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2023 (4) TMI 1254 - AT - Income TaxTP Adjustment - determining the ALP of corporate guarantee commission - whether the corporate bank guarantee given by the assessee on behalf of its AE is an international transaction or not? - HELD THAT - The issue of whether the corporate bank guarantee given by the assessee on behalf of its AE is an international transaction or not, is no more res integra, as the explanation to section 92B of the Act itself had made it abundantly clear that if the assessee is providing the capital financing, including any type of long term or short term borrowing, lending or guarantee , purchase or sale etc., then such transaction shall be considered as international transaction. Undoubtedly, the assessee has given Corporate Guarantee on behalf of its AE, which fact has not been disputed by the assessee either before the TPO or before the DRP and, therefore, we are of the opinion that the corporate guarantee given by the assessee is an international transaction and, therefore, the same has rightly been held so by the lower authorities. Whether the corporate guarantee estimated by the DRP to the tune of 1% on the amount guaranteed as a corporate guarantee commission as against 0.10% was justified or not? - In our view, no third party would provide similar type of services/corporate guarantee on behalf of its AE and expose itself to the risk of giving the corporate guarantee. Therefore, the charges paid by the assessee to SBI cannot be compared for the purpose of determining the ALP of corporate guarantee commission. The Co-ordinate Bench in the case of Vivimed Labs 2022 (4) TMI 1514 - ITAT HYDERABAD had adjudicated corporate guarantee commission @ 0.5% qua the extent of the amount of the assessee s corporate guarantee actually utilised in these four assessment years. Thereafter, similar view had been taken by various Tribunals restricting the addition to 0.5% of the amount guaranteed as corporate guarantee commission. Thus we partly allow the ground of the assessee and restrict the addition to the tune of 0.5% on the amount guaranteed as corporate guarantee commission. Interest on Receivables - assessee had outstanding receivables during the year, which arise in the usual course of business of the assessee on sale of its products and being trade transactions, the assessee had extended normal credit for payment by trade debtors - directions of DRP to the Assessing Officer to charge of interest on so-called delayed realisations from AE debtors and recompute the TP adjustment - HELD THAT - As relying on own case 2023 (4) TMI 521 - ITAT HYDERABAD we direct the Assessing Officer to determine the ALP and compute the same by adding notional interest @ 6% on the receivable beyond a period of 60 days. Disallowance of weighted deduction claimed u/s 35(2AB) of the IT Act on R D expenditure - HELD THAT - Admittedly the tribunal in its earlier order had decided this identical issue in favour of the assessee 2018 (7) TMI 1867 - ITAT HYDERABAD thus respectfully following case of assessee for the earlier years and more particularly when the approval in Form 3CL had been granted by the DSR (requisite authority) approving the expenditure for clinical trial expenses incurred outside approved R D facilities, the assessee is entitled to weighted deduction u/s 35(2)(AB) and accordingly, the grounds raised by the assessee are allowed.
Issues Involved:
1. Corporate Guarantee Commission 2. Interest on Receivables from Associated Enterprises 3. Disallowance of Weighted Deduction under Section 35(2AB) of the Income Tax Act Summary: 1. Corporate Guarantee Commission: The assessee contested the addition of Rs. 10,93,47,091/- for alleged shortfall in corporate guarantee fees, arguing that the corporate guarantee was a shareholder service and should not be treated as an international transaction. The DRP, however, considered it an international transaction and benchmarked the guarantee commission at 1%. The Tribunal partially allowed the assessee's appeal, restricting the addition to 0.5% on the amount guaranteed, following precedents from various Tribunals. 2. Interest on Receivables from Associated Enterprises: The assessee argued against the addition of Rs. 3,34,24,193/- for notional interest on delayed receivables, stating that trade receivables are part of normal business and should not be treated as loans. The DRP and lower authorities treated the delayed receivables as a separate international transaction and benchmarked interest using SBI short-term deposit rates. The Tribunal, following its own decision in a similar case, directed the AO to compute notional interest at 6% on receivables beyond 60 days. 3. Disallowance of Weighted Deduction under Section 35(2AB): The AO disallowed weighted deduction on clinical trials and other R&D expenditures not quantified in Form 3CL. The assessee argued that clinical trials are an integral part of R&D and eligible for deduction. The Tribunal, following its earlier decisions in the assessee's own case, allowed the weighted deduction for clinical trials and other R&D expenditures, as the necessary approvals were in place. Conclusion: The Tribunal's order resulted in partial relief for the assessee by adjusting the corporate guarantee commission to 0.5% and allowing the weighted deduction for R&D expenditures. However, it upheld the notional interest on delayed receivables at 6%.
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