WA.No.2104 of 2018 IN HIGH COURT OF JUDICATURE AT MADRAS RESERVED ON : 28.08.2020 DELIVERED ON : 16.09.2020 CORAM HON'BLE MR.JUSTICE M.M.SUNDRESH and HON'BLE MRS.JUSTICE R.HEMALATHA WA.No.2104 of 2018 and CMP.No.16496 of 2018 M/s.Hyundai Motor India Ltd., Plot No.H-1, SIPCOT Industrial Park, Irungattukottai, Sriperumbudur Taluk, Kanchipuram - 602117. Appellant Vs. 1.The Deputy Commissioner of Income Tax, Transfer Pricing Officer - 2 (1), Room No.506, 5th Floor, Tower - I, BSNL Building, No.16, Greams Road, Chennai - 600 006. 2.The Deputy Commissioner of Income Tax (LTU), 7th Floor, Income Tax Main Building (Aayakar Bhawan), 121 Mahatma Gandhi Road, Nungambakkam, Chennai - 600 034. ... Respondents Page 1 of 18 http://www.judis.nic.in WA.No.2104 of 2018 Prayer: Writ Appeal filed under Clause 15 of Letters Patent praying to set aside order in WP.No.22508 of 2017 dated 16.07.2018 and allow above writ appeal. For Appellant : Mr.R.V.Easwar, Senior counsel for Mr.SP.Chidamvaram & Mr.Rubal Bansal For Respondents : M/s.Hema Muralikrishnan ORDER (Order of Court was made by R.HEMALATHA, J.) This appeal is against final order passed in WP.No.22508 of 2017 dated 16.07.2018. 2. facts of case briefly are summarized below. appellant company is engaged in business of manufacturing, selling and servicing passenger vehicles and related spare parts / CKD parts in domestic as well as overseas markets. assessee / appellant company (M/s.Hyundai Motors India Ltd) has exclusive rights of Holding company (M/s.HMC Korea) abroad to produce cars in this country. brand name and logo are Holding Company's property while end product is made in India. matter of dispute is in e-return filed for assessment year 2008- 2009 in which first respondent as Transfer Pricing Officer (TPO) Page 2 of 18 http://www.judis.nic.in WA.No.2104 of 2018 found royalty paid by assessee / appellant company to Holding Company was higher (3.47%) than average royalty rates of four comparable companies (2.54%) thus concluding that Arm's length price of royalty paid was in excess and therefore Rs.106.67 crores was disallowed ie., in other words added to taxable income. Draft Assessment Officer passed order under Section 143/3 of IT Act read with Section 92 CA. assessee / appellant company filed its objections in form 35 before Dispute Resolution Panel (DRP), Chennai which rejected objections. rectification petition was filed before DRP disputing inconsistency in arriving at royalty expenses. However, final assessment order was passed on 29.10.2012 without considering objections of assessee / appellant company. appeal in form 36 B was filed by assessee / appellant company with Income Tax Appellate Tribunal (ITAT). Dispute Resolution Panel (DRP) issued revised order stating that certain mistake had crept in while calculating adjustment and consequently disallowance was scaled down from Rs.106.67 crores to Rs.86.88 crores. ITAT upheld this revised adjustment order of DRP. Subsequently, Miscellaneous Petition was filed by Page 3 of 18 http://www.judis.nic.in WA.No.2104 of 2018 appellant company before ITAT on 12.05.2016 which prompted ITAT to correct and modify its earlier order and direct TPO to verify whether petitioner's rate of royalty payment is lesser than rate prevailing in industry. TPO which revisited royalty payment part opined that assessee / appellant company relied on Wikipedia and not any authentic source to substantiate its contentions regarding average royalty rate in Industry and therefore, reiterated decision on disallowance of Rs.86.88 crores, on account of royalty paid. Irked by this order of TPO, Writ Petition No.22508 of 2017 was filed by assessee / appellant company in which Single Judge of this Court dismissed petition by stating that it was premature and assessee / appellant company had not exhausted all available remedies before approaching this Court. Hence, this appeal against order of Single Judge of this Court. 3. learned senior counsel for assessee / appellant Mr.Rubal Bansal for Mr.S.P.Chidambaram, learned counsel would contend that Single Judge of this Court had failed to appreciate fact that first respondent TPO had two different yardsticks for two different assessment Page 4 of 18 http://www.judis.nic.in WA.No.2104 of 2018 years to arrive at average royalty paid in Industry. It was further argued by learned counsel that while for assessment year 2007-08, it was accepted by TPO that royalty rates called out from Wikipedia is valid and based on which ITAT had decided in allowing entire royalty paid as allowance, different yardstick was adopted this year (2008- 09) not allowing same. This speaks volumes of arbitrary and illogical reasoning by TPO. His further contention that Single Judge had dismissed Writ Petition merely because he felt that remedies available to assessee / appellant company as IT assessee were not exhausted, is also erroneous. It was also contended that entire process of appeal in all possible forms was undergone only to be referred back to TPO on aspect of verifying actual industrial average royalty paid in automobile sector and whether it is higher than royalty paid by appellant company. TPO went much beyond ITAT order thus exposing lack of any proper scientific approach in determining this all important aspect of Arm length price as regards royalty paid. Further, denial of natural justice by TPO by not issuing show cause notice aggravated matter, it was contended. Page 5 of 18 http://www.judis.nic.in WA.No.2104 of 2018 4. first respondent represented by learned counsel Mrs.Hema Muralikrishnan contended that former was right in determining whether transactions pertaining to royalty paid were within Arm's length or not. It was contended that royalty paid to sales ratio cannot be constant every year and it was imperative to make comparative study with other comparable companies. Further contention of learned counsel was that ITAT had never considered royalty rates of Industry from Wikipedia. It was argued that in 2007-08, TPO herself had mentioned average royalty of Industry as 4.7 which was higher than 4.22 of appellant company. But, assessees were not able to satisfactorily substantiate that same average rates continued this year also. It was argued that therefore relying on Wikipedia rates to get average of royalty paid in Industry is wrong and without any reasoning. 5. It is found that in 2007-08, ITAT had observed that "TPO herself observed that in respect of royalty payment in automotive sector from study of 35 licences, average works out to 4.7% which is higher than royalty payment of 4.22% of assessee company". In Page 6 of 18 http://www.judis.nic.in WA.No.2104 of 2018 same year, TPO had initially made comparisons like in 2008-09 and concluded that average royalty paid by 4 comparable companies is 2.36% while appellant company had paid 4.22% and hence in excess of Arm's length price by 1.86% of sales ie., 165.05 crores which was restricted to Rs.104.27 crores by DRP stating two of comparable companies were not qualifying for comparison. In this context, it was mentioned by DRP that "the related party transactions were more than 25%" and therefore removed two of four comparable companies to arrive at average. Subsequently, ITAT allowed entire Rs.104.27 crores based on observation of TPO that royalty payment by assessee / appellant was 4.22% which was lesser than Industry average of 4.70%. 6. It is specific contention of learned senior counsel that it can be prima facie seen that first respondent does not have standard procedure to assess Arm's length price. entire concept of ALP is to keep check on companies which have their parent company abroad from overstating royalty expenses in order to claim allowance. Thus, Page 7 of 18 http://www.judis.nic.in WA.No.2104 of 2018 need to make comparisons more scientific to arrive at average royalty rates is imperative. In instant case, it is clear that companies which have been compared for getting royalty percentage to sale are not comparable if decision by DRP for 2007-08 is any indication. Thus, choice of comparable companies becomes crucial and if companies which cannot be compared are included, Industry average varies to great extent. 7. It is also pertinent to mention that in 2007-08, objections were raised by assessee / appellant not to compare similar companies, as royalty payment for one company was only for 'technology' component like in Maruti Suzuki India Ltd., while royalty payment was for 'technology and use of brand' as in assessee / appellant company. Such inherent deficiencies were pointed out thereby making entire system faulty and fraught with loopholes. 8. Now, it is revealed, during course of arguments that TPO's order was accepted by Assessing Officer and final order of Page 8 of 18 http://www.judis.nic.in WA.No.2104 of 2018 assessment was passed in November 2019. It is not clear whether assessee / appellant approached DRT with objections against draft assessment order. assessee / appellant ought to have approached ITAT against this final order of assessment. In such circumstances, this Court opines that remedies are available in system and assessee / appellant ought to have approached ITAT before approaching this Court, but instead challenged TPO's order in this Court. We may note, even in first instance assessee did same thing by approaching Tribunal against final assessment made. Certainly, as done by it earlier, all issues can be agitated before Tribunal. 9. In WP.No.22508 of 2017, in final order, Single Judge had also observed that "this Court is of undoubted opinion that writ petitioner has not made out any case for purpose of waiving efficacious alternate remedy available to writ petitioner under provisions of Act and therefore, this Court is not inclined to entertain writ petition on merits and adjudicate issues involved in respect of fixing of average rate of royalty payment". Page 9 of 18 http://www.judis.nic.in WA.No.2104 of 2018 10.We would like to reiterate legal position involving invocation of extraordinary jurisdiction of this Court by placing reliance upon judgment of Division Bench of this Court in Joint Commissioner of Income Tax, Media Range and others Vs. Kalanithi Maran and another (2014 (3) Law Weekly 846) in in which one of us is party (MMSJ) wherein law laid down by Apex Court in Commissioner of Income Tax and others Vs. Chhabil Dass Agarwal, ((2014) 1 SCC 603), has been noted of. following paragraphs would be apposite. 12. While holding so, we are quite aware that jurisdiction vested with High Court under Article 226 of Constitution of India can be exercised in given case. In other words, restriction is self-imposed and nothing else. There may be case, where assessment is sought to be reopened by Officer, who is not competent to do so. Similarly, there may be cases, where on face of it would appear that reopening is barred by limitation or lacks inherent jurisdiction. To put it differently, in case, where no adjudication is required on facts, then certainly jurisdiction of this Court under Article 226 of Constitution of India can very well be invoked. Therefore, to such limited extent, we are inclined to hold that jurisdiction of this Court under Article 226 of Page 10 of 18 http://www.judis.nic.in WA.No.2104 of 2018 Constitution of India can be exercised. 13. Considering said principle, Supreme Court in Commissioner of Income Tax and others Vs. Chhabil Dass Agarwal, ((2014) 1 SCC 603), was pleased to hold as under: 15. Thus, while it can be said that this Court has recognized some exceptions to rule of alternative remedy, i.e., where statutory authority has not acted in accordance with provisions of enactment in question, or in defiance of fundamental principles of judicial procedure, or has resorted to invoke provisions which are repealed, or when order has been passed in total violation of principles of natural justice, proposition laid down in Thansingh Nathmal case, (AIR 1964 SC 1419), Titagarh Paper Mills case ((1983) 2 SCC 433) and other similar judgments that High Court will not entertain petition under Article 226 of Constitution if effective alternative remedy is available to aggrieved person or statute under which action complained of has been taken itself contains mechanism for redressal of grievance still holds field. Therefore, when statutory forum is created by law for redressal of grievances, writ petition should not be entertained ignoring statutory dispensation.'' We do not find any of circumstances as laid down by Supreme Court available before us. 14. Ratio laid down in Commissioner of Income Tax and others Vs. Chhabil Dass Agarwal, ((2014) 1 SCC 603):- entire issues framed, in our considered view, are Page 11 of 18 http://www.judis.nic.in WA.No.2104 of 2018 covered by recent judgment of Supreme Court referred above. Considering jurisdiction of this Court under Article 226 of Constitution of India, it has been held therein in following manner: 10. In instant case, only question which arises for our consideration and decision is whether High Court was justified in interfering with order passed by assessing authority under Section 148 of Act in exercise of its jurisdiction under Article 226 when equally efficacious alternate remedy was available to assessee under Act. 15. Supreme Court, while considering said issue, has also taken into consideration decision rendered in G.K.N.Driveshafts (India) Limited Vs. Income-tax Officer, ((2003) 1 SCC 72 = 259 ITR 19(SC)). In this connection, it is apposite to refer paragraph No.12 of said decision, which reads as follows:- 12. Constitution Benches of this Court in K.S. Rashid and Sons vs. Income Tax Investigation Commission, (AIR 1954 SC 207); Sangram Singh vs. Election Tribunal, Kotah, (AIR 1955 SC 425); Union of India vs. T.R. Varma, (AIR 1957 SC 882); State of U.P. vs. Mohd. Nooh, (AIR 1958 SC 86) and K.S. Venkataraman and Co. (P) Ltd. vs. State of Madras, (AIR 1966 SC 1089) have held that though Article 226 confers very wide powers in matter of issuing writs on High Court, remedy of writ is absolutely discretionary in character. If High Court is satisfied that aggrieved party can have adequate or Page 12 of 18 http://www.judis.nic.in WA.No.2104 of 2018 suitable relief elsewhere, it can refuse to exercise its jurisdiction. Court, in extraordinary circumstances, may exercise power if it comes to conclusion that there has been breach of principles of natural justice or procedure required for decision has not been adopted." 16. Statutory remedy:- When in fiscal statute, hierarchy of remedy of appeals are provided, party has to exhaust them instead of seeking relief by invoking jurisdiction of this Court under Article 226 of Constitution of India and as held in Commissioner of Income Tax and others Vs. Chhabil Dass Agarwal, ((2014) 1 SCC 603), Court will have to take into consideration of legislative intent enunciated in enactment in such cases. It is not as if alternative remedy is neither efficacious nor effective. In above said judgment, Supreme Court held as under: 13. In Nivedita Sharma vs. Cellular Operators Assn. of India, (2011) 14 SCC 337, this Court has held that where hierarchy of appeals is provided by statute, party must exhaust statutory remedies before resorting to writ jurisdiction for relief and observed as follows 12. In Thansingh Nathmal v. Supdt. of Taxes, (AIR 1964 SC 1419), this Court adverted to rule of self-imposed restraint that writ petition will not be entertained if effective remedy is available to aggrieved person and observed: Page 13 of 18 http://www.judis.nic.in WA.No.2104 of 2018 7. High Court does not therefore act as court of appeal against decision of court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon alternative remedy provided by statute for obtaining relief. Where it is open to aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in manner provided by statute, High Court normally will not permit by entertaining petition under Article 226 of Constitution machinery created under statute to be bypassed, and will leave party applying to it to seek resort to machinery so set up. 13. In Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 this Court observed: (SCC pp. 440-41, para 11) 11. It is now well recognised that where right or liability is created by statute which gives special remedy for enforcing it, remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Waterworks Co. v. Hawkesford, 141 ER 486 in following passage: There are three classes of cases in which liability may be established founded upon statute. But there is third class viz. where liability not existing at common law is created by statute which at same time gives special and particular remedy for enforcing it. remedy provided by statute must be followed, and it is not competent to party to pursue course applicable to cases of second class. form given by statute must be adopted Page 14 of 18 http://www.judis.nic.in WA.No.2104 of 2018 and adhered to. rule laid down in this passage was approved by House of Lords in Neville v. London Express Newspapers Ltd., 1919 AC 368 and has been reaffirmed by Supreme Today With All High Courts Page 4 of 6 Privy Council in Attorney General of Trinidad and Tobago v. Gordon Grant and Co. Ltd., 1935 AC 532 (PC) and Secy. of State v. Mask and Co., AIR 1940 PC 105 It has also been held to be equally applicable to enforcement of rights, and has been followed by this Court throughout. High Court was therefore justified in dismissing writ petitions in limine. 14. In Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 B.P.Jeevan Reddy, J. (speaking for majority of larger Bench) observed: 77. So far as jurisdiction of High Court under Article 226 or for that matter, jurisdiction of this Court under Article 32 is concerned, it is obvious that provisions of Act cannot bar and curtail these remedies. It is, however, equally obvious that while exercising power under Article 226/Article 32, Court would certainly take note of legislative intent manifested in provisions of Act and would exercise their jurisdiction consistent with provisions of enactment. 14. In Union of India vs. Guwahati Carbon Ltd., (2012) 11 SCC 651, Apex Court has reiterated aforesaid principle and observed: Page 15 of 18 http://www.judis.nic.in WA.No.2104 of 2018 8. Before we discuss correctness of impugned order, we intend to remind ourselves observations made by this Court in Munshi Ram v. Municipal Committee, Chheharta, (1979) 3 SCC 83. In said decision, this Court was pleased to observe that: 23. when revenue statute provides for person aggrieved by assessment thereunder, particular remedy to be sought in particular forum, in particular way, it must be sought in that forum and in that manner, and all other forums and modes of seeking [remedy] are excluded. 11. Therefore, this writ appeal is disposed of with above observations with liberty to assessee / appellant to approach Tribunal within four weeks from date of receipt of copy of this order. We leave all issues open to be agitated before Tribunal. Consequently, connected Miscellaneous Petition is closed. No costs. (M.M.S., J.) (R.H., J.) 16.09.2020 mbi Index: Yes/No To 1.The Deputy Commissioner of Income Tax, Page 16 of 18 http://www.judis.nic.in WA.No.2104 of 2018 Transfer Pricing Officer - 2 (1), Room No.506, 5th Floor, Tower - I, BSNL Building, No.16, Greams Road, Chennai - 600 006. 2.The Deputy Commissioner of Income Tax (LTU), 7th Floor, Income Tax Main Building (Aayakar Bhawan), 121 Mahatma Gandhi Road, Nungambakkam, Chennai - 600 034. M.M.SUNDRESH, J. and R.HEMALATHA,J. Page 17 of 18 http://www.judis.nic.in WA.No.2104 of 2018 mbi WA.No.2104 of 2018 and CMP.No.16496 of 2018 16.09.2020 Page 18 of 18 http://www.judis.nic.in Hyundai Motor India Ltd. v. Deputy Commissioner of Income-tax, Transfer Pricing Officer-2(1), Chennai / Deputy Commissioner of Income-tax (LTU), Chennai