Hyundai Motor India Limited, Kancheepuram V. ACIT LTU-2, CHENNAI

ITTPA 14/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3814 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 04-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 02-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R SEKAR
• Keywords: Related party transaction; Transfer pricing; International transaction; Royalty expenses
• Section: 143(3); 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T(TP)A. NO. 14/CHNY/2018 / ASSESSMENT YEAR : 2006-07 M/S. HYUNDAI MOTOR INDIA LTD., PLOT NO. H-1, SIPCOT INDUSTRIAL PARK, IRRUNGATTUKOTTAI, SRIPERUMBUDURTALUK, KANCHEEPURAM DISTRICT, TAMIL NADU 602 117. [PAN: AAACH 2364M] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT 2, CHENNAI. ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI. K.R. SEKAR, CA / RESPONDENT BY : SHRI. MANVENDRA GOYAL, CIT /DATE OF HEARING : 06.12.2018 /DATE OF PRONOUNCEMENT : 04 .02.2019 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER P ASSED BY THE DCIT, CORPORATE CIRCLE 3(2), CHENNAI ON THE DIR ECTIONS ISSUED BY THE DRP-2, BANGALORE U/S. 143(3) R.W. 144C IN F.NO. 07/ DRP-2/BANG/2016-17 DATED 05.12.2017 FOR ASSESSMENT YEAR 2006-07. :-2-: IT(TP)A NO.14/CHNY/2018 2. HYUNDAI MOTOR INDIA LTD, THE ASSESSEE, ENGAGED I N THE BUSINESS OF MANUFACTURE AND SALES OF MOTOR CARS AND INCIDENTAL TRADING , HAS ENTERED INTO TECHNOLOGY AND ROYALTY AGREEMENT WITH ITS AE, HYUNDAI MOTOR INDIA LTD, KOREA FOR THREE CARS NAMELY ; SANTRO, ACCENT & SONATA, ELANTRA & GETS. AS PER TERMS OF THE CONTACT , THE ASSESSEE I S REQUIRED TO PAY ROYALTY AT 5% ON DOMESTIC SALES AND 8% ON THE EXPOR T SALESFOR THE USE OF TRADE MARK AND LOGO AND ONE TIME LUMPSUM PAYMENT OF TECHNICAL KNOWHOW. DURING THE ASSESSMENT YEAR 2006-07, THE AS SESSE PAID ROYALTY OF RS. 282,45,25,323/- TO ITS AE AND THE RATIO OF R OYALTY TO THE SALES WAS 3.64% AND IT HAS NOT MADE ANY LUMPSUM PAYMENT OF TECHNICAL KNOWHOW. IN ITS TP DOCUMENT, THE ASSESSEE HAS AGGR EGATED THE ROYALTY TRANSACTION ALONG WITH ALL OTHER INTERNATIONAL TRAN SACTIONS ADOPTING TNMM. THE TPO ACCEPTED THE OPERATING MARGINS OF THE ASSESSE, AFTER PAYMENT OF ROYALTY, TO BE AT ARMS LENGTH. HOWEVER, IN THE TP ORDER, THE TPO HELD THAT THE ASSESSEES ROYALTY IS EXCESSIVE AND HENCE MADE AN ADHOC DISALLOWANCE OF 10% OF ROYALTY AT RS.28.24 CR ORES. AGGRIEVED, THE ASSESSE FILED OBJECTION BEFORE THE DRP . AFTER HEAR ING THE ASSESSE, THE DRP HAS CALLED FOR A REMAND REPORT FROM THE TPO WIT H A SPECIFIC DIRECTION TO ADOPT CUP METHOD TO BENCHMARK THE ROYALTY PAYMEN T. PURSUANTLY, THE TPO CONDUCTED A BENCHMARK SEARCH IN ROYALTYSTAT D ATABASE . HOWEVER, THE TPO WAS UNABLE TO OBTAIN ANY RESULT AND HENCE H E REQUESTED THE ASSESSE TOCONDUCT BENCHMARK STUDY. THE ASSESSE ALSO DID NOT GET ANY :-3-: IT(TP)A NO.14/CHNY/2018 DIRECT FUNCTIONALLY COMPARABLE COMPANIES. HOWEVER, THE ASSESSEE FURNISHED SEARCH RESULTS IN RESPECT OF COMPANIES EN GAGED IN AUTOMOBILE COMPONENTS SECTOR WHICH COULD BE CONSIDERED AS AN I NDICATOR ALTHOUGH THEY WOULD NOT BE FUNCTIONALLY COMPARABLE. IN THAT REPORT, THE ASSESSE HAD SELECTED 12 COMPARABLES WITH AN AVERAGE RATE OF ROYALTY OF 7.8%. HOWEVER, IN THE REMAND REPORT THE TPO HAS SELECTED 3 COMPARABLE COMPANIES WHICH ARE ENGAGED IN THE MANUFACTURE OF A UTOMOBILE COMPONENTS WITH AN AVERAGE ROYALTY OF 5%. BASED ON WHICH, THE TPO CONCLUDED THE ROYALTY PAID ON DOMESTIC SALES TO BE AT ARMS LENGTH AND THE ROYALTY PAID ON EXPORT SALES TO BE NOT AT ARMS LENGTH. IN ADDITION, THE TPO PROPORTIONATELY ALLOCATED THE LUMPSUMP TECH NICAL KNOW HOW PAYMENT PAID IN THE PAST YEARS ALSO. ALTHOUGH, THE ASSESSE FILED ITS RESPONSE TO THE REMAND REPORT ISSUED BY THE TPO TO THE DRP, IT CONFIRMED THE ADJUSTMENTS PROPOSED BY THE TPO. FURT HER, THE ASSESSEE RECEIVED A SUBSIDY FROM SIPCOT IN RESPECT OF THE IN VESTMENTS MADE TO THE EXTENT OF ONE CRORE. THE ASSESSSEE CLAIMED THAT THE SUBSIDY BEING ONE FOR INDUSTRIALIZATION PURPOSES AND IT IS NOT ID ENTIFIABLE TO ANY SPECIFIC ASSETS AND HENCE THE SUBSIDY CAN NOT BE REDUCED FRO M THE ACTUAL COST AS PER THE APEX COURT DECISION IN THE CASE OF P J CHE MICALS 210 ITR 830 . HOWEVER, THE AO DISALLOWED IT. ON ASSESSEES OBJECT ION, THE DRP REJECTED. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL . :-4-: IT(TP)A NO.14/CHNY/2018 3. THE LD AR SUBMITTED THAT THOUGH THE ASSESSEE HAS TAKEN MANY GROUNDS OF APPEALS, IT FILED WRITTEN SUBMISSIONS IN DETAIL ON THE ISSUES THAT HOW COMPARABLE UNCONTROLLED PRICE (CUP) METHOD IS I NCORRECTLY APPLIED, HOW THE TPO HAS HIMSELF REJECTED THE SIMILAR ROYALT YSTAT BENCHMARKING ANALYSIS IN THE APPELLANTS OWN CASE FOR AY 2008-09 , HOW ROYALTY IS AGGREGATED WITH OTHER INTERNATIONAL TRANSACTIONS AN D HENCE ROYALTY CAN NOT BE SEGREGATED, HOW ERRONEOUS THE ROYALTYSTAT BE NCHMARKING ETC, HE PLEADED THAT IF THE MAIN PLEA IE THE ROYALTY PAYME NT IS AT ARMS LENGTH IN ITS CASE IS APPRECIATED AND DECIDED AS WAS DONE IN ITS CASE BY THIS HONBLE ITAT IN AY 2007-08, ALL OTHER PLEAS INCLU DING THE PLEA THAT THE TPO/DRP EXCEEDED THEIR JURISDICTION ETC WOULD BECOM E ACADEMIC. THE LD AR SUBMITTED THAT THE TPO IN THE TP ORDER FOR AY 20 07-08 HAS RELIED ON ROYALTY DATA WHICH WAS AVAILABLE IN PUBLIC DOMAIN. AS PER THE SAID DATA, THE MEAN ROYALTY PAYABLE BY THE AUTOMOTIVE COMPANIE S ON A STUDY OF 35 LICENSES AVAILABLE IN PUBLIC DOMAIN WAS 4.7%. INSPI TE OF IT , THE TPO MADE ADDITION ON ACCOUNT OF ROYALTY PAYMENT. ON APPEAL, THIS HONBLE ITAT IN THE ASSESSEES OWN CASE IN ITA NO.2157/MDS/2011 FOR AY 2007-08 HELD THAT IT IS NOT APPROPRIATE TO MAKE ADDITION ON ACCO UNT OF ALP OF ROYALTY PAYMENT. THE LD AR SUBMITTED THAT THE AVERAGE ROYAL TY PAID BY THE APPELLANT DURING AY 2006-07 WAS ONLY 3.64% WHICH IS MUCH LOWER THAN THE MEAN ROYALTY PAYABLE BY THE AUTOMOTIVE COMPANIE S I.E., 4.7%. THE ROYALTY AGREEMENT ENTERED BY THE APPELLANT WITH ITS AES ARE VALID FOR A :-5-: IT(TP)A NO.14/CHNY/2018 PERIOD OF 10 YEARS AND NOT ENTERED ON A YEAR-ON-YEA R BASIS. WHEN THE TPO HAVING HELD THAT THE ROYALTY PAYMENT ARE AT ARM S LENGTH FOR AY 2007-08 I.E., ONE OF THE YEARS WITHIN THE 10 YEARS BRACKET, IN PRINCIPLE IT DOES NOT NECESSITATE A REVISIT IN EACH OF THE YEAR WITHIN THE 10 YEARS PERIOD. IN THIS REGARD, THE LD AR SUBMITTED THAT TH IS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY MUMBAI ITAT DECISION I N SC ENVIRO AGRO INDIA (P.) LTD VS. DCIT IN ITA NO. 704 (MUM) OF 201 2 DT. 04.04.2013 WHEREIN THE ROYALTY ADJUSTMENT HAS BEEN DELETED AS THE FACTS OF THE CASE RELATING TO PAYMENT OF ROYALTY BASED ON THE SAME AG REEMENT AS IN THE EARLIER YEAR WERE SIMILAR IN PAGE 4 PARA 5. WITH RE GARD TO THE PLEA THAT THE TPO/DRP EXCEEDED THEIR JURISDICTION, THE LD AR SUBMITTED THAT THE DRP VIDE ITS LETTER DATED 01.11.2017 CALLED FOR A R EMAND REPORT FROM THE TPO WITH A SPECIFIC DIRECTION TO CONDUCT A TRANSFER PRICING STUDY FOR THE RELEVANT YEAR USING CUP METHOD AND TO SUBMIT THE RE SULTS, WHEREAS, THE TPO EXCEEDED THE JURISDICTION BY ANALYZING THE LUMP SUM TECHNICAL KNOW- HOW PAYMENT WHICH WAS NOT A TRANSACTION IN THE THIS ASSESSMENT YEAR I.E., AY 2006-07 AND THE IMPUGNED LUMP SUM PAYMENTS WERE MADE DURING THE PAST YEARS I.E., AY 2003-04 AND AY 2005-06 AND HENCE THE ADDITION MADE BY THE TPO AND SUSTAINED BY THE DRP IS BEYOND THEIR JURISDICTION. PER CONTRA, THE LD DR SUPPORTED THE ORDERS OF THE L OWER AUTHORITIES. :-6-: IT(TP)A NO.14/CHNY/2018 4. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. THE RELEVANT PORTION OF THE ORDER OF THE ITA NO.2157/MDS/2011 FOR AY 2007-08 IS EXTRACTED AS UNDER : 6.1. GROUND NO.4 DISALLOWANCE OF `104,27,36,417/- BEING ROYALTY PAID BY THE ASSESSEE TO ITS HOLDING COMPANY M/S.HMC KOREA. THE APPELLANT COMPANY HAD ENTERED INTO TECHNICAL KNOWHOW AGREEMENT WITH ITS HOLDING COMPANY FOR EVERY MODEL OF THE CAR MANUFACTURED. IN VIEW OF THIS AGREEMENT, THE APPEL LANT COMPANY PAID ROYALTY OF 5% ON THE DOMESTIC SALES AND 8% ON EXPOR T SALES. THE ASSESSEE COMPANY MADE AN ANALYSIS UNDER TRANSFER PR ICING, SINCE THE PAYMENT OF ROYALTY WAS DIRECTLY LINKED WITH ITS MAN UFACTURING ACTIVITY AND ARRIVED AT THE METHOD TO BE FOLLOWED AS TRANSAC TION NET MARGIN METHOD (TNMM). THE ASSESSEE FURTHER JUSTIFIED THE P ERCENTAGE OF ROYALTY PAID TO ITS HOLDING COMPANY AS IT WAS APPROVED BY R BI. HOWEVER, THE LD.TPO NOT ACCEPTING THE JUSTIFICATION OF THE PERCE NTAGE OF ROYALTY PAID TO THE ASSESSEES HOLDING COMPANY HELD THAT SEPARATE B ENCH MARKING ANALYSIS SHOULD BE MADE AND ARRIVED AT THE FOLLOWIN G ANALYSIS:- COMPARABLES ROYALTY EXPENSES (RS.CRORE) NET SALES(RS.CRORES) ROYALTY/NET SALES GENERAL MOTORS INDIA PVT LTD. 31.37 1844.10 1.70% FORD INDIA PVT LTD 36.63 2,191.79 1.67% HONDA SIEL CARS INDIA LTD 136.99 3,873.23 3.54% MARUTI SUZUKI INDIA LTD 367.30 14,592.20 2.53% AVERAGE 2.36% HMIL 369.77 8,763 4.22% DIFFERENCE 1.86% :-7-: IT(TP)A NO.14/CHNY/2018 ARRIVING AT THE DIFFERENCE OF 1.86%, THE LD.TPO REC OMMENDED THE DISALLOWANCE OF `165 CRORES AS EXCESS ROYALTY PAID TO THE HOLDING COMPANY WHILE DECIDING THE ALP OF ROYALTY PAYMENT. WHEN THE MATTER REACHED THE DRP, THE LD. MEMBERS OF THE DRP ACCEPTE D THE CONTENTION OF THE LD. TPO THAT SEPARATE BENCH MARKING ANALYSIS IS NECESSARY FOR DETERMINING ALP OF ROYALTY PAYMENT BY NOT ACCEPTING THE ARGUMENT OF THE ASSESSEE THAT THE PERCENTAGE OF ROYALTY PAYMENT MAD E TO THE ASSESSEES HOLDING COMPANY IS JUSTIFIED SINCE RBI HAS APPROVED THE TRANSACTION. HOWEVER, THE LD. MEMBERS OF THE DRP REJECTED THE CO MPARABLES VIZ. GENERAL MOTORS PVT LTD & FORD INDIA PVT LTD., BECAU SE WHILE SELECTING THE COMPARABLES THE RELATED PARTY TRANSACTIONS (RPT) WE RE MORE THAN 25% AND ACCORDINGLY DIRECTED THE LD.TPO TO REWORK THE A DJUSTMENT AFTER REMOVING THESE TWO COMPANIES FROM THE COMPARABLES. THUS, THE ADDITION WAS RESTRICTED TO `104.27 CRORES AS AGAINST 165.05 CRORES. 6.2. LD. AR ARGUED BEFORE US BY STATING AS FOLLOWS :- (I) THE LD.TPO /DRP WERE NOT JUSTIFIED IN HOLDING T HAT THE ROYALTY PAYMENT SHOULD BE BENCH MARKED SEPARATELY. IT WAS CONTENDED THAT THE APPELLANTS WHOLE ENTITY APPROACH OF BENCH MARKING ROYALTY PAYMENTS ALONG WITH ALL OTHER TRANSACTIONS BY ADOPTING TNM M ETHOD AT THE ENTITY LEVEL IS JUSTIFIABLE. (II) SINCE THE OPERATING MARGIN OF THE APPELLANT C OMPANY WAS 7.61% WHICH IS HIGHER THAN THE COMPARABLE COMPANIES SELEC TED IN THE TP STUDY BEING 2.90%, THERE WAS NO NECESSITY FOR ADDITION ON ACCOUNT OF EXCESS ROYALTY. (III) THE ROYALTY PAID BY THE COMPARABLE COMPANYS VIZ. MARUTHI SUZKI INDIA LTD., IS ONLY FOR IMPARTING TECHNOLOGY WH ILE AS THE ROYAL PAID BY THE APPELLANT COMPANY IS FOR THE USE OF BRAND AS WELL AS TECHNOLOGY. (IV) THE ROYALTY PAID AT THE RATE OF 5% ON DOMESTI C SALES AND 8% ON EXPORT SALES BY THE APPELLANT COMPANY IS IN ACCORD ANCE WITH THE RULES PRESCRIBED UNDER RULE 10B (2)(D) OF THE INCOME TAX RULES AND ALSO AS PER THE APPROVAL GRANTED BY RBI. (V). THE LEARNED TPO IN HER TP STUDY FOR ADHOC ADJ USTMENT ON ACCOUNT OF BRAND AT THE RATE OF 1% HAD HERSELF OBSERVED THAT I N AUTOMOBILE SECTOR THE AVERAGE RATE OF ROYALTY IS 4.7%, WHICH IS HIGHE R THAN THE APPELLANTS :-8-: IT(TP)A NO.14/CHNY/2018 AVERAGE RATE OF ROYALTY BEING 4.22%. THEREFORE, RO YALTY PAID BY THE APPELLANT SHOULD BE ACCEPTED AS ARMS LENGTH PRICE. (VI). THE COMPARABLE COMPANIES SELECTED BY TPO WHI CH IS FURTHER CONFIRMED BY THE LD. MEMBERS OF THE DRP VIZ; HONDA SEIL CARS INDIA LIMITED AND MARUTHI SUZUKI INDIA LIMITED HAS CONTRO LLED TRANSACTIONS SINCE ROYALTY IS PAID TO LATTER PARTY AND THEREFORE THE B ENCHMARKING ANALYSISS MADE BY THE LD. TPO IS UNRELIABLE AND REQUIRES TO B E REJECTED. (VII). THE LD. TPO HAS RECOGNIZED THE ROYALTY PAYM ENT MADE BY THE ASSESSEE COMPANY WHICH IS INCLUSIVE OF FEE FOR TECH NICAL KNOW-HOW WHEREAS FOR COMPARABLE COMPANIES THE LD. TPO HAS RE COGNIZED ONLY THE ROYALTY AMOUNT. THEREFORE, THERE IS NO CLARITY WHIC H IS REQUIRED TO BE CORRECTED. 6.3. THE LD. DR ON THE OTHER HAND RELIED ON THE OR DERS OF THE LD. TPO/DRP AND ARGUED IN SUPPORT OF THE SAME. 6.4. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD AND DECISIONS CITED B Y THE ASSESSEE VIZ. I) ITA NOS.1040 & 1159/HYD./2011 AND 1408/HYD./2010 (P APER BOOK PG. 370 TO 371), II) LUMAX INDUSTRUES LTD. VS.ACIT IN I TA NO.4456/DEL./2012 (PAPER BOOK PAGE NO.394) AND III) THYSSEN KRUPP IND USTRIES INDIA PVT LTD. VS. ADDITIONAL. LD. CIT , IN ITA NO.6460/MUM/2012 ( PAPER BOOK PAGE 433). THE ASSESSEE HAS RELIED ON THE RULE 10B(2)( D) OF THE INCOME TAX RULES, 1962 WHICH STIPULATES AS UNDER:- RULE 10B(2) FOR THE PURPOSES OF SUB-RULE(1), THE COMPARABILIT Y OF AN INTERNATIONAL TRANSACTION WITH THE UNCONTROLLED TRA NSACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING, NAMELY:- (A) - - - - - (B) - - - - - (C) - - - - (D) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVE RNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITI ON AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. :-9-: IT(TP)A NO.14/CHNY/2018 6.5 FURTHER PERUSING THE ORDER OF THE LD. TPO IN P AGE 40 IN PARA NOS.25 & 26 THE LD. TPO HERSELF OBSERVED THAT IN RE SPECT OF ROYALTY PAYMENT IN AUTOMOTIVE SECTOR FROM THE STUDY OF 35 L ICENSES, THE AVERAGE WORKS OUT TO 4.7% AND THE MEDIAN WORKS OUT TO 4% WH ICH IS HIGHER THAN THE APPELLANTS AVERAGE RATE OF ROYALTY PAYMENT OF 4.22%. FURTHER THE LD. TPO HAS OBSERVED THAT THE ASSESSEE COMPANY HAS BEEN BESTOWED WITH THE LATEST TECHNOLOGY BY ITS HOLDING COMPANY AND IT CANNOT BE SAID THAT OLD TECHNOLOGY HAS BEEN DUMPED IN THE INDIAN M ARKET (PARA 27 OF THE TPOS ORDER). THE RELEVANT PORTION OF THE LD. T POS ORDER IS EXTRACTED HEREIN BELOW FOR REFERENCE:- 26 IN THE TABLE GIVEN ABOVE IT IS SEEN THAT IN AU TOMOTIVE SECTOR ON STUDY OF 35 LICENSES IN RESPECT TO ROYALTY PAYMENT MINIMUM ROYALTY PAYMENT WAS 1% MAXIMUM WAS 15% ROYALTY PAYM ENT. AVERAGE COMES TO 4.7% AND THE MEDIAN ROYALTY RATE W AS 4.0%. 27. IN THE CASE OF THE ASSESSEE WHAT WILL BE THE RIGHT PERCENTAGE OF ROYALTY THAT WOULD COMPENSATE THE ASSESSEE SUITABLY . IN THIS CONNECTION IT IS RELEVANT TO DISCUSS CERTAIN RELEVA NT FACTS. AS DISCUSSED EARLIER, INDIA IS A VAST MARKET FOR AUTO MAKERS. INDIA HAS A HUGE PERCENTAGE OF MIDDLE AND UPPER MIDDLE, C LASS POPULATION THAT HAS ENOUGH SURPLUS INCOME TO BUY SU CH MOVABLE AND IMMOVABLE ASSETS SUCH AS HOUSE, CARS ET C. FURTHER BANKS HAVE LIBERALLY SANCTIONED AUTO LOANS ON EQUATED MONTHLY INSTALLMENT BASIS TO THE BUYERS. IT IS ALS O RELEVANT TO NOTE THAT INDIA HAS GOT A BIG PERCENTAGE OF POPULAT ION WHICH IS NOT ONLY YOUNG BUT ALSO EARNS HANDSOME MONEY ESPECI ALLY SOFT WARE BOOM IN INDIA. THIS SECTION OF THE SOCIETY IS INFLUENCED BY THE BRAND NAME. IN INDIA IS EXPANDING AUTO MARKET THE SHARE OF HYUNDAI IS INCREASING YEAR AFTER YEAR. THIS HAS BEEN DISCUSSED IN COMPANY PROFILE AND INDUSTRIAL OVER VI EW GIVEN ABOVE. IN THIS MARKET, HYUNDAI BRAND AND LOGO HAS BECOME QUITE POPULAR. IT IS DUE TO BRAND VALUE DEVELOPMEN T ON ACCOUNT OF EFFORTS MADE BY THE ASSESSEE COMPANY. SO FAR AS THE HYUNDAI TECHNOLOGY IS CONCERNED IT IS THE LATEST TE CHNOLOGY AND IT CANNOT BE SAID THAT OLD TECHNOLOGY HAS BEEN DUMP ED IN INDIAN MARKET. IT HAS PROMISING FUTURE THAT WILL EA RN THE HOLDING :-10-: IT(TP)A NO.14/CHNY/2018 COMPANY IN COMING YEARS HUGE INCOME BY WAY OF ROYAL TY ON KNOW HOW SUPPLIED BY IT TO THE ASSESSEE COMPANY. I T IS NOT AN OLD TECHNOLOGY ABOUT WHICH IT MAY BE SAID THAT IT D OES NOT HAVE BRIGHT FUTURE AND HENCE THE SALES WILL DECREASE AND THEREFORE BRAND DEVELOPMENT WILL NOT BE ADVANTAGEOUS TO THE H OLDING COMPANY. IT WOULD LIKE TO STAY AHEAD OF ITS COMPETI TORS IN THE INDIAN MARKET BY ENSURING THE QUALITY OF PRODUCT AS WELL AS BY SPREADING THE BRAND AWARENESS. THE HOLDING COMPANY HAS GIVEN TO THE ASSESSEE THE EXCLUSIVE RIGHTS OF PRODU CING THE CARS IN THIS TERRITORY. EACH CAR PRODUCED BY THE ASSESS EE BECOMES THE CARRIER OF HOLDING COMPANYS BRAND NAME AND LOG O ----------- --------------------------------------------------- -------------------------- --------------------------------------------------- --------------------- --------------------------------------------------- ------------------------------------ FACTS BEING SO, IT IS APPARENT THAT THE LD. TPO HAS HERSELF ACCEPTED THE HIGH TECH TECHNOLOGY PASSED ON TO THE ASSESSEE COMP ANY FROM ITS HOLDING COMPANY AND ALSO AFTER DETAILS STUDY OF 35 LICENSES ARRIVED AT A CONCLUSION THAT THE ROYALTY PAYMENT OF 4.7% IS PREV ALENT IN THE AUTOMOTIVE SECTOR. THEREFORE FROM THESE CIRCUMSTANC ES, WE DO NOT FIND IT APPROPRIATE ON THE PART OF THE REVENUE TO MAKE ADDI TION ON ACCOUNT OF ALP OF ROYALTY PAYMENT. THEREFORE, WE HEREBY DELET E THE ADDITION OF RS.104,27,36,417/- MADE BY THE LD. TPO WHILE PASSIN G HIS ORDER FOLLOWING THE DIRECTION OF LD. MEMBERS OF THE DRP. THUS, WE FIND MERIT IN THE SUBMISSIONS MADE BY THE LD AR. FOLLOWING THE COORDINATE BENCH DECISION, SUPRA, WE HOLD THAT THE AVERAGE ROYALTY PAYMENT UP TO THE RATE OF 4.7% ON THE SALES IS JU STIFIED. SINCE THE ASSESSE CLAIMS THAT THE AVERAGE ROYALTY PAID IS 3.6 4% , WE HOLD THAT THE REVENUE IS NOT JUSTIFIED IN MAKING THE IMPUGNED ADJ USTMENTS AND HENCE DIRECT TO DELETE THE ADDITIONS. THE CORRESPONDING G ROUNDS OF APPEAL ARE TREATED AS ALLOWED. :-11-: IT(TP)A NO.14/CHNY/2018 5. WITH REGARD TO THE ISSUE ON CAPITAL SUBSIDY, THE LD AR SUBMITTED THAT THIS ISSUE WAS SUBJECT MATTER BEFORE THE CIT(A ) FOR AY 2003-04AND HE REMITTED THE ISSUE TO THE AO. INVITING OUR ATTE NTION TO THE COPY OF THE ORDER GIVING EFFECT TO THE ORDER OF THE CIT(A) DT 1 7.3.2017 PASSED BY THE DCIT, LTU-2, CHENNAI FOR AY 2003-04, THE LD AR SUBM ITTED THAT THIS ISSUE IS DECIDED IN ITS FAVOUR AND HENCE THE CORRESPONDIN G GROUNDS MAY BE ALLOWED. 6. WE HEARD THE RIVAL SUBMISSIONS AND FIND MERIT IN THE SUBMISSIONS OF THE LD AR. SINCE THIS ISSUE IS DECIDED IN TH E ASSESSEES FAVOUR BY THE AO IN THE EARLIER ASSESSMENT YEAR , THE CORRESPOND ING GROUNDS ARE ALLOWED. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOW ED. ORDER PRONOUNCED ON 4 TH FEBRUARY, 2019 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, $ /DATED: 04 TH FEBRUARY, 2019 JPV ()*+* /COPY TO: 1. / APPELLANT 2. /RESPONDENT 3. , ) (/CIT(A) 4. , /CIT 5. *(( /DR 6. / /GF