TMI Blog2019 (2) TMI 1962X X X X Extracts X X X X X X X X Extracts X X X X ..... - HELD THAT:- Since this issue is decided in the assessee s favour by the AO in the earlier assessment year , the corresponding grounds are allowed. - I.T(TP)A. No. 14/Chny/2018 - - - Dated:- 4-2-2019 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER For the Appellant : Shri. K.R. Sekar, CA For the Respondent : Shri. Manvendra Goyal, CIT ORDER PER S. JAYARAMAN, ACCOUNTANT MEMBER: The assessee filed this appeal against the order passed by the DCIT, Corporate Circle 3(2), Chennai on the directions 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. Hyundai Motor India Ltd, the assessee, engaged in 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 is required to pay royalty at 5% on domestic sales and 8% on the export salesfor the use of trade mark and logo and one time lumpsum payment of technical knowh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection, the DRP rejected. Aggrieved, the assessee filed this appeal. 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 incorrectly applied, how the TPO has himself rejected the similar Royaltystat benchmarking analysis in the appellant s own case for AY 2008-09, how royalty is aggregated with other international transactions and hence royalty can not be segregated, how erroneous the royaltystat benchmarking etc, he pleaded that if the main plea ie the royalty payment is at arm s length in its case is appreciated and decided as was done in its case by this Hon ble ITAT in AY 2007-08, all other pleas including the plea that the TPO/DRP exceeded their jurisdiction etc would become academic. The Ld AR submitted that The TPO in the TP order for AY 2007-08 has relied on Royalty data which was available in public domain. As per the said data, the mean royalty payable by the automotive companies on a study of 35 licenses available in public domain was 4.7%. Inspite of it , the TPO made addition on account of royalty payment. On appeal, this Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port sales. The assessee company made an analysis under transfer pricing, since the payment of royalty was directly linked with its manufacturing activity and arrived at the method to be followed as Transaction Net Margin Method (TNMM). The assessee further justified the percentage of royalty paid to its Holding Company as it was approved by RBI. However, the Ld.TPO not accepting the justification of the percentage of royalty paid to the assessee s Holding Company held that separate bench marking analysis should be made and arrived at the following 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO in her TP study for adhoc adjustment on account of brand at the rate of 1% had herself observed that in automobile sector the average rate of royalty is 4.7%, which is higher than the appellant s average rate of royalty being 4.22%. Therefore, royalty paid by the appellant should be accepted as arm s length price. (vi). The comparable companies selected by TPO which is further confirmed by the Ld. Members of the DRP viz; Honda Seil Cars India Limited and Maruthi Suzuki India Limited has controlled transactions since royalty is paid to latter party and therefore the benchmarking analysis s made by the Ld. TPO is unreliable and requires to be rejected. (vii). The Ld. TPO has recognized the royalty payment made by the assessee company which is inclusive of fee for technical know-how whereas for comparable companies the Ld. TPO has recognized only the royalty amount. Therefore, there is no clarity which is required to be corrected. 6.3. The Ld. DR on the other hand relied on the orders 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 by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on equated monthly installment basis to the buyers. It is also relevant to note that India has got a big percentage of population which is not only young but also earns handsome money especially 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 view given above. In this market, Hyundai brand and Logo has become quite popular. It is due to brand value development on account of efforts made by the assessee company. So far as the Hyundai technology is concerned it is the latest technology and it cannot be said that old technology has been dumped in Indian market. It has promising future that will earn the holding company in coming years huge income by way of royalty on know how supplied by it to the assessee company. It is not an old technology about which it may be said that it does not have bright future and hence the sales will decrease and therefore brand development will not be advantageous to the holding company. It would like to stay ahead of its competitors in the Indian market by ensuring the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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