Hyundai Motor India Ltd., Kancheepuram V. DCIT, CHENNAI

MA 93/CHNY/2016

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 4741 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 06-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 29-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 12-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Transfer pricing; Rectification of order

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , . , # BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER MISCELLANEOUS PETITION NO.93/MDS/2016 ( ./ IN I.T.A.NO.2353/MDS/2012) ( / ASSESSMENT YEAR : 2008-09) M/S. HYUNDAI MOTOR INDIA.LTD., PLOT NO.H-1, SIPCOT INDL.PARK, IRUNGATTUKOTTAI, SRIPERUMBUDUR TK. KANCHEEPURAM DIST. VS THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT, CHENNAI. PAN: AAACH2364M (PETITIONER) ( /RESPONDENT) APPLICANT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. SHIVA SRINIVAS, JCIT /DATE OF HEARING : 29 TH JULY, 2016 /DATE OF PRONOUNCEMENT : 6 TH SEPTEMBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM: THE MISCELLANEOUS PETITION IS FILED BY THE ASSESSE E PRAYING FOR RECTIFICATION OF MISTAKE IN THE ORDER O F THE TRIBUNAL IN ITA NO.2353/MDS/2012 DATED 22.04.2016 IN REGARD TO BRAND PROMOTION EXPENSES, ADVERTISEMENT / MARKETING & PROMOTION (AMP) EXPENSES AND ROYALTY PAYMENT. 2. BRAND PROMOTION:- THE ASSESSEE IN ITS WRITTEN SUBMISSIONS H AS STATED AS UNDER:- 2 MP NO.93/MDS/2016 THE HONOURABLE TRIBUNAL VIDE ITS ORDER IN ITA NO. 2353/MDS12012 DATED 22.04.2016 HAS REMANDED THE ISSUE ON BRAND PROMOTION TO THE FILE OF THE TRANSFER PRICING OFFICER TO DETERMINE THE VALUE OF DEVELOPING THE INTANGIBLE PROPERTY BY ADOPTING BRIGHT LINE TEST FOR THE ASSESSMENT YEAR 2008-09. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELO W: - '5. IN THE RELEVANT ASSESSMENT YEAR ALSO, FOLLOWING THE DECISION OF THE CHENNAI BENCH. OF THE TRIBUNAL AND THE SPECIAL BENCH CITED SUPRA, WE HEREBY HOLD THAT 'BRIGHT LINE TEST' WOULD BE THE BEST METHOD FOR DETERMINING THE VALUE OF DEVELOPING THE INTANGIBLE PROPERTY. FOR SUCH DETERMINATION, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF THE LEARNED TPO. ' 3. THEREAFTER VARIOUS ARGUMENTS WERE ADVANCED AND DECISIONS WERE CITED BY THE ASSESSEE TO ESTABLISH T HE FACT THAT BRIGHT LINE TEST (BLT) HAS BEEN ALREADY APPLIE D BY THE LEARNED DRP AND HELD THAT THE TRANSACTION IS IN WIT HIN ARMS LENGTH. HENCE, IT WAS PLEADED THAT IT IS NOT REQUIR ED TO REMIT BACK THE ISSUE TO THE FILE OF LEARNED TPO FOR APPLI CATION OF BLT ONCE AGAIN. FURTHER IT IS SUBMITTED THAT THE VA RIOUS ARGUMENTS AND DECISIONS CITED BY THE ASSESSEE WAS N OT CONSIDERED AND THEREFORE THE ORDER OF THE TRIBUNAL IS TO BE SUITABLY RECTIFIED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. ON THE EARLIER OCC ASION, THE 3 MP NO.93/MDS/2016 BENCH HAS CONSIDERED THE ISSUE IN DETAIL AND HAD DE CIDED THE MATTER BY RELYING ON THE FACTS OF THE CASE OF THE A SSESSEE AND THE DECISION OF THE SPECIAL BENCH AND HELD THAT THE BLT METHOD WOULD BE BEST METHOD TO DETERMINE THE ARMS LENGTH PRICE IN THE CASE OF THE ASSESSEE. ACCORDINGLY, THE MATTER WAS REMITTED BACK TO THE FILE OF THE LEARNED TPO. I F THE ISSUE HAS ALREADY BEEN DECIDED BY THE LEARNED DRP IN THE MANNER ADJUDICATED BY THE TRIBUNAL, THEN IT WOULD NOT BE N ECESSARY TO RECONSIDER THE SAME. HOWEVER, SINCE THE BENCH WAS N OT AWARE THAT SUCH TEST HAS ALREADY APPLIED BY THE LEA RNED DRP; THE ISSUE WAS REMITTED BACK TO THE FILE OF THE LEAR NED TPO. THEREFORE, THERE IS NO HARM FOR THE LEARNED TPO TO EXAMINE THESE ASPECTS AND DECIDE THE MATTER IN ACCORDANCE W ITH THE RATIO LAID DOWN BY THE TRIBUNAL. HENCE, WE DO NOT FIND THAT THERE IS A MISTAKE IN THE ORDER OF THE TRIBUNAL WHI CH REQUIRES TO BE RECTIFIED ON THIS ISSUE. II) ADVERTISEMENT, MARKETING & PROMOTION (AMP) EXPE NSES: THE ASSESSEE IN ITS WRITTEN SUBMISSIONS HAS STATED AS UNDER:- THE HONOURABLE TRIBUNAL VIDE ITS ORDER IN ITA NO. 2 353 /MDS/2013 DATED 22.04.2016 HAS REMANDED THE ISSUE ON AMP EXPENSES TO THE FILE OF THE TRANSFER PRICING OF FICER TO DETERMINE THE ALP ON ADVERTISEMENT EXPENSES BY ADOP TING BRIGHT LINE TEST FOR THE ASSESSMENT YEAR 2008-09. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELO W: '9. FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE HEREBY HOLD THAT THE CONCEPT OF BRIGHT LINE TEST 4 MP NO.93/MDS/2016 HAS TO BE APPLIED IN THE CASE OF THE ASSESSEE FOR DETERMINING THE ALP ON ADVERTISEMENT EXPENSES AND ACCORDINGLY REMIT BACK THE MATTER TO THE FILE O F THE LEARNED TPO FOR COMPUTING THE ALP WITH RESPECT TO THE ADVERTISEMENT EXPENSES INCURRED BY THE ASSESSEE COMPANY ON BEHALF OF ITS HOLDING COMPANY. 5. THIS GROUND RAISED BY THE ASSESSEE IS SIMILAR TO THE EARLIER GROUND RAISED HEREINABOVE AND THEREFORE, TH E SAME DECISION SHALL APPLY FOR THIS GROUND ALSO. THEREFO RE, WE DO NOT FIND IT NECESSARY TO MODIFY THE ORDER OF THE TR IBUNAL ON THIS ISSUE. C. ROYALTY PAYMENT: THE ASSESSEE IN ITS WRITTEN SUBMISSIONS HAS STATED AS UNDER:- THE HONOURABLE TRIBUNAL VIDE ITS ORDER IN ITA NO. 2 353/ MDS/2013 DATED 22.04.2016 HAS DISALLOWED THE ROYALT Y PAYMENT FOR THE ASSESSMENT YEAR 2008-09. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELO W: '14. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED ON THIS ISSUE DRAWING STRENGTH FROM THE EARLIER DECISION OF THE BENCH OF THE TRIBUNAL FOR THE PRECEDING ASSESSMENT YEAR WHEREIN THERE WAS A CATEGORICAL FINDING BY THE LEARNED TPO THAT THE AVERAGE RATE OF ROYALTY PAYMENT IN THE INDUSTRY WAS 4.7%. HOWEVER, IN THE PRESENT CASE BEFORE US NO ARGUMENTS WAS ADVANCED FOR JUSTIFYING THE STAND OF THE ASSESSEE THAT DURING THE RELEVANT ASSESSMENT YEAR ALSO THE AVERAGE RATE OF ROYALTY ON SALES IN THE INDUSTRY IS MORE THAN 3.47%. IN THIS SITUATION, WE DO NOT FIND IT 5 MP NO.93/MDS/2016 NECESSARY TO INTERFERE WITH THE ORDERS OF THE REVENUE WHO HAD MADE ELABORATE FINDING IN THEIR RESPECTIVE ORDERS THAT THE AVERAGE RATE OF ROYALTY ON SALES PREVALENT DURING THE RELEVANT ASSESSMENT YEAR AMONGST THE COMPARABLE COMPANIES IS ONLY 2.54%. THEREFORE, THIS GROUND RAISED BY THE ASSESSEE IS DECIDED AGAINST IT. THE APPELLANT WISHES TO BRING TO THE NOTICE OF THE HON'BLE TRIBUNAL THAT DURING THE COURSE OF HEARING, THE APP ELLANT HAD SUBMITTED THE COPY OF THE INDUSTRY AVERAGE ROYA LTY RATE AVAILABLE IN WIKIPEDIA (REFER ANNEXURE 6). THE AVERAGE ROYALTY PAYMENT IN AUTOMOTIVE SECTOR FR OM THE STUDY OF 35 LICENSES IS 4.7% WHICH IS HIGHER THAN T HE APPELLANTS' AVERAGE RATE OF ROYALTY PAYMENT OF 3.60 %. THE SCREENSHOT IS PROVIDED BELOW: ROYALTY DISTRIBUTION ANALYSIS IN INDUSTRY INDUSTRY LICENSES NOS. MIN. ROYALTY% MAX ROYALTY % AVERAGE% MEDIAN% AUTOMOTIVE 35 1.0 15.0 4.7 4.0 COMPUTERS 68 0.2 15.0 5.2 4.0 CONSUMER GDS 90 0.0 17.0 5.5 5.0 ELECTRONICS 132 0.5 15.0 4.3 4.0 HEALTHCARE 280 0.1 77.0 5.8 4.8 INTERNET 47 0.3 40.0 11.7 7.5 MACH.TOOLS 84 0.5 26 5.2 4.6 PHARMA/BIO 328 0.1 40.0 7.0 5.1 SOFTWARE 119 0.0 70.0 10.5 6.8 6. IT IS SUBMITTED BY THE LEARNED AUTHORIZED REPRESENTATIVE THAT FOR THE RELEVANT ASSESSMENT YEA R ALSO THE AVERAGE RATE OF ROYALTY IN THE INDUSTRY IS 4.7% WHI CH IS HIGHER THAN THE APPELLANTS AVERAGE RATE OF ROYALTY PAYMEN T OF 3.6%. THEREFORE THERE IS A APPARENT MISTAKE IN THE ORDER OF THE TRIBUNAL WHICH IS REQUIRED TO BE RECTIFIED. 6 MP NO.93/MDS/2016 7. ON THIS ISSUE, FOLLOWING OUR DECISION FOR TH E PRECEDING YEAR, WE HAVE ALREADY DECIDED THAT THE AVERAGE RATE OF ROYALTY PAYMENT IN THE INDUSTRY HAS TO BE CONSIDERE D IN THE CASE OF THE ASSESSEE FOR DETERMINING THE ARMS LENG TH PRICE AND IF THE SAME IS MORE THAN THE RATE OF ROYALTY PA YMENT MADE BY THE ASSESSEE, THEN NO ADJUSTMENT IS REQUIRE D. 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 P REVALENT IN THE INDUSTRY WE HEREBY DIRECT THE LEARNED TPO TO VE RIFY THE SAME AND DECIDE THE MATTER IN THE LIGHT OF OUR ABOV E DECISION. TO THAT EXTENT, THE ORDER OF THE TRIBUNAL STANDS CO RRECTED AND MODIFIED. 8. IN THE RESULT, THE MISCELLANEOUS PETITION FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED HEREINABOVE . ORDER PRONOUNCED IN THE OPEN COURT ON THE 6 TH SEPTEMBER , 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.MOHAN ALANKAMONY ) ! # /JUDICIAL MEMBER # / ACCOUNTANT MEMBER ! /CHENNAI, % /DATED THE 6 TH SEPTEMBER, 2016 SOMU 7 MP NO.93/MDS/2016 '( )( /COPY TO: 1. APPELLANT 2. RESPONDENT 3. * ( )/CIT(A) 4. * /CIT 5. ( - /DR 6. /GF.