9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (5) TMI 1108 - AT - Income TaxTP Adjustment - corporate guarantees extended to its foreign AEs - AO captured the Corporate Guarantee fee at 1.8% at the outstanding loan amount - as per AR corporate guarantees extended to its foreign AEs are in the nature of shareholder activities and the assessee did not incur any expenditure, therefore, benchmarking of an activity of shareholder without any consideration is not in accordance with provisions of the Act and well accepted principle that no service fee is required to be paid for rendering shareholder services by an enterprise to its associated enterprise as a shareholder HELD THAT - As relying upon the decision of Aurobinda Pharma 2023 (4) TMI 1254 - ITAT HYDERABAD we uphold the computation of Corporate Guarantee Commission at 0.53%. Undoubtedly, in the facts of the case of Aurobinda Pharma (surpa), we had determined the amount guaranteed as corporate guarantee commission @ 0.5%. However, considering the facts of the present case, we are of the opinion that the computation of the amount guaranteed as corporate guarantee commission @ 0.53% would be appropriate. Furthermore, the Revenue cannot be worsen of thereby reducing the corporate guarantee commission from 0.53% to 0.50% in its appeal. Accordingly, the appeal of the Revenue on this aspect is without any basis. Other aspect on which the CIT(A) has granted relief is that the assessee has only provided the corporate guarantee to its AE to the extent of 30.50% on the outstanding loan balance of US 10 million advance to its AE. In our view, the pro rata corporate guarantee is required to be calculated as directed by the Ld.CIT(A) on the amount for which the assessee has sought which would be 30.50% of the total amount of US 10 million advanced to its AE. Therefore, the corresponding corporate guarantee commission @ 0.53% is required to be computed on the amount of 30.50% of assessee s share on the outstanding loan balance of US 93,05,376. Accordingly, grounds 2 to 4 of the Revenue appeal are dismissed. Whether the corporate guarantee given by the assessee to its AE would constitute the international transactions or not ? - CIT(A) after relying upon the Explanation to 22A had decided the issue and has held that the grant of corporate guarantee to its AE would constitute international transactions. After holding the grant of corporate guarantee as international transaction, CIT(A) has adjudicated and determined the corporate guarantee @0.53% instead of @1.90% on the outstanding amount of the corporate guarantee. Hence, we do not find any reasons to interfere with the findings given by the CIT(A) and accordingly, the grounds 2(a) to 2(c) and 3 raised by the assessee for A.Y. 2017-18 are dismissed. Interest on outstanding Trade Receivables - As consistently held that the interest on delayed outstanding trade receivables is an international transaction and after holding so, we have benchmarked the international transactions at 6% SBI rate. Computation of interest on delayed receivables - We had consistently followed and granted the credit period of 60 days which we have also done in the case of M/s Aurobindo Pharma Ltd 2023 (4) TMI 1254 - ITAT HYDERABAD wherein we have also granted the credit period of 60 days, which is also in the same of line of business. No special treatment can be given to the assessee. Furthermore, once the assessee failed to justify and substantiate the credit period of 90 days before the lower authorities, it is preposterous to claim 180 days credit period before the Tribunal. Hence, we do not agree with the contention of the assessee. With respect to the submission that assessee has not charged any interest from the non-AE and therefore, the non-AE should be considered as an internal comparable. This contention of the assessee is without any basis and the assessee failed to establish that the assessee has not charged any interest from its non-AE before the lower authorities and further, the assessee failed to prove that the non-AE were operating in the same segment, product, region and with the same terms and conditions of sale and purchase of Pharmaceutical products. Comparable selection - scope of Related Party Transaction (RPT) filter - As both the parties have agreed for exclusion of these two companies namely, M/s. Sun Pharma Laboratories and M/s. Macleods Pharmaceuticals Ltd and therefore, we direct the TPO / Assessing Officer to exclude these two comparables. Accordingly, we allow the grounds of Revenue. R D Expenses, Head Office Marketing Office Expenses while computing the PLI of the comparable companies - Grievance of the Revenue before us is that the ld.CIT(A) while excluding R D expenses, Head Office and Marketing Office Expenses had not given the opportunity to the AO while computing the margins of the comparables after excluding the R D expenditure, Head Office and Marketing Office Expenses - In our view, the law requires the CIT(A) to grant the opportunity to the Assessing Officer/TPO before making any adjustment on account of excluding R D expenses, Head Office and Marketing Office Expenses in the financials of the comparable. The ld.CIT(A), has not done the same and has thus violated the principle of natural justice under 46A of I.T. Rules. We deem it appropriate to remand back the entire issue of TP adjustment with respect to both the eligible specified domestic transaction to the file of the Assessing Officer/TPO for passing a fresh order after affording the opportunity of hearing to the assessee. We further direct the assessee to provide the segmental accounts of the non-exempt units, more particularly, the assessee's transaction with its eligible undertaking and with the other non-related parties so that the ld TPO can benchmark the specified domestic transactions accurately. AO/TPO shall consider any other documents as may be filed by the assessee in accordance with law. In the light of the above, the ground of the Revenue appeal are allowed for statistical purposes.
Issues Involved:
1. Corporate Guarantee Fee 2. Interest on Outstanding Trade Receivables 3. Inclusion of Comparables (Sun Pharma Laboratories Ltd. and Macleods Pharmaceuticals Ltd.) 4. R&D, Head Office & Marketing Office Expenses in PLI Computation Summary: Corporate Guarantee Fee: The Tribunal addressed the issue of corporate guarantee fees where the TPO had determined the ALP of the fee on corporate guarantee at 1.9% based on bank guarantee rates. The CIT(A) reduced this to 0.53%, citing decisions in Mylan Laboratories Ltd. and Rain Commodities Ltd. The Tribunal upheld the CIT(A)'s decision to compute corporate guarantee commission at 0.53%, noting that corporate guarantees cannot be equated with bank guarantees. The Tribunal also agreed with the CIT(A) that the fee should be calculated proportionately for the appellant's share of the guarantee. Interest on Outstanding Trade Receivables: The TPO treated outstanding trade receivables as separate international transactions and computed interest using SBI short-term deposit rates. The CIT(A) directed the TPO to use LIBOR + 200 basis points instead, based on the decision in Albany Molecular Research. The Tribunal, however, followed its consistent stance in similar cases, directing the use of a 6% interest rate on delayed receivables beyond 60 days, rejecting the assessee's claim for a 180-day credit period. Inclusion of Comparables: The CIT(A) included Sun Pharma Laboratories Ltd. and Macleods Pharmaceuticals Ltd. as comparables, which the TPO had excluded based on RPT filters. The Tribunal directed the exclusion of these two comparables, agreeing with the Revenue's contention and the assessee's concession. R&D, Head Office & Marketing Office Expenses in PLI Computation: The CIT(A) excluded R&D and marketing expenses from the comparables' margins to maintain consistency with the unit-level PLI of the assessee, which did not include these expenses. The Tribunal noted that the CIT(A) had not given the AO an opportunity to comment on this adjustment, violating Rule 46A. The Tribunal remanded the issue back to the AO/TPO for fresh consideration after affording the assessee an opportunity to provide segmental accounts and any other relevant documents. Conclusion: The Tribunal partly allowed the Revenue's appeal and dismissed the assessee's appeal for both assessment years 2017-18 and 2018-19, directing fresh consideration on the issue of R&D and marketing expenses in PLI computation and excluding Sun Pharma Laboratories Ltd. and Macleods Pharmaceuticals Ltd. as comparables.
|
