, as computing the royalty rate paid by the assessee, as computing the royalty rate paid by the assessee, as

according to him, the Tribunal had recorded a factual finding that, the according to him, the Tribunal had recorded a factual finding that, the according to him, the Tribunal had recorded a factual finding that, the

royalty paid by the assessee was 3.6% and therefore the said finding of royalty paid by the assessee was 3.6% and therefore the said finding of royalty paid by the assessee was 3.6% and therefore the said finding of

fact could not be tinkered with by the TPO. The Ld. AR contended that, be tinkered with by the TPO. The Ld. AR contended that, be tinkered with by the TPO. The Ld. AR contended that,

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 7 ::

the limited issue before the TPO was to verify whether the same was the limited issue before the TPO was to verify whether the same was the limited issue before the TPO was to verify whether the same was

lower or excess than the lower or excess than the industry average royalty rate and nothing more. and nothing more.

The Ld. AR alternatively argued that when the royalty rate The Ld. AR alternatively argued that when the royalty rate The Ld. AR alternatively argued that when the royalty rate of 4.22% paid

in AY 2007-08 was held to be lower than 08 was held to be lower than industry average r industry average rate of 4.7%

and accordingly treated it at arm’s length, then the same should be and accordingly treated it at arm’s length, then the same should be and accordingly treated it at arm’s length, then the same should be

followed in this AY as well. The third argument of the Ld. AR was that, the followed in this AY as well. The third argument of the Ld. AR was that, the followed in this AY as well. The third argument of the Ld. AR was that, the

entity level PLI of the ass entity level PLI of the assessee was 7.91% and that of the essee was 7.91% and that of the comparable

companies selected in the companies selected in the assessee’s TP study was 6.98%, which

according to him, had been had been accepted by the TPO. He thus urged that, . He thus urged that,

since the margin of the ince the margin of the assessee had been computed after considering after considering

royalty payment in its cost base and the same is accepted to be at arm's nt in its cost base and the same is accepted to be at arm's nt in its cost base and the same is accepted to be at arm's

length, no further adjustment on account of excess royalty was no further adjustment on account of excess royalty was no further adjustment on account of excess royalty was

warranted. The Ld. AR had filed written submissions in support of these warranted. The Ld. AR had filed written submissions in support of these warranted. The Ld. AR had filed written submissions in support of these

arguments, which is reproduced arguments, which is reproduced hereunder: -

“4.11 Against the Against the above MP order, the TPO had passed giving effect above MP order, the TPO had passed giving effect order dated 27.03.2017 and carried out the following: order dated 27.03.2017 and carried out the following: • The TPO recomputed the royalty rate of the Appellant for a royalty The TPO recomputed the royalty rate of the Appellant for a royalty The TPO recomputed the royalty rate of the Appellant for a royalty payment of INR 364.10 crores as against the net sales of Rs. 7275.94 payment of INR 364.10 crores as against the net sales of Rs. 7275.94 payment of INR 364.10 crores as against the net sales of Rs. 7275.94 crores as 5% and compared the same with the industry rate of 4.7% to crores as 5% and compared the same with the industry rate of 4.7% to crores as 5% and compared the same with the industry rate of 4.7% to conclude that the royalty rate paid by the Appellan conclude that the royalty rate paid by the Appellant is higher than the t is higher than the industry average rate. industry average rate. • The TPO questioned the source and the year of the average industry The TPO questioned the source and the year of the average industry The TPO questioned the source and the year of the average industry royalty rate provided by the Appellant from the public domain despite royalty rate provided by the Appellant from the public domain despite royalty rate provided by the Appellant from the public domain despite the fact that Appellant provided the retrieval date of the average the fact that Appellant provided the retrieval date of the average the fact that Appellant provided the retrieval date of the average industry royalty rate which provides the industry average royalty rate of ry royalty rate which provides the industry average royalty rate of ry royalty rate which provides the industry average royalty rate of 4.7% and held the Appellant was not entitled to any relief. 4.7% and held the Appellant was not entitled to any relief.

4.12 It is evident that the TPO has exceeded her jurisdiction, It is evident that the TPO has exceeded her jurisdiction, It is evident that the TPO has exceeded her jurisdiction, instead of verifying the industry average royalty rate and avera instead of verifying the industry average royalty rate and avera instead of verifying the industry average royalty rate and average rate of royalty paid by the Appellant, the TPO had performed an in of royalty paid by the Appellant, the TPO had performed an in of royalty paid by the Appellant, the TPO had performed an in-depth analysis of the industry average royalty data and impliedly concluded analysis of the industry average royalty data and impliedly concluded analysis of the industry average royalty data and impliedly concluded that the Wikipedia data is not reliable. Further TPO also re that the Wikipedia data is not reliable. Further TPO also re that the Wikipedia data is not reliable. Further TPO also re-determined average rate of royalty paid by the Ap average rate of royalty paid by the Appellant as 5% by reckoning a pellant as 5% by reckoning a wrong denominator of net sales. wrong denominator of net sales.

4.13 In fact the TPO has gone to the extent of making unwanted In fact the TPO has gone to the extent of making unwanted In fact the TPO has gone to the extent of making unwanted comment on the ITAT decision of AY 2007 comment on the ITAT decision of AY 2007-08. The relevant extract from 08. The relevant extract from the giving effect order dated 27.03.2017 is reproduced below the giving effect order dated 27.03.2017 is reproduced below the giving effect order dated 27.03.2017 is reproduced below:

“From the above it is evident that the Hon’ble ITAT was under the “From the above it is evident that the Hon’ble ITAT was under the “From the above it is evident that the Hon’ble ITAT was under the erroneous impression that the rate of 4.7% was categorically found erroneous impression that the rate of 4.7% was categorically found erroneous impression that the rate of 4.7% was categorically found out by the TPO in her order for AY 2007 out by the TPO in her order for AY 2007-08 as the average rate in the 08 as the average rate in the industry and still she proceeded with a comparabil industry and still she proceeded with a comparability study, etc. and ity study, etc. and made the adjustment which was not, in the opinion of Hon’ble ITAT, made the adjustment which was not, in the opinion of Hon’ble ITAT, made the adjustment which was not, in the opinion of Hon’ble ITAT, required…..”

4.14 Aggrieved by the order of TPO, the Appellant filed a Writ Aggrieved by the order of TPO, the Appellant filed a Writ Aggrieved by the order of TPO, the Appellant filed a Writ Petition (WP No 22508 of 2017). The writ petition was admitted on Petition (WP No 22508 of 2017). The writ petition was admitted on Petition (WP No 22508 of 2017). The writ petition was admitted on 24.08.2017 on the ground 24.08.2017 on the ground that the TPO cannot sit in judgement over an that the TPO cannot sit in judgement over an order passed by the ITAT and the observations made in the giving effect order passed by the ITAT and the observations made in the giving effect order passed by the ITAT and the observations made in the giving effect order passed by the TPO was not tenable. The relevant extracts of the order passed by the TPO was not tenable. The relevant extracts of the order passed by the TPO was not tenable. The relevant extracts of the writ interim order are reproduced below: writ interim order are reproduced below: “After hearing the learned c “After hearing the learned counsels for the parties for a considerable ounsels for the parties for a considerable length of time, this court is of the prima facie view that the order of length of time, this court is of the prima facie view that the order of length of time, this court is of the prima facie view that the order of remand by the ITAT was specific remand by the ITAT was specific and the first respondent and the first respondent cannot sit in judgement over an order passed by the ITAT in judgement over an order passed by the ITAT and the observations and the observations made in the impugned order the said effect is not tenable. in the impugned order the said effect is not tenable. in the impugned order the said effect is not tenable. Furthermore, when the first respondent does not dispute the data, when the first respondent does not dispute the data, when the first respondent does not dispute the data, cannot refuse to accept the same cannot refuse to accept the same solely because references were solely because references were culled out from Wikipedia. What is important to note is the effect of culled out from Wikipedia. What is important to note is the effect of culled out from Wikipedia. What is important to note is the effect of the report which are listed in Sl. Nos. 67, 68 and 69 in the Wikipedia he report which are listed in Sl. Nos. 67, 68 and 69 in the Wikipedia he report which are listed in Sl. Nos. 67, 68 and 69 in the Wikipedia website and therefore, the observation to the said effect prima facie website and therefore, the observation to the said effect prima facie website and therefore, the observation to the said effect prima facie is not tenable. is not tenable. That apart, for the earlier assessment year, TPO has That apart, for the earlier assessment year, TPO has recorded the very same source for determining recorded the very same source for determining the rate of royalty the rate of royalty. Thus, this court is inclined to entertain the writ petition.” Thus, this court is inclined to entertain the writ petition.”

4.15 In the above context, there are various decisions which In the above context, there are various decisions which In the above context, there are various decisions which mandates strict implementation of specific direction by Tribunal. The mandates strict implementation of specific direction by Tribunal. The mandates strict implementation of specific direction by Tribunal. The Delhi High Court in its decision in Delhi High Court in its decision in Li & Fung India Pvt. Ltd. v. Assistant Fung India Pvt. Ltd. v. Assistant Commissioner of Income Tax [2017] 79 taxmann.com 451 (Delhi) Commissioner of Income Tax [2017] 79 taxmann.com 451 (Delhi) Commissioner of Income Tax [2017] 79 taxmann.com 451 (Delhi) held that the TPO could not undertake new adjudication beyond the scope of that the TPO could not undertake new adjudication beyond the scope of that the TPO could not undertake new adjudication beyond the scope of a remand.The relevant extract of the order is reproduced below: a remand.The relevant extract of the order is reproduced below: a remand.The relevant extract of the order is reproduced below:

“13. In this view of the matter, the court is of opinion that the “13. In this view of the matter, the court is of opinion that the “13. In this view of the matter, the court is of opinion that the impugned show cause notice cannot be sustained. Firstly, when there impugned show cause notice cannot be sustained. Firstly, when there impugned show cause notice cannot be sustained. Firstly, when there is a remand on the basis of a specific finding (in this case, the is a remand on the basis of a specific finding (in this case, the is a remand on the basis of a specific finding (in this case, the untenability of shifting of the OP/TC to FOB) the TPO co untenability of shifting of the OP/TC to FOB) the TPO co untenability of shifting of the OP/TC to FOB) the TPO could not have travelled beyond it, given that there was no controversy ever about travelled beyond it, given that there was no controversy ever about travelled beyond it, given that there was no controversy ever about the inclusion of any comparable. Concededly there was no the inclusion of any comparable. Concededly there was no the inclusion of any comparable. Concededly there was no controversy about the appropriateness of inclusion of any comparable controversy about the appropriateness of inclusion of any comparable controversy about the appropriateness of inclusion of any comparable for the ALP determination purpose. Nor was there for the ALP determination purpose. Nor was there any finding or any finding or direction on that score. In the given circumstances, the Revenue direction on that score. In the given circumstances, the Revenue direction on that score. In the given circumstances, the Revenue could not have seized upon the direction to determine it "afresh" as could not have seized upon the direction to determine it "afresh" as could not have seized upon the direction to determine it "afresh" as the basis for going into the merits of inclusion of such comparables” the basis for going into the merits of inclusion of such comparables” the basis for going into the merits of inclusion of such comparables”

4.16 The Bombay High Courtruling in the c The Bombay High Courtruling in the case of ase of Lionbridge Technologies (P.) Ltd. vs. DCIT (2015) 62 taxmann.com 48 Technologies (P.) Ltd. vs. DCIT (2015) 62 taxmann.com 48 Technologies (P.) Ltd. vs. DCIT (2015) 62 taxmann.com 48, held that the order passed by AO is the order passed by AO is void and unenforceable as AO had as AO had failed to follow the specific directions given by the Tribunal follow the specific directions given by the Tribunal for restoration of the for restoration of the file. [Para 12 and 17 of [Para 12 and 17 of the order]

“12. The sequence of events narrated above would show that the AO The sequence of events narrated above would show that the AO The sequence of events narrated above would show that the AO has failed to follow the directions given by the Tribunal in its order dt. has failed to follow the directions given by the Tribunal in its order dt. has failed to follow the directions given by the Tribunal in its order dt. 25th Jan., 2012. 25th Jan., 2012. We have already noticed that the Tribunal has made We have already noticed that the Tribunal has made a specific observation that the DRP a specific observation that the DRP has not passed a reasoned order has not passed a reasoned order and hence, the matter was restored to the file of the AO at the stage and hence, the matter was restored to the file of the AO at the stage and hence, the matter was restored to the file of the AO at the stage of "Draft assessment order". Hence, the AO was required to forward a of "Draft assessment order". Hence, the AO was required to forward a of "Draft assessment order". Hence, the AO was required to forward a copy of the draft order in terms of s. 144C(1) of the Act and copy of the draft order in terms of s. 144C(1) of the Act and copy of the draft order in terms of s. 144C(1) of the Act and thereafter the procedu thereafter the procedure prescribed for filing objections, if any, before re prescribed for filing objections, if any, before the DRP by the assessee might have been followed. Apparently, the the DRP by the assessee might have been followed. Apparently, the the DRP by the assessee might have been followed. Apparently, the AO has failed to follow the mandate of the provisions of s. 144C(1) of AO has failed to follow the mandate of the provisions of s. 144C(1) of AO has failed to follow the mandate of the provisions of s. 144C(1) of the Act.

……Since the AO has failed to comply with the time ……Since the AO has failed to comply with the time-limit p limit prescribed by s. 153(2A) of the Act and further failed to follow the mandate of by s. 153(2A) of the Act and further failed to follow the mandate of by s. 153(2A) of the Act and further failed to follow the mandate of the provisions of s. 144C, the impugned order is the one without the provisions of s. 144C, the impugned order is the one without the provisions of s. 144C, the impugned order is the one without jurisdiction, null and jurisdiction, null and void, and unenforceable. Accordingly, we set . Accordingly, we set aside the impugned assessment order.” aside the impugned assessment order.”

4.17 Without prejudice to the above, the Appellant would like to Without prejudice to the above, the Appellant would like to Without prejudice to the above, the Appellant would like to highlight that royalty agreements are generally entered for a long term highlight that royalty agreements are generally entered for a long term highlight that royalty agreements are generally entered for a long term and hence, the royalty rates would not change year and hence, the royalty rates would not change year-on on-year basis. Therefore, since the royalty transaction has been accepted Therefore, since the royalty transaction has been accepted Therefore, since the royalty transaction has been accepted to be at arm’s length for AY 2007 arm’s length for AY 2007-08, the same should be accepted for AY 2008 08, the same should be accepted for AY 2008- 09 as well. Since the average royalty rate of Appellant for AY 2007 09 as well. Since the average royalty rate of Appellant for AY 2007 09 as well. Since the average royalty rate of Appellant for AY 2007-08 i.e. 4.22% was less than the industry average rate of 4.7%, the royalty i.e. 4.22% was less than the industry average rate of 4.7%, the royalty i.e. 4.22% was less than the industry average rate of 4.7%, the royalty paid by the Appellant was held to paid by the Appellant was held to be at arm’s length. Since the average be at arm’s length. Since the average royalty rate for the subject year is 3.60% is less than the industry royalty rate for the subject year is 3.60% is less than the industry royalty rate for the subject year is 3.60% is less than the industry average rate of 4.7%, the same ought to be followed for AY 2008 average rate of 4.7%, the same ought to be followed for AY 2008 average rate of 4.7%, the same ought to be followed for AY 2008-09 also.

4.18 Further, it is pertinent to note that Further, it is pertinent to note that the operating margin of the the operating margin of the Appellant is 7.91% and that of the comparable companies selected in llant is 7.91% and that of the comparable companies selected in llant is 7.91% and that of the comparable companies selected in the Appellant’s TP study is 6.98%, which is accepted by the TPO. Since the Appellant’s TP study is 6.98%, which is accepted by the TPO. Since the Appellant’s TP study is 6.98%, which is accepted by the TPO. Since the margin of the Appellant after considering royalty payment in its cost the margin of the Appellant after considering royalty payment in its cost the margin of the Appellant after considering royalty payment in its cost base is much higher than that of the comparable base is much higher than that of the comparable companies and the companies and the same is accepted to be at arm's length, disallowance on account of same is accepted to be at arm's length, disallowance on account of same is accepted to be at arm's length, disallowance on account of excess Royalty ought not to be made. excess Royalty ought not to be made.

4.19 Reliance is placed on Chennai Tribunal’s decision in the case of Reliance is placed on Chennai Tribunal’s decision in the case of Reliance is placed on Chennai Tribunal’s decision in the case of Siemens Gamesa Renewable Power (P.) Ltd Vs DCIT [2018] 92 Siemens Gamesa Renewable Power (P.) Ltd Vs DCIT [2018] 92 Siemens Gamesa Renewable Power (P.) Ltd Vs DCIT [2018] 92 taxmann.com 330 ann.com 330 on adoption of TNMM. This decision has been on adoption of TNMM. This decision has been subsequent followed in assessee’s own case reported in [2023] 155 subsequent followed in assessee’s own case reported in [2023] 155 subsequent followed in assessee’s own case reported in [2023] 155 taxmann.com 406. The relevant extracts of the ruling is reproduced taxmann.com 406. The relevant extracts of the ruling is reproduced taxmann.com 406. The relevant extracts of the ruling is reproduced below:

“11.2 Further, “11.2 Further, once the TNMM been applied for the transaction and it transaction and it covered under its ambit the royalty transaction in question. A covered under its ambit the royalty transaction in question. A covered under its ambit the royalty transaction in question. A separate analysis and consequent deletion of royalty payment is separate analysis and consequent deletion of royalty payment is separate analysis and consequent deletion of royalty payment is unwarranted. Placing reliance in the case of Magneti Marelli . Placing reliance in the case of Magneti Marelli . Placing reliance in the case of Magneti Marelli Powertrain India (P.) Ltd. (supra) wherein held t Powertrain India (P.) Ltd. (supra) wherein held that:— …… 11.4 Being so, in our opinion, there is no question of downward Being so, in our opinion, there is no question of downward Being so, in our opinion, there is no question of downward adjustment towards royalty payment to AE on the ground that no adjustment towards royalty payment to AE on the ground that no adjustment towards royalty payment to AE on the ground that no royalty is allowable on turnover pertained to development of land, royalty is allowable on turnover pertained to development of land, royalty is allowable on turnover pertained to development of land, substation development and erection and substation development and erection and commissioning. This ground commissioning. This ground of assessee in both the appeals is allowed.” of assessee in both the appeals is allowed.”

4.20 Reliance is also placed on the Delhi High Court’s decision in Reliance is also placed on the Delhi High Court’s decision in Reliance is also placed on the Delhi High Court’s decision in the case of Magneti Marelli Powertrain India (P.) Ltd. v. Deputy Magneti Marelli Powertrain India (P.) Ltd. v. Deputy Magneti Marelli Powertrain India (P.) Ltd. v. Deputy Commissioner of Income Commissioner of Income-tax [2016] 75 taxmann.com 21 tax [2016] 75 taxmann.com 213 (Delhi) on adoption of TNMM in the context of technical fee. The relevant extracts adoption of TNMM in the context of technical fee. The relevant extracts adoption of TNMM in the context of technical fee. The relevant extracts are as under [Para 17 of the order]: are as under [Para 17 of the order]: “17. As far as the second question is concerned, the TPO accepted “17. As far as the second question is concerned, the TPO accepted “17. As far as the second question is concerned, the TPO accepted TNMM applied by the assessee, as the most appropriate method in TNMM applied by the assessee, as the most appropriate method in TNMM applied by the assessee, as the most appropriate method in respect of all the international transactions including payment of ect of all the international transactions including payment of ect of all the international transactions including payment of royalty. The TPO, however, disputed application of TNMM as the most TPO, however, disputed application of TNMM as the most TPO, however, disputed application of TNMM as the most appropriate method for the payment of technical assistance fee of Rs. appropriate method for the payment of technical assistance fee of Rs. appropriate method for the payment of technical assistance fee of Rs. 38,58,80,000 only for which Comparable Uncontrolled Pri 38,58,80,000 only for which Comparable Uncontrolled Pri 38,58,80,000 only for which Comparable Uncontrolled Price ("CUP") method was sought to be applied. Here, this court concurs with the method was sought to be applied. Here, this court concurs with the method was sought to be applied. Here, this court concurs with the assessee that having accepted the TNMM as the most appropriate, it assessee that having accepted the TNMM as the most appropriate, it assessee that having accepted the TNMM as the most appropriate, it was not open to the TPO to subject only one element, i.e payment of was not open to the TPO to subject only one element, i.e payment of was not open to the TPO to subject only one element, i.e payment of technical assistance fee, to an entirely di technical assistance fee, to an entirely different (CUP) method. fferent (CUP) method. The adoption of a method as the most appropriate one assures the adoption of a method as the most appropriate one assures the adoption of a method as the most appropriate one assures the applicability of one standard or criteria to judge an international applicability of one standard or criteria to judge an international applicability of one standard or criteria to judge an international transaction by. Each method is a package in itself, as it were, transaction by. Each method is a package in itself, as it were, transaction by. Each method is a package in itself, as it were, containing the necessary elements tha containing the necessary elements that are to be used as filters to t are to be used as filters to judge the soundness of the international transaction in an ALP fixing judge the soundness of the international transaction in an ALP fixing judge the soundness of the international transaction in an ALP fixing exercise. If this were to be disturbed, the end result would be If this were to be disturbed, the end result would be If this were to be disturbed, the end result would be distorted and within one ALP determination for a year, two or even distorted and within one ALP determination for a year, two or even distorted and within one ALP determination for a year, two or even five methods can be adop five methods can be adopted. This would spell chaos and be This would spell chaos and be detrimental to the interests of both the assessee and the revenue. detrimental to the interests of both the assessee and the revenue. detrimental to the interests of both the assessee and the revenue. The second question is, therefore, answered in favour of the The second question is, therefore, answered in favour of the The second question is, therefore, answered in favour of the assessee; the assessee; the TNMM had to be applied by the TPO/AO in respect of TNMM had to be applied by the TPO/AO in respect of the technical fee payment to the technical fee payment too.” (emphasis supplied)

4.21 Reliance is also placed on the Bombay High Court’s decision in Reliance is also placed on the Bombay High Court’s decision in Reliance is also placed on the Bombay High Court’s decision in the case of Cummins India Ltd. v. Assistant Commissioner of Income Cummins India Ltd. v. Assistant Commissioner of Income Cummins India Ltd. v. Assistant Commissioner of Income- tax [2023] 153 taxmann.com 223 tax [2023] 153 taxmann.com 223 on adoption of TNMM in the context of on adoption of TNMM in the context of royalty. The relevant extracts a royalty. The relevant extracts are as under:

“11. Therefore, the TPO having accepted that TNMM method applied 11. Therefore, the TPO having accepted that TNMM method applied 11. Therefore, the TPO having accepted that TNMM method applied by Assessee was the most appropriate method in respect of all the by Assessee was the most appropriate method in respect of all the by Assessee was the most appropriate method in respect of all the international transactions including payment of royalty cannot dispute international transactions including payment of royalty cannot dispute international transactions including payment of royalty cannot dispute application of TNMM method as the most appropriate meth application of TNMM method as the most appropriate meth application of TNMM method as the most appropriate method for the payment of royalty only for which CUP method was sought to be payment of royalty only for which CUP method was sought to be payment of royalty only for which CUP method was sought to be applied. We would concur with Mr. Mistri that having accepted the We would concur with Mr. Mistri that having accepted the We would concur with Mr. Mistri that having accepted the TNMM method as the most appropriate, it was not open to the TPO to TNMM method as the most appropriate, it was not open to the TPO to TNMM method as the most appropriate, it was not open to the TPO to subject only one element, i.e, payment of royalty, subject only one element, i.e, payment of royalty, to an entirely to an entirely different CUP method. The adoption of a method as the most different CUP method. The adoption of a method as the most different CUP method. The adoption of a method as the most appropriate one assures the applicability of one standard or criteria to appropriate one assures the applicability of one standard or criteria to appropriate one assures the applicability of one standard or criteria to judge an international transaction. Each method is a package in itself, judge an international transaction. Each method is a package in itself, judge an international transaction. Each method is a package in itself, as it were, containing the necessary as it were, containing the necessary elements that are to be used as elements that are to be used as filters to judge the soundness of the international transaction in an filters to judge the soundness of the international transaction in an filters to judge the soundness of the international transaction in an ALP fixing exercise. If this were to be disturbed, the end result would ALP fixing exercise. If this were to be disturbed, the end result would ALP fixing exercise. If this were to be disturbed, the end result would be distorted and within one ALP determination for a year, two or even be distorted and within one ALP determination for a year, two or even be distorted and within one ALP determination for a year, two or even five methods can be adopted. This would spell chaos and be s can be adopted. This would spell chaos and be s can be adopted. This would spell chaos and be detrimental to the interests of both Assessee and the revenue. detrimental to the interests of both Assessee and the revenue. detrimental to the interests of both Assessee and the revenue.” (emphasis supplied) (emphasis supplied)

4.22 Reliance is also placed on the Bangalore Tribunal decision in Reliance is also placed on the Bangalore Tribunal decision in Reliance is also placed on the Bangalore Tribunal decision in the case of Toyota Kirloskar Motors (P.) Ltd. v. Addl. C Toyota Kirloskar Motors (P.) Ltd. v. Addl. CIT [2022] 138 IT [2022] 138 taxmann.com 107 (Bang. taxmann.com 107 (Bang. - Trib.) wherein it is held: “Ground Nos. 10 Ground Nos. 10-12: 5. The Ld.AR submitted that assessee selected 12: 5. The Ld.AR submitted that assessee selected TNMM as the most appropriate method and operating margin at TNMM as the most appropriate method and operating margin at TNMM as the most appropriate method and operating margin at entity level after including royalty was compared with comparabl entity level after including royalty was compared with comparabl entity level after including royalty was compared with comparable companies. The operating margin of the assessee are at arm's length The operating margin of the assessee are at arm's length The operating margin of the assessee are at arm's length as concluded by the Ld. TPO. as concluded by the Ld. TPO.

…… Para 9 to 12….. …… Para 9 to 12…..

4.23 Therefore without prejudice to the main contention that the royalty Therefore without prejudice to the main contention that the royalty Therefore without prejudice to the main contention that the royalty to sales ratio of the Assessee is lesser than the industry average royalty to sales ratio of the Assessee is lesser than the industry average royalty to sales ratio of the Assessee is lesser than the industry average royalty

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 13 ::

rate, it is submitted that since royalty transaction is inextricably linked rate, it is submitted that since royalty transaction is inextricably linked rate, it is submitted that since royalty transaction is inextricably linked to manufacturing activity it has been to manufacturing activity it has been rightly aggregated with all other rightly aggregated with all other international transactions and then benchmarked under TNMM, which international transactions and then benchmarked under TNMM, which international transactions and then benchmarked under TNMM, which method has been accepted by the TPO and therefore separate analysis method has been accepted by the TPO and therefore separate analysis method has been accepted by the TPO and therefore separate analysis of royalty under CUP method is unsustainable.” of royalty under CUP method is unsustainable.”

order of the TPO. He pointed out that, the TPO had carried out the order of the TPO. He pointed out that, the TPO had carried out the order of the TPO. He pointed out that, the TPO had carried out the

directions of the Tribunal and that there was no violation of the same, as directions of the Tribunal and that there was no violation of the same, as directions of the Tribunal and that there was no violation of the same, as

upheld by the Hon’ble Madras High Court (supra) upheld by the Hon’ble Madras High Court (supra) in the writ proceedings in the writ proceedings

as well. He further submitted that the findings rendered in AY 2007 as well. He further submitted that the findings rendered in AY 2007 as well. He further submitted that the findings rendered in AY 2007-08

had no bearing in the relevant year due to change in facts and had no bearing in the relevant year due to change in facts and had no bearing in the relevant year due to change in facts and

circumstances of the case. The Ld. DR pointed out that, the royalty paid circumstances of the case. The Ld. DR pointed out that, the royalty paid circumstances of the case. The Ld. DR pointed out that, the royalty paid

in AY 2007-08 was 4.22% 08 was 4.22% as opposed to 5% paid during the year and as opposed to 5% paid during the year and

that the industry average rate prevailing in AY 2007 that the industry average rate prevailing in AY 2007-08 could not be 08 could not be

adopted for AY 2008-09 due to timing differences. The Ld. CIT, DR further 09 due to timing differences. The Ld. CIT, DR further 09 due to timing differences. The Ld. CIT, DR further

submitted that, the assessee could not now raise new grounds before thi submitted that, the assessee could not now raise new grounds before thi submitted that, the assessee could not now raise new grounds before this

Tribunal that the royalty be benchmarked at the entity level PLI. Tribunal that the royalty be benchmarked at the entity level PLI. Tribunal that the royalty be benchmarked at the entity level PLI.

According to him, the limited issue now required to be adjudicated is According to him, the limited issue now required to be adjudicated is According to him, the limited issue now required to be adjudicated is

whether the royalty rate paid by the assessee was commensurate with whether the royalty rate paid by the assessee was commensurate with whether the royalty rate paid by the assessee was commensurate with

the industry average rate for the year or not. He the industry average rate for the year or not. He contended that, the contended that, the

assessee was unable to factually dislodge the TPO’s findings that the assessee was unable to factually dislodge the TPO’s findings that the assessee was unable to factually dislodge the TPO’s findings that the

royalty of 5% paid was not lower than industry average and hence urged royalty of 5% paid was not lower than industry average and hence urged royalty of 5% paid was not lower than industry average and hence urged

that the transfer pricing adjustment be retained. that the transfer pricing adjustment be retained.

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 14 ::

orders placed before us. The issue in dispute relates to the arm’s length orders placed before us. The issue in dispute relates to the arm’s length orders placed before us. The issue in dispute relates to the arm’s length

pricing of the international transaction involving payment of royalty by pricing of the international transaction involving payment of royalty by pricing of the international transaction involving payment of royalty by

the assessee to its holding company under the CUP Method. The the assessee to its holding company under the CUP Method. The the assessee to its holding company under the CUP Method. The

background facts relating to background facts relating to this issue has already been taken note of this issue has already been taken note of

above. We find that the Tribunal in their order dated 06.09.2016 in MA above. We find that the Tribunal in their order dated 06.09.2016 in MA above. We find that the Tribunal in their order dated 06.09.2016 in MA

No.93/Mds/2016 in assessee’s case for this AY 2008 No.93/Mds/2016 in assessee’s case for this AY 2008-09 had observed 09 had observed

that, following the decision rendered by them in AY 2007 that, following the decision rendered by them in AY 2007-08, the average 08, the average

rate of royalty payment prevalent in the industry was to be used for te of royalty payment prevalent in the industry was to be used for te of royalty payment prevalent in the industry was to be used for

ascertaining the arm’s length price and if the same was more than the ascertaining the arm’s length price and if the same was more than the ascertaining the arm’s length price and if the same was more than the

rate of royalty payment made by the assessee, then no adjustment is rate of royalty payment made by the assessee, then no adjustment is rate of royalty payment made by the assessee, then no adjustment is

warranted. This Tribunal took note of the assessee’ warranted. This Tribunal took note of the assessee’s plea that, the s plea that, the

average rate of royalty paid by the company to its holding company average rate of royalty paid by the company to its holding company average rate of royalty paid by the company to its holding company

during the year was lower than the industry average and therefore set during the year was lower than the industry average and therefore set during the year was lower than the industry average and therefore set

aside this issue back to the TPO to verify the same and decide the same, aside this issue back to the TPO to verify the same and decide the same, aside this issue back to the TPO to verify the same and decide the same,

in light of their decision re in light of their decision rendered in AY 2007-08. Thereafter, the TPO is 08. Thereafter, the TPO is

noted to have examined the computation of average rate of royalty paid noted to have examined the computation of average rate of royalty paid noted to have examined the computation of average rate of royalty paid

by the company to its holding company and found it to be 5% instead of by the company to its holding company and found it to be 5% instead of by the company to its holding company and found it to be 5% instead of

3.6%. On the industry average rate, the TPO is noted to have doubted 3.6%. On the industry average rate, the TPO is noted to have doubted 3.6%. On the industry average rate, the TPO is noted to have doubted

the correctness of the rate of 4.7% obtained by the assessee. This the correctness of the rate of 4.7% obtained by the assessee. This the correctness of the rate of 4.7% obtained by the assessee. This

particular action of the TPO, has been contended by the assessee, to be in particular action of the TPO, has been contended by the assessee, to be in particular action of the TPO, has been contended by the assessee, to be in

violation of the directions of this Tribunal. According to the assessee, this violation of the directions of this Tribunal. According to the assessee, this violation of the directions of this Tribunal. According to the assessee, this

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 15 ::

Tribunal had taken note of the avera Tribunal had taken note of the average rate of royalty paid by the ge rate of royalty paid by the

company to its holding company at 3.6%, and therefore the said rate company to its holding company at 3.6%, and therefore the said rate company to its holding company at 3.6%, and therefore the said rate

could not have been tinkered with by the TPO which was re could not have been tinkered with by the TPO which was re could not have been tinkered with by the TPO which was re-computed by

him at 5%. The Ld. AR has vehemently contended that the impugned him at 5%. The Ld. AR has vehemently contended that the impugned him at 5%. The Ld. AR has vehemently contended that the impugned

order of the TPO was in excess of jurisdiction and in violation of directions n excess of jurisdiction and in violation of directions n excess of jurisdiction and in violation of directions

of this Tribunal and therefore the impugned transfer pricing adjustment of this Tribunal and therefore the impugned transfer pricing adjustment of this Tribunal and therefore the impugned transfer pricing adjustment

was required to be quashed. was required to be quashed.

dated 06.09.2016 in MA No. dated 06.09.2016 in MA No. 93/Mds/2016, we note that, nowhere had the 93/Mds/2016, we note that, nowhere had the

Tribunal given a finding of fact that the average rate of royalty paid by Tribunal given a finding of fact that the average rate of royalty paid by Tribunal given a finding of fact that the average rate of royalty paid by

the company to its holding company at 3.6%. Instead, it is observed that, the company to its holding company at 3.6%. Instead, it is observed that, the company to its holding company at 3.6%. Instead, it is observed that,

the Tribunal had only taken cognizance of the assessee’s plea tha the Tribunal had only taken cognizance of the assessee’s plea tha the Tribunal had only taken cognizance of the assessee’s plea that the

royalty rate was 3.6% and that it was lower than industry average and royalty rate was 3.6% and that it was lower than industry average and royalty rate was 3.6% and that it was lower than industry average and

accordingly on this plea, this Tribunal had set aside the issue to the AO to accordingly on this plea, this Tribunal had set aside the issue to the AO to accordingly on this plea, this Tribunal had set aside the issue to the AO to

verify the same from records and accordingly pass appropriate order. verify the same from records and accordingly pass appropriate order. verify the same from records and accordingly pass appropriate order. The

very purpose of remanding the very purpose of remanding the matter to the TPO was to TPO was to ensure that all

the facts, records and relevant factors are to be records and relevant factors are to be objectively objectively considered

and that the correct factual position is ascertained. The directions of this and that the correct factual position is ascertained. The directions of this and that the correct factual position is ascertained. The directions of this

Tribunal are noted to be Tribunal are noted to be unambiguous in this regard. We find that in this regard. We find that the TPO

had acted in accordance with the directions and ascertained the royalty had acted in accordance with the directions and ascertained the royalty had acted in accordance with the directions and ascertained the royalty

rates of the assessee and the industry average and found that the royalty rates of the assessee and the industry average and found that the royalty rates of the assessee and the industry average and found that the royalty

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 16 ::

paid by the assessee was higher. The Ld. AR for the assessee has not paid by the assessee was higher. The Ld. AR for the assessee has not paid by the assessee was higher. The Ld. AR for the assessee has not

been able to point out the factu been able to point out the factual infirmity in the TPO’s calculation of al infirmity in the TPO’s calculation of

royalty rate at 5%, which shall be discussed later in this order royalty rate at 5%, which shall be discussed later in this order royalty rate at 5%, which shall be discussed later in this order (infra). We

therefore do not find any merit in this objection being raised by the therefore do not find any merit in this objection being raised by the therefore do not find any merit in this objection being raised by the

assessee. We also note that this particular line of argument was tak assessee. We also note that this particular line of argument was tak assessee. We also note that this particular line of argument was taken by

the assessee in the Writ Petition No.22508 of 2017 preferred before the the assessee in the Writ Petition No.22508 of 2017 preferred before the the assessee in the Writ Petition No.22508 of 2017 preferred before the

Hon’ble High Court and the Hon’ble Single Judge in his order dated Hon’ble High Court and the Hon’ble Single Judge in his order dated Hon’ble High Court and the Hon’ble Single Judge in his order dated

16.07.2018 is noted to have rejected the same, by observing as under: 16.07.2018 is noted to have rejected the same, by observing as under: 16.07.2018 is noted to have rejected the same, by observing as under:-

“12. The contentions of the learned Sen The contentions of the learned Senior Counsel appearing on ior Counsel appearing on behalf of the writ petitioner is that the erroneous behalf of the writ petitioner is that the erroneous implementation of the implementation of the order of the ITAT order of the ITAT, resulted in issuance of the present impugned order , resulted in issuance of the present impugned order dated 27.03.2017 by the Transfer Pricing Officer dated 27.03.2017 by the Transfer Pricing Officer(TPO). Once, it is (TPO). Once, it is recorded by the ITAT recorded by the ITAT that the average rate of royalty payment in the that the average rate of royalty payment in the industry was 4.7% and the writ petitioner had paid only 3.6%, there is industry was 4.7% and the writ petitioner had paid only 3.6%, there is industry was 4.7% and the writ petitioner had paid only 3.6%, there is no reason to disbelieve the statement of to disbelieve the statement of the ITAT recorded during the recorded during the hearing of the matter. In the absence of any incriminating, contra hearing of the matter. In the absence of any incriminating, contra hearing of the matter. In the absence of any incriminating, contrary evidences or records, the respondents cannot disbelieve or d evidences or records, the respondents cannot disbelieve or d evidences or records, the respondents cannot disbelieve or disrespect the findings made by the ITAT the findings made by the ITAT in its order.

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 17 ::

was done in the present case. Thus, this Court do not find any was done in the present case. Thus, this Court do not find any was done in the present case. Thus, this Court do not find any error on the part of the Transfer Pricing Officer(TPO) in rror on the part of the Transfer Pricing Officer(TPO) in rror on the part of the Transfer Pricing Officer(TPO) in reconsidering the entire books of accounts submitted by the writ reconsidering the entire books of accounts submitted by the writ reconsidering the entire books of accounts submitted by the writ petitioner for the purpose of assessing the average rate of petitioner for the purpose of assessing the average rate of petitioner for the purpose of assessing the average rate of royalty payment in the industry. The findings made by the ITAT royalty payment in the industry. The findings made by the ITAT royalty payment in the industry. The findings made by the ITAT in the order need not be directly taken into account for the r need not be directly taken into account for the r need not be directly taken into account for the purpose of considering the average rate of royalty payment in purpose of considering the average rate of royalty payment in purpose of considering the average rate of royalty payment in the industry in view of the fact that, if that is taken into account, the industry in view of the fact that, if that is taken into account, the industry in view of the fact that, if that is taken into account, then then then there there there is is is no no no point point point in in in remanding remanding remanding the the the matter matter matter for for for reconsideration. reconsideration. The The ve very ry purpose purpose and and object object of of the the Courts/Tribunals to remand the matter is that the authorities Courts/Tribunals to remand the matter is that the authorities Courts/Tribunals to remand the matter is that the authorities must reconsider the case in all respects independently and pass must reconsider the case in all respects independently and pass must reconsider the case in all respects independently and pass a revised order on merits and in accordance with law.This being a revised order on merits and in accordance with law.This being a revised order on merits and in accordance with law.This being the scope of the order of remanding t the scope of the order of remanding the contentions raised on he contentions raised on behalf of the writ petitioner that the average rate of royalty behalf of the writ petitioner that the average rate of royalty behalf of the writ petitioner that the average rate of royalty payment in the industry was already fixed by the ITAT can have payment in the industry was already fixed by the ITAT can have payment in the industry was already fixed by the ITAT can have no sanctity. These all are the points raised by the respective no sanctity. These all are the points raised by the respective no sanctity. These all are the points raised by the respective parties before the ITAT and the same was r parties before the ITAT and the same was recorded in the order ecorded in the order passed by the ITAT. When the ITAT itself was not decided the passed by the ITAT. When the ITAT itself was not decided the passed by the ITAT. When the ITAT itself was not decided the issues raised before the Tribunal and remanded the case back for issues raised before the Tribunal and remanded the case back for issues raised before the Tribunal and remanded the case back for reconsideration, then there is no point in recording the findings reconsideration, then there is no point in recording the findings reconsideration, then there is no point in recording the findings of the ITAT by the Transfer Pricing Officer of the ITAT by the Transfer Pricing Officer(TPO) at the time of (TPO) at the time of exercising the powers of reconsideration of the entire issues. exercising the powers of reconsideration of the entire issues. exercising the powers of reconsideration of the entire issues. The very contention raised in this regard also deserves no merit The very contention raised in this regard also deserves no merit The very contention raised in this regard also deserves no merit consideration.”

(emphasis supplied) (emphasis supplied)

interfered with by the Hon’ble Division Bench in their order in WA No. the Hon’ble Division Bench in their order in WA No. the Hon’ble Division Bench in their order in WA No.

2104 of 2018 dated 12.10.2020. Hence, we are of the considered view, 2104 of 2018 dated 12.10.2020. Hence, we are of the considered view, 2104 of 2018 dated 12.10.2020. Hence, we are of the considered view,

that the TPO had acted that the TPO had acted well within her powers of re-considering the entire considering the entire

factual details regarding the average rate of royalty paid by the assessee factual details regarding the average rate of royalty paid by the assessee factual details regarding the average rate of royalty paid by the assessee

and also the industry average rate and her action cannot be said to be and also the industry average rate and her action cannot be said to be and also the industry average rate and her action cannot be said to be

bad in law. Accordingly, this particular contention of the asse bad in law. Accordingly, this particular contention of the asse bad in law. Accordingly, this particular contention of the assessee is

hereby rejected.

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 18 ::

application of entity level TNMM benchmarking methodology for application of entity level TNMM benchmarking methodology for application of entity level TNMM benchmarking methodology for

ascertaining the arm’s length price of the royalty payments. In this ascertaining the arm’s length price of the royalty payments. In this ascertaining the arm’s length price of the royalty payments. In this

regard, it is noted that, this regard, it is noted that, this Tribunal in the first round of proceedings vide Tribunal in the first round of proceedings vide

their order in MA No.93/Mds/2016 following their decision rendered in their order in MA No.93/Mds/2016 following their decision rendered in their order in MA No.93/Mds/2016 following their decision rendered in

assessee’s own case for earlier year/s had specifically directed for assessee’s own case for earlier year/s had specifically directed for assessee’s own case for earlier year/s had specifically directed for

separate benchmarking of royalty payment, which was to be undertaken separate benchmarking of royalty payment, which was to be undertaken separate benchmarking of royalty payment, which was to be undertaken

by comparing the royalty rate paid by the assessee with the industry by comparing the royalty rate paid by the assessee with the industry by comparing the royalty rate paid by the assessee with the industry

average rate and, accordingly transfer pricing adjustment, if any, was to average rate and, accordingly transfer pricing adjustment, if any, was to average rate and, accordingly transfer pricing adjustment, if any, was to

be made. The specific directions of the Tribunal be made. The specific directions of the Tribunal have already been taken already been taken

note of at Para 2 above. Neither the as note of at Para 2 above. Neither the assessee nor the Revenue had filed sessee nor the Revenue had filed

any appeal against the said findings of this Tribunal in as much as the any appeal against the said findings of this Tribunal in as much as the any appeal against the said findings of this Tribunal in as much as the

same has attained finality. According to us therefore, neither the AO nor same has attained finality. According to us therefore, neither the AO nor same has attained finality. According to us therefore, neither the AO nor

this Tribunal now can go beyond these directions given by the earlier this Tribunal now can go beyond these directions given by the earlier this Tribunal now can go beyond these directions given by the earlier

coordinate Bench in the first round of proceedings. The scope of the ate Bench in the first round of proceedings. The scope of the ate Bench in the first round of proceedings. The scope of the

present appeal in the second round of proceedings is thus limited to present appeal in the second round of proceedings is thus limited to present appeal in the second round of proceedings is thus limited to

benchmarking the royalty payment, by adopting the pricing methodology benchmarking the royalty payment, by adopting the pricing methodology benchmarking the royalty payment, by adopting the pricing methodology

set out in the order of this Tribunal in MA No.93/Mds/2 set out in the order of this Tribunal in MA No.93/Mds/2016, and no other 016, and no other

method or mechanism can now be brought in. Accordingly, the assessee’s method or mechanism can now be brought in. Accordingly, the assessee’s method or mechanism can now be brought in. Accordingly, the assessee’s

altogether new contention proposing to benchmark the impugned altogether new contention proposing to benchmark the impugned altogether new contention proposing to benchmark the impugned

transaction by adopting entity level TNMM, which was not raised in the transaction by adopting entity level TNMM, which was not raised in the transaction by adopting entity level TNMM, which was not raised in the

first round of proceedings, cannot first round of proceedings, cannot now be entertained. This would now now be entertained. This would now

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 19 ::

defeat the specific directions issued by the Tribunal in their order (supra) defeat the specific directions issued by the Tribunal in their order (supra) defeat the specific directions issued by the Tribunal in their order (supra)

and require us to sit in judgment over the earlier decision rendered in the and require us to sit in judgment over the earlier decision rendered in the and require us to sit in judgment over the earlier decision rendered in the

first round of proceedings, which according to us, would be first round of proceedings, which according to us, would be first round of proceedings, which according to us, would be reviewing our

own order passed earlier, which power we don’t enjoy own order passed earlier, which power we don’t enjoy. According . Accordingly, this

alternate contention is also rejected. alternate contention is also rejected.

consideration is whether the royalty rate paid by the assessee to its consideration is whether the royalty rate paid by the assessee to its consideration is whether the royalty rate paid by the assessee to its

holding company was commensurate with the industry average or not. lding company was commensurate with the industry average or not. lding company was commensurate with the industry average or not.

For this, we first have to ascertain the average royalty rate paid by the For this, we first have to ascertain the average royalty rate paid by the For this, we first have to ascertain the average royalty rate paid by the

assessee. From the order of the TPO, it is noted that, the assessee had assessee. From the order of the TPO, it is noted that, the assessee had assessee. From the order of the TPO, it is noted that, the assessee had

made royalty payment of royalty payment of Rs.364.10 crores as against the net sales of Rs. gainst the net sales of Rs.

7275.94 crores, which in percentage terms works out to , which in percentage terms works out to 5% 5% of the sales.

The Ld. AR in his written submissions at Para 4.12 has made a bald The Ld. AR in his written submissions at Para 4.12 has made a bald The Ld. AR in his written submissions at Para 4.12 has made a bald

statement that the rate of royalty computed is incorrect as the same has statement that the rate of royalty computed is incorrect as the same has statement that the rate of royalty computed is incorrect as the same has

been computed by the TPO the TPO by reckoning a wrong denominator of net by reckoning a wrong denominator of net

sales. The Ld. AR however has not pointed out the specific error or . The Ld. AR however has not pointed out the specific error or . The Ld. AR however has not pointed out the specific error or

infirmity in the denominator denominator i.e. net sales. Having perused the material i.e. net sales. Having perused the material

placed before us, we also do not find any infirmity in the calcula placed before us, we also do not find any infirmity in the calcula placed before us, we also do not find any infirmity in the calculation of the

TPO. Accordingly, the average rate of royalty paid by the assessee to its TPO. Accordingly, the average rate of royalty paid by the assessee to its TPO. Accordingly, the average rate of royalty paid by the assessee to its

holding company during the year is found to be 5%. Now we come to the holding company during the year is found to be 5%. Now we come to the holding company during the year is found to be 5%. Now we come to the

computation of industry average rate of royalty. It is noted that, both in computation of industry average rate of royalty. It is noted that, both in computation of industry average rate of royalty. It is noted that, both in

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 20 ::

AYs 2006-07 & 2007-08, th 08, the industry average rate of royalty in the e industry average rate of royalty in the

automotive industry was considered and ascertained to be 4.7%. The automotive industry was considered and ascertained to be 4.7%. The automotive industry was considered and ascertained to be 4.7%. The

relevant findings recorded by this Tribunal in assessee’s own case for AY relevant findings recorded by this Tribunal in assessee’s own case for AY relevant findings recorded by this Tribunal in assessee’s own case for AY

2007-08 in ITA No.2157/Mds/2011 ITA No.2157/Mds/2011 is as follows:-

“6.5 Further perusing the 6.5 Further perusing the order of the Ld. TPO in page 40 in paraNos.25 order of the Ld. TPO in page 40 in paraNos.25 & 26 the Ld. TPO herself observed that in respect of royaltypayment in & 26 the Ld. TPO herself observed that in respect of royaltypayment in & 26 the Ld. TPO herself observed that in respect of royaltypayment in automotive sector from the study of 35 licenses, the averageworks out automotive sector from the study of 35 licenses, the averageworks out automotive sector from the study of 35 licenses, the averageworks out to 4.7% and the median works out to 4% which is higher thanthe to 4.7% and the median works out to 4% which is higher thanthe to 4.7% and the median works out to 4% which is higher thanthe appellant’s average rate of royalty payment of 4.22%. Further theLd. lant’s average rate of royalty payment of 4.22%. Further theLd. lant’s average rate of royalty payment of 4.22%. Further theLd. TPO has observed that the assessee company has been bestowedwith TPO has observed that the assessee company has been bestowedwith TPO has observed that the assessee company has been bestowedwith the latest technology by its Holding Company and it cannot be saidthat the latest technology by its Holding Company and it cannot be saidthat the latest technology by its Holding Company and it cannot be saidthat old technology has been dumped in the Indian market (par old technology has been dumped in the Indian market (par old technology has been dumped in the Indian market (para 27 ofthe TPO’s TPO’s TPO’s order).The order).The order).The relevant relevant relevant portion portion portion of of of the the the Ld. Ld. Ld. TPO’s TPO’s TPO’s order order order is is is extractedherein below for reference: extractedherein below for reference:-

“26 In the table given above it is seen that in automotive sector onstudy “26 In the table given above it is seen that in automotive sector onstudy “26 In the table given above it is seen that in automotive sector onstudy of 35 licenses in res of 35 licenses in respect to royalty payment minimum royalty payment royalty payment was 1% maximum was 15% royalty payment.Average comes to 4.7% 1% maximum was 15% royalty payment.Average comes to 4.7% 1% maximum was 15% royalty payment.Average comes to 4.7% and the median royalty rate was 4.0% and the median royalty rate was 4.0%

…..

Facts being so, it is apparent that the Ld. TPO has herself accepted Facts being so, it is apparent that the Ld. TPO has herself accepted Facts being so, it is apparent that the Ld. TPO has herself accepted thehigh tech technology passed on to the assessee company from its thehigh tech technology passed on to the assessee company from its thehigh tech technology passed on to the assessee company from its HoldingCompany and als HoldingCompany and also after details study of 35 licenses arrived at o after details study of 35 licenses arrived at aconclusion that the royalty payment of 4.7% is prevalent in aconclusion that the royalty payment of 4.7% is prevalent in aconclusion that the royalty payment of 4.7% is prevalent in theautomotive sector.” theautomotive sector.”

automotive industry which involves usage of several exclusive licenses, automotive industry which involves usage of several exclusive licenses, automotive industry which involves usage of several exclusive licenses,

technical upgradation, usage of advance technology [which are upgraded technical upgradation, usage of advance technology [which are upgraded technical upgradation, usage of advance technology [which are upgraded

every year] industry average rate of royalty of 4.7% ascertained in the industry average rate of royalty of 4.7% ascertained in the industry average rate of royalty of 4.7% ascertained in the

immediately preceding year serves as a good barometer to benchmark year serves as a good barometer to benchmark

the royalty payment for the relevant year as well the royalty payment for the relevant year as well. We therefore note that, We therefore note that,

IT (TP) A No.24/Chny/20 /Chny/2020 (AY 2008-09) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. :: 21 ::

the assessee has paid excess royalty of 0.3% [5% the assessee has paid excess royalty of 0.3% [5%-4.7%] which works out 4.7%] which works out

to Rs.21.83 crores [0.3% of Rs. to Rs.21.83 crores [0.3% of Rs.7275.94 crores]. Accordingly, in crores]. Accordingly, in light of

the directions given in the first round of proceedings by this Tribunal, the the directions given in the first round of proceedings by this Tribunal, the the directions given in the first round of proceedings by this Tribunal, the

transfer pricing adjustment in relation to royalty payment works out to transfer pricing adjustment in relation to royalty payment works out to transfer pricing adjustment in relation to royalty payment works out to

Rs.21.83 crores and accordingly the remaining adjustment of Rs.65.05 Rs.21.83 crores and accordingly the remaining adjustment of Rs.65.05 Rs.21.83 crores and accordingly the remaining adjustment of Rs.65.05

crores [86.88 crores - 21.83 21.83 crores] made by the TPO, is directed to be crores] made by the TPO, is directed to be

deleted.

Order pronounced on the 09th day of December, 2024 Order pronounced on the 24, in Chennai.

Sd/- Sd/ Sd/- (अिमताभशु�ा) (एबीटी. . वक�) (AMITABH SHUKLA AMITABH SHUKLA) (ABY T. VARKEY ABY T. VARKEY) लेखासद�य/ACCOUNTANT MEMBER �याियकसद�य/JUDICIAL MEMBER /ACCOUNTANT MEMBER /JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 09th December December, 2024. TLN, Sr.PS आदेशक��ितिलिपअ�ेिषत/Copy to Copy to: