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

MA 105/CHNY/2025

AI Insights

The case involves Hyundai Motor India Ltd., which faced a transfer pricing adjustment by the Transfer Pricing Officer (TPO) for the Assessment Year 2008-09, concerning royalty payments to its holding company. The TPO initially determined the royalty rate to be 5%, higher than the industry average of 4.7%, leading to an adjustment of Rs.106.67 crores, later revised to Rs.86.88 crores by the Dispute Resolution Panel (DRP). Hyundai contested this, leading to a series of appeals and adjustments. The Tribunal's final decision, influenced by the TPO's acknowledgment of the correct sales figure, favored Hyundai, leading to the deletion of the transfer pricing adjustment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 780213 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 07-10-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 24-06-2025
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GAUTHAMI MANIVASAGAM
• Assessee Lawyers: S P. CHIDAMBARAM
• Keywords: Transfer pricing; International transaction

Judgement Text

"आयकर अपीलीय अिधकरण, ’डी’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI \u0001ी एबी टी. वक , ाियक सद\u0011 एवं एवं एवं एवं \u0001ी अिमताभ शु\u0018ा, लेखा सद क े सम\u001b BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER Miscellaneous Application No.105/Chny/2025 (in IT (TP) A No.24/Chny/2020) िनधा\u000eरणवष\u000e/Assessment Year: 2008-09 M/s. Hyundai Motor India Ltd., Plot No.H-1, SIPCOT Industrial Park, Irungatukottai, Sriperumbudur Taluk, Kancheepuram District, Tamil Nadu-602 117. v. The ACIT, Large Taxpayer Unit-2, Nungambakkam, Chennai – 600 034. [PAN: AAACH 2364 M] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Mr.SP. Chidambaram, Advocate \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Ms. Gauthami Manivasagam, JCIT सुनवाईक\u001aतारीख/Date of Hearing : 12.09.2025 घोषणाक\u001aतारीख /Date of Pronouncement : 07.10.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This is a Miscellaneous Application preferred by the assessee against the order of this Tribunal in IT (TP) A No.24/Chny/2020 for AY 2008-09 vide order dated 09.12.2024 with regard to royalty payment. Printed from counselvise.com MA No.105/Chny/2025 (AY 2008-09) M/s. Hyundai Motor India Ltd. :: 2 :: 2. Before we discuss about the present Miscellaneous Application preferred by the assessee company, we may note the brief facts as noted by us in the impugned order (i.e. Para No.2 & 3) is as under: 2. Brief facts of the case are that, the assessee is engaged in the business of manufacturing, selling and servicing passenger vehicles and related spare parts/CKD parts in the domestic as well as overseas markets. The assessee has obtained exclusive license from its holding company, M/s.Hyundai Motors India Ltd, Korea to produce cars in India. Both the brand name & logo belong to the holding company, which is being used by the assessee. In the relevant AY 2008-09, the Transfer Pricing Officer [TPO] noted that, the royalty paid by the assessee to the holding company was 3.47%, which washigher than the average royalty rates of four comparable companies, which worked out to 2.54% and therefore held that, the international transaction involving payment of royalty was not at arm’s length. The TPO accordingly made a transfer pricing adjustment of Rs.106.67 crores. Aggrieved by the draft assessment order passed by the Assessing Officer [AO]inter alia incorporating the aforesaid transfer pricing adjustment, the assessee had filed objections before the Dispute Resolution Panel [DRP]. The Ld. DRP is noted to have in principle upheld the transfer pricing adjustment to royalty payment but corrected some calculation errors and accordingly revised the transfer pricing adjustment from Rs.106.67 crores to Rs.86.88 crores. Aggrieved by the order of the Ld. DRP, the assessee preferred an appeal before this Tribunal whom vide their original order in ITA No.2353/Mds/2012 dated 22.04.2016 had upheld the transfer pricing adjustment. Subsequently, the assessee preferred a Miscellaneous Petition[MA No.93/Mds/2016] before this Tribunal, wherein the assessee had inter alia contended that the royalty paid by it was 3.6% of the sales, whereas, the industry average rate for AY 2008-09 was 4.7% and therefore following the benchmarking methodology upheld in AY 2007-08 i.e. royalty rate paid was lesser than industry average, and so, contended that the transfer pricing adjustment be deleted. This Tribunal is noted to have disposed of the Miscellaneous Application vide its order dated 06.09.2016 with the following directions: - “6. It is submitted by the learned Authorized Representative that for the 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 payment of 3.6%. Therefore there is a apparent mistake in the order of the Tribunal which is required to be rectified. 7. On this issue, following our decision for the preceding year, we have already decided that the average rate of royalty payment in the industry has to be considered in the case of the assessee for determining the arm’s length price and if the same is more than the rate of royalty payment made by the assessee, then no adjustment is required. Since the Ld.A.R has pointed out that in the case of the assessee the rate of Royalty payment is less than the rate prevalent in the industry we hereby direct the learned TPO to verify the same and decide the matter in the light of our above decision.” (emphasis supplied) 3. Pursuant to the above specific directions of the Tribunal, the TPO is noted to have re-examined the case records and observed that the aggregate royalty payment of Rs.364.10 crores was made against the net sales of Rs.7275.94 crores and therefore the royalty rate worked out to 5% as opposed to 3.6% computed by the assessee. The TPO further observed that the Printed from counselvise.com MA No.105/Chny/2025 (AY 2008-09) M/s. Hyundai Motor India Ltd. :: 3 :: industry average of 4.7% claimed by the assessee had no basis and questioned the source and year of this data. He additionally observed that the royalty of 5% paid to its holding company was higher than the so-called industry average claimed by the assessee. The TPO 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 pricing adjustment of Rs.86.88 crores. 3. The Ld.AR submitted that there is a factual error in the aforesaid observation made by the Tribunal in its impugned order dated 09.12.2024 [refer Para No.3] because of which, the royalty rate was worked out at 5% as opposed to 3.6% computed by the assessee. Explaining the mistake, the Ld.AR contended that the sales denominator considered by the TPO in the giving effect order is incorrect and the correct denominator that needs to be considered is Rs.10,118.86 crores as against the Rs. 7,275.94 crores, which is consistent with the approach adopted for computing the royalty ratio for earlier AY 2007-08 which has been accepted by this Tribunal as well. Taking note of the aforesaid submissions, we vide interim-order dated 22.08.2025, called for Remand- Report from the TPO in relation to all issues raised in the present Miscellaneous Application, which are as under: (i) Non-Compliance with Writ Appeal Order (ii) Rejection of contentions on TNMM (iii) Inconsistency in Royalty Ratio Calculation (iv) Non-consideration of CUP Printed from counselvise.com MA No.105/Chny/2025 (AY 2008-09) M/s. Hyundai Motor India Ltd. :: 4 :: 4. Pursuant to our directions (supra), TPO has furnished the remand report dated 03.09.2025, which is placed on record by the Ld DR and a copy was also provided to the Ld AR. 5. After perusing the remand report, we note that the TPO supports the view of this Tribunal passed on 09.12.2024 in so far as the first two issues are concerned. However, in so far as the third issue is concerned i.e. “Inconsistency in Royalty ratio calculation”, the TPO has admitted the fact that the correct sales denominator for royalty computation is Rs.10,118.86 crores as against Rs. 7,275.94 crores. Further, the TPO has acknowledged the fact that similar approach was accepted by this Tribunal in the assessee’s own case for AY 2007-08. The relevant extract from the Remand Report of the TPO dated 03.09.2025 is extracted below: “However, it is pertinent to note that in the third party report “Wikipedia Industrial Average Rate” which is used for computing the ALP of the said transactions, industrial data have been considered from data available in the public domain i.e. annual report of the companies. Further, the general methodology, which is used for computing net sales from the annual report is: “Net Sales = Gross Sales – Excise Duty” Based on the above formula, the assessee has considered the net sales as INR 10,118.86 crores, instead of the figure of INR 7275.94 crores. The same treatment has also been accepted by the Hon’ble ITAT in the earlier A.Y. i.e. 2007-08, considering the data available in the annual report of the assessee company.” (emphasis supplied) 6. In our impugned order dated 9.12.2024, inter-alia, as noted at Para No.3 and other paras and especially at Para Nos.13 & 14, we have observed that the royalty ratio of the Assessee was determined by the Printed from counselvise.com MA No.105/Chny/2025 (AY 2008-09) M/s. Hyundai Motor India Ltd. :: 5 :: TPO by adopting the denominator as Rs.7275.94 crores, consequently resulting in the royalty ratio of 5% vis-à-vis the industry average royalty ratio of 4.7% and therefore, had directed that the difference between 5% and 4.7% (i.e. 0.3% of Rs.7,275.94 crores = 21.83 crores) be considered for TP adjustment. However, in the remand report (supra), the TPO has admitted that the correct sales denominator is Rs.10,118.86 crores and the TPO has also admitted that it is in line with ITAT decision in the assessee’s own case for AY 2007-08. Accordingly, if the correct sales denominator adopted is Rs.10,118.86 crores for the purpose of computation of royalty ratio, (instead of ₹7,275.94 Cr.) the royalty ratio of the Assessee would work out to 3.60%. Consequently, the royalty paid is well within the arm’s length upper range of 4.7%. We therefore find that, the assessee has paid royalty at 3.6%, which is well within the upper range of 4.7% and resultantly the payment of royalty by the assessee to its holding company was at arm’s length and therefore, no transfer pricing adjustment was required. Accordingly, the transfer pricing adjustment restricted by us at ₹21.83 Crs. vide the impugned order is directed to be deleted. 7. In view of our above findings based on the Remand Report issued by the TPO dated 03.09.2025, wherever this fact is stated in the impugned order of this Tribunal dated 09.12.2024 in Printed from counselvise.com MA No.105/Chny/2025 (AY 2008-09) M/s. Hyundai Motor India Ltd. :: 6 :: IT(TP)A.No.24/Chny/2020 will stand modified to the extent indicated above. 8. In the result, the Miscellaneous Application filed by the assessee is partly allowed for statistical purposes. Order pronounced on the 07th day of October, 2025, in Chennai. Sd/- (अिमताभ शु\u0018ा) (AMITABH SHUKLA) लेखा सद\u0003य/ACCOUNTANT MEMBER Sd/- (एबी टी. वक ) (ABY T. VARKEY) \u0005याियक सद\u0003य/JUDICIAL MEMBER चे ई/Chennai, !दनांक/Dated: 07th October, 2025. TLN आदेश क\u001a \u0017ितिलिप अ$ेिषत/Copy to: 1. अपीलाथ /Appellant 2. \u000e\u000fथ /Respondent 3. आयकरआयु\u0015/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u000eितिनिध/DR 5. गाड फाईल/GF Printed from counselvise.com "