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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 ..... passed the draft assessment order. Assessee reported no objection for passing the final order pursuant to which the final assessment order was passed, which was challenged before the learned CIT(A). Learned CIT(A), by way of impugned order disposed of the appeal giving part relief on all the three counts, in respect of which both the assessee and Revenue preferred these appeals. 3. Insofar as these two appeals are concerned, all these three issues are involved. Those are additions made in respect of the Corporate Guarantee commission, interest on receivables and disallowance of weighted deduction claimed under section 35(2AB) of the Income Tax Act, 1961 ('the Act'). We shall now proceed to answer these three issues in the light of the submissions made on either side and available material on record. 4. Coming to the issue relating to the corporate guarantee, contention of assessee before the learned TPO was that the corporate guarantees not an international transaction and it does not require any benchmarking at all on the ground that it is the responsibility of the parent company to provide guarantee to its subsidiary companies, and, therefore, it is to be categorised as shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 136 (MAD). 8. Learned AR in the alternative, pleaded that corporate guarantee at 0.53% determined by the learned CIT(A) is too high and cannot be sustained. Basing on the view taken by the Co-ordinate Benches of this Tribunal in the cases of Aster Private Limited Vs. DCIT in ITA No. 220/Hyd/2015 and DCIT Vs. Lanco Infratech Limited, 81 taxmann.com 381 (Hyderabad Tribunal) he prayed that the ALP in respect of Corporate Guarantee fee may be determined at 0.25%. He further submitted that the guarantee fees charged by SEBI from the assessee in respect of guarantee extended on its behalf was only 0.20%. On this aspect, the learned DR submitted that the ALP at 0.20% and also 0.53%, as determined by the learned CIT(A) is absurdly low. In the alternative he submitted that following the view taken by the Hon'ble Bombay High Court in the case of Glenmark Pharmaceuticals Ltd. Vs. Addl. CIT [2014] 43 taxmann.com 191 (Mumbai - Trib.) may be followed. 9. In view of the decision of the Hon'ble Madras High Court in the case of Redington (India) Ltd. (supra), we have no second thought, and this decision is applicable to the facts of the case. No further debate by the Tribunal is permissible, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi, Bangalore and Pune Benches of the Tribunals in the above cited cases and also in the case of Vivimed Labs (supra), 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. 12. Following the above decision of the coordinate Bench, we direct the learned Assessing Officer/learned TPO to adopt the same at 0.50% on the guaranteed amount. Relevant grounds are answered accordingly. 13. Next issue is in respect of the interest on receivables. Again, on this issue also, the assessee had taken a plea before the learned TPO that it is not covered under the definition of international transaction and it does not require any separate benchmark. Learned Assessing Officer also again relied upon a number of decisions on this aspect and held that the trade receivables are separate international transaction requiring separate benchmarking and while following the view taken by the Tribunal in the case of M/s. Logix Microsystems Ltd. Vs. ACIT in I.T.A No.423/Bang/2009, dated 07/10/2010, learned TPO thought it proper to consider the SBI short term deposit rate as appropriate CUP to determine the ALP of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realization of credit arising from the sale of goods or services rendered in the course of carrying on the business, it is liable to be visited with the transfer pricing adjustment on account of interest income short charged/uncharged. Basing on the view taken in a number of decisions of the Tribunal of various Benches, authorities held that it is incumbent upon the taxpayer to separately benchmark the arm's length price of the international transaction relating to interest on overdue receivables from the AE by way of analysis of functions, assets and risks. 18. Learned DR further argued that the credit period as per the invoice with the AE cannot be contemplated as a comparable in TP regime as it is a controlled transaction and lacks arm's length characteristic as held by the ITAT in the case of M/s. Technimont ICB P. Ltd., vs. Addl. CIT 138 ITD 23 (Mum); whereas apart from placing reliance on the view taken by the learned DRP for the assessment year 2018-19 which became final, the learned AR also placed reliance on a decision of the Mumbai Bench of the Tribunal in the case of DCIT vs. Indo American jewellery Ltd in ITA No. 5872/mum/2009 for the principle that if an entity is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Trib.) the Co-ordinate Bench of the Delhi Tribunal it was held that with the introduction of the explanation to section 92B of the Act by Finance Act, it is determinable that if there is any delay in the realization of credit arising from the sale of goods or services rendered in the course of carrying on the business, it is liable to be visited with the transfer pricing adjustment on account of interest income short charged/uncharged. It is, therefore, not open for the assessee to agitate this question as to whether the interest on outstanding receivables is an international transaction requiring separate benchmarking time and again. 22. In respect of the credit period, assessee contended before the learned CIT(A) that instead of considering an ad hoc credit period of 90 days, as adopted by the learned TPO, the credit period as agreed in the invoice should be considered for computing interest on delayed receivables beyond the credit period agreed as per invoice. Assessee relied upon the view taken by the learned DRP in assessee's own case for the assessment year 2018-19 where the learned DRP directed the learned TPO to consider the credit period agreed as per the invoices. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become final without the Revenue challenging the same, the credit period which is extended to the non-AEs by the assessee shall be extended to the AEs also. On this reasoning we do not find any illegality or irregularity in the findings returned by the learned CIT(A) that the interest shall be record beyond the credit period as agreed between the parties. 26. Next issue remains to be considered is in respect of the rate of interest. While placing reliance on the decisions reported in Tecnimont ICB House Vs. DCIT [2015] 60 taxmann.com 143 (Mumbai- Trib.), Hon'ble Bombay High Court in PCIT Vs. Tecnimont (P) Ltd., (supra) and CIT Vs. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523 (Delhi), learned AR prayed that LIBOR+200 basis points may be adopted. This aspect is no longer res integra and dealt with by the Mumbai Bench of the Tribunal in the case of Tecnimont ICB House (supra) and confirmed by the Hon'ble Bombay High Court. Cotton Naturals (I) (P.) Ltd. (supra) is also on the same aspect. 27. In the case of the Tribunal, Tecnimont ICB House Vs. DCIT [2015] 60 taxmann.com 143 (Mumbai - Trib.) considered the view taken in Everest Kanto Cylinder Ltd. v. Asstt. CIT (L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of interest payable on the currency or legal tender of the place or the country of residence of either party. It is further observed that the interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters; that the interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable; that the currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. While referring to the Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115, the Hon'ble High Court held that the PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate and the PLR rates are not applicable to loans to be re-paid in foreign currency. Hon'ble Court accordingly held that whatever the principle that is applicable to the case of outbound loans, would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs, that the paramet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved by the prescribed authority and that no exceptions to this rule are provided in the Act. Though such an expenditure was incurred in relation to the scientific research and development, the requirement of approval by the prescribed authority is not fulfilled in this case and therefore, it is not qualified for weighted deduction, but at the same time since there is no dispute as to the incurring of such expenditure by the assessee, the said expenditure is qualified for hundred percent deduction. To the extent we approve the view taken in the impugned order. 33. Coming to the expenditure on clinical trials this issue is no longer res integra and in fact been dealt with by the Hon'ble Gujarat High Court in extenso in the case of CIT vs. Cadila healthcare Ltd (2013) taxmann.com 300 (Gujarat), and the Hon'ble court held that the clinical trials may not always be possible to be conducted in the closed laboratory or in house like facilities and are required to be conducted outside the approved facility and, therefore, the restrictive meaning suggested by the Revenue to the expenses mentioned in the explanation to the section such as a clinical drug trials and obtaining approvals fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries Ltd in R/Tax Appeal No. 92 of 2020, observed that in view of the decision in Cadila healthcare Ltd (supra) the issue relating to the allowability of weighted deduction under section 35(2AB) of the Act in respect of clinical trials expenses incurred outside the approved facility stood covered and on that ground did not admit such an issue for consideration. 37. From the above it is clear that the issue has clearly been covered by the decision of the Hon'ble Gujarat Court High Court in the case of Cadila healthcare Ltd (supra), referred to and followed in the case of M/s Sun Pharmaceuticals Industries Limited (supra). 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 88 ITR 192 (SC) reached a conclusion that when once the clinical trial expenses incurred outside the approved R&D facilities, were approved by the prescribed authority the assessee is entitled to claim deduction under section 35(2AB) of the Act. Respectfully following the same we hold the issue in favour of the assessee and allow w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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