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TMI Blog2024 (7) TMI 1372X X X X Extracts X X X X X X X X Extracts X X X X ..... xtended to the AEs also. On this reasoning we do not find any illegality or irregularity in the findings returned by the CIT(A) that the interest shall be record beyond the credit period as agreed between the parties. Rate of interest - We are of the considered opinion that the ends of justice would be met by accepting the interest rate on similar foreign currency receivables/advances as LIBOR+200 points. We direct the AO / TPO to adopt the same. Grounds are partly allowed accordingly. Disallowance of weighted deduction claimed u/s 35(2AB) - HELD THAT:- The issue has clearly been covered by the decision of Cadila healthcare Ltd [ 2013 (3) TMI 539 - GUJARAT HIGH COURT] referred to and followed in the case of M/s Sun Pharmaceuticals Industries Limited [ 2020 (3) TMI 345 - GUJARAT HIGH COURT] A coordinate Bench of this Tribunal in assessee s own case for the assessment year 2018-19 having noticed the judicial review on this aspect, including the argument advanced in that case, and basing on CIT vs. Vegetable Products Ltd [ 1973 (1) TMI 1 - SUPREME COURT] reached a conclusion that when once the clinical trial expenses incurred outside the approved R D facilities, were approved by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee that the corporate guarantee is not an international transaction, and based on a number of decisions of the Tribunal enumerated at paragraph No. 10.4.2 (i) of his order and charged the same at 2% for the corporate guarantee of above Rs. 10 crores and suggested upward adjustment. Learned CIT(A) upheld the view taken by the learned TPO that such a transaction would be covered within the meaning of an international transaction. Learned CIT(A), however, quantified such guarantee at 0.53% instead of 2% by following the decision of a Co-ordinate Bench of the Tribunal in the case of Mylan Laboratories Ltd. vs. ACIT [2015] 63 taxmann.com 179 (Hyderabad - Trib.) and Rain Commodities Ltd., [2016] taxmann.com 240. 6. Assessee, vide ground No. 1 and 2 of its appeal, contended that corporate guarantee was given by the assessee as a procedural compliance for availing of credit facilities by its subsidiaries and for the overall benefit of the group and it was provided as a part of the parental obligation to its subsidiaries and therefore, it is in the nature of shareholding service. By way of ground No. 3 assessee further contended that the corporate guarantee commission at the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an international transaction, requiring benchmarking. 10. Though the learned DR argued that adoption of 0.53% as commission on corporate guarantee relying on the rates determined in assessment year 2007-08 in the case of Mylan Laboratories Ltd., (supra) is incorrect, no useful guidance is provided with reference to any latest decisions or other material, so as to take a different approach in respect of the quantification of the commission on corporate guarantee. 11. On the other hand, a Coordinate Bench of this Tribunal in assessee s own case for the assessment year 2018-19 in ITA No. 485/Hyd/ 2022 considered this issue in extenso and held that ALP on account of corporate guarantee at the 0.50% on the amount guaranteed is proper commission. For the sake of completeness, relevant observations of the Coordinate Bench are extracted hereunder,- We have considered the submissions and found that the charges paid by the assessee cannot be compared for the purposes of determining the ALP of corporate guarantee commission. 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 guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the finding of the learned Assessing Officer and observed that post amendment by Finance Act, 2012 introducing explanation to Section 92B of the Act, if there is any delay in realization of a trade debt arising from the sale of goods or services rendered in the course of carrying on the business, it is liable to be visited with Transfer Pricing adjustment on account of interest income short charged/uncharged. Learned CIT(A) further directed the learned TPO to apply the SBI short term deposit rates for the period beyond the period mentioned in the invoices. 15. Learned AR argued at length stating that this particulars transaction is not covered in the definition of international transaction as defined under section 92B of the Act; that the receivables are consequential/closely linked to the principal transaction of provision of services; that the re-characterizing the outstanding receivables as unsecured loan extended by the assessee to its AEs is improper; that the assessee is fully funded by its AEs and does not bear any working capital risks; that the assessee does not charge any interest on outstanding receivables from third party customers as well; and that the assessee has o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd-party unrelated customers, and if the entity is giving credit facility ranging up to 352 days to both group entity as well as the third-party unrelated customers, in such case, no addition on account of interest adjustment can be made. 19. On the quantification of the interest on trade receivables, learned DR, while placing reliance on the view taken by a coordinate Bench in assessee s own case for the assessment year 2018-19 in ITA No. 485 /Hyd/ 2022 by order dated 27/4/2023, submitted that the rate of interest chargeable on the trade receivables at 6% was held to be reasonable. He further submitted that while reaching this conclusion, the Tribunal placing reliance on the earlier decisions of the coordinate benches in the cases of indeed India in ITA No. 254 /Hyd/ 2021, Quizlex Legal Services in ITA No. 6 /Hyd/ 2022, Zeta Interactive Systems (India) (P) Ltd., in ITA No. 1812 /Hyd/ 2017, Satyam Venture in ITA 362 /Hyd/ 2021 and Apache Footwear India Pvt. Ltd (Supra) in ITA No. 568 /Hyd/ 2022. He filed a copy of the order in ITA No. 485 /Hyd/ 2022 and it forms part of record. 20. Ld. AR, on the other hand placed reliance on the decisions reported in PCIT vs. Tecnimont (P.) Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoice price and to charge the interest for the period beyond such credit period agreed in the invoices. Since the Revenue accepted such findings of the learned DRP and such findings of learned DRP became final, learned CIT(A) in this case followed the same and directed the learned Assessing Officer to verify the invoices and compute the interest considering the credit period as per the invoices instead of 90 days period as adopted by the learned TPO. Learned CIT(A) directed the assessee to furnish the information if required. In the decision of the Mumbai Bench of the Tribunal in the case of DCIT vs. Indo American Jewellery Ltd in ITA No. 5872/mum/2009 it was held that if an entity is engaged in commercial transactions with the group entity as well as third-party unrelated customers, and if the entity is giving credit facility ranging up to 352 days to both group entity as well as the third-party unrelated customers, in such case, no addition on account of interest adjustment can be made. 23. Though the learned DR opposed the prayer of the assessee on this aspect, he could not contradict the fact that in assessee s own case for the assessment year 2018-19 the learned DRP took a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal No. 1484 (Mum.) of 2014, dated 22-8-2014]; Hinduja Global Solutions Ltd. v. Addl. CIT [2013] 145 ITD 361/35 taxmann.com 348 (Mum.); Tata Autocomp Systems Ltd. v. Asstt. CIT [2012] 52 SOT 48/21 taxmann.com 6 (Mum.); CIT v. Tata Autocomp Systems Ltd. [2015] 56 taxmann.com 206 (Bom.); Four Soft Ltd. v. Dy. CIT [2011] 142 TTJ 358 (Hyd.); and Everest Kanto Cylinder Ltd. v. Asstt. CIT (LTU) [2015] 56 taxmann.com 361 (Mum.) and upheld use of LIBOR for the purpose of benchmarking loan/advance given to foreign AE's, and held that the notional interest has to be worked out for so called amount receivable from AE, by applying LIBOR interest rate for the purpose of computation of transfer pricing adjustment, if any. This view is affirmed by the Hon'ble Bombay High Court in PCIT vs. Tecnimont (P.) Ltd. [2018] 96 taxmann.com 223 (Bombay) observing that in cases where any business enterprise is required to pay interest on delayed payment, it would examine the cost of interest and if the same is higher than the amount of interest payable on funds obtained locally, it would take a loan from local sources and pay the amounts payable for exports and expenses within time. Therefore, extend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies to both inbound and outbound loans. 29. In the case of PCIT vs. Tecnimont (P.) Ltd. [2018] 96 taxmann.com 223 (Bombay) AY. 2009-10, Hon ble Bombay High Court held that interest chargeable on delayed recovery of export receivables from AEs should be taken at LIBOR rates for determining ALP of notional interest on delayed recovery. 30. In this case, the loan attributable to the AE, is deemed to have been consumed in a country outside India and, therefore, the interest at LIBOR rates as the rate prevailing in country where the loan is received/consumed by the AE cannot be said to be incorrect and such a view is in line with the decision of the Bombay High Court in the case of Tecnimont (P.) Ltd (supra). Reasons for not bringing the decisions of the Hon ble Bombay High Court and Delhi High Court to the notice of the Bench when the matter for the assessment year 2018-19 was heard, are not known. Be that as it may, now the assessee brings to our notice the decision of the Hon ble Bombay High Court in the case of Tecnimont (P.) Ltd (supra) and the decision of the Hon ble Delhi High Court in the case of Cotton Naturals (I) (P.) Ltd. (supra), and such decisions are no doubt binding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity, make the explanation meaningless. 34. Learned DR submitted that this decision of the Hon ble Gujarat High Court has not attained the finality because the Hon ble Apex Court remanded the case to the file of the Hon ble Gujarat High Court and therefore, the matter was sub judice before the Hon ble High Court and that is the reason why the lower authorities are not following the decision rendered by the Tribunal in the earlier assessment years. 35. In reply, learned AR submitted that as could be seen from the order of the Hon ble Supreme Court in special leave petition to appeal (C) No. 770/2015, dated 13/10/2015 the grievance of the Revenue was with reference to non-framing of certain questions, it was considered by the Hon ble Apex Court and held that such questions were substantial questions of law, and thereupon referred the matter to the Hon ble Gujarat High Court to hear the appeal on the aforesaid three questions of law, but the judgement already passed by the Hon ble Gujarat High Court touching the aspect of allowability of weighted deduction has not been set aside. He placed reliance on the decision taken by a coordinate Bench in assessee s own case for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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