MSN LABORATORIES PRIVATE LIMITED,HYDERABAD vs. ACIT, CENTRAL CIRCLE-2(4), HYDERABAD

The assessee has, more or less, raised common grounds of appeal for both the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for the A.Y. 2020-21 are re- produced as under:

The grounds raised by the Revenue read as under :

The brief facts of the case are that the assessee Company is engaged in the business of manufacturing bulk drugs and formulation products (tablets), filed its return of income for A.Y. 2020-21 on 15.02.2021, declaring a total income of Rs.625,72,24,870/-. The assessee further filed a revised return of income on 12.05.2021, declaring a total income of Rs.636,40,38,230/-. In this case, a search and seizure operation under Section 132 of the Income-tax Act, 1961 was carried out in the MSN Group of cases on 24.02.2021, and the assessee is one of the companies covered under the said search. Subsequently, notice under Section 153A of the Act, was issued on 05.10.2021 and in response thereto, the assessee filed its return of income on 05.04.2022, declaring a total income of Rs.631,61,34,830/-.

The case was selected for scrutiny and, during the course of assessment proceedings, a reference under Section 92CA of the Income-tax Act, 1961 was made to the Ld. Transfer Pricing Officer (Ld. TPO) for determining the Arm's Length Price (ALP) of the international transactions entered into by the assessee with its AEs. During the course of the TP proceedings, the Ld. TPO noted that, as per Form No. 3CEB and the TP analysis report filed by the assessee, the assessee had entered into various international transactions with its AEs, including sale of products, payment towards marketing support services, interest received on loans to subsidiaries, and reimbursement of expenses (paid/payable). During the TP proceedings, the Ld. TPO accepted the international transaction with regard to the sale of products to AEs to be at Arm's Length Price. However, the Ld. TPO rejected the TP analysis report submitted by the assessee in respect of marketing support services, interest received on loans to subsidiaries, and interest on delayed trade receivables from AEs, and made a TP adjustment of Rs.18,55,13,219/- in respect of payments made towards marketing support services availed from AEs, interest received/receivable on loans given to AEs of Rs.2,47,46,677/-, and interest on delayed trade receivables from AEs at Rs.4,52,55,508/-.

In pursuant to the order passed by the Ld. TPO under Section 92CA(3) of the Act, dated 31.03.2023, the A.O. passed a draft assessment order under Section 144C(1) of the Act, on 28.04.2023 and proposed TP adjustment of Rs.25,55,15,404/-, as suggested by the Ld. TPO. Since the assessee did not file any objections to the draft assessment order, the A.O. passed the final assessment order under Section 144C r.w.s 153A of the Act on 15.06.2023 and determined the total income at Rs.663,49,23,320/- by making a TP adjustment of Rs.25,55,15,404/-, as suggested by the Ld. TPO in terms of the order passed under Section 92CA(3) of the Income-tax Act, 1961. 8. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee challenged the addition made by the AO towards marketing support services, interest received on loans to AE., and interest on trade receivables from A.E., and raised various contentions including rejection of TP documentation submitted by the assessee, rejection of comparables and also computation of PLI of comparable companies retained in final set of comparables. The assessee also challenged the TP adjustment made towards interest received/receivable on loans to AEs. by adopting the six months' average LIBOR plus 200 basis points and working out interest rate of 4.006% on the total interest received/receivable by the assessee. The assessee further challenged the TP adjustment made towards interest on trade receivables from AEs and contested the rate of interest applied by the Ld. TPO by considering the SBI short-term deposit rate and the credit period and argued that, instead of applying a standard credit period, the Ld. TPO should have considered the invoice-wise receivables outstanding as on the respective dates and compute interest.

The Ld. CIT(A), after considering the submissions of the assessee and also taking note of various reasons given by the Ld. TPO, rejected the arguments of the assessee on the issue of TP adjustment made by the Ld. TPO in respect of Marketing Support Services and held that the assessee failed to demonstrate how any specific activities of the AEs influenced customer acquisition, pricing, market penetration or revenue growth so as to justify the payment towards Marketing Support Services. The core issue is whether the commission paid to the AEs was for the actual rendering of services. The assessee failed to produce concrete, contemporaneous and verifiable evidence establishing a direct nexus between the alleged services rendered and the sales achieved. The Ld. TPO had clearly recorded that the key functions of pricing, product positioning, tender participation, customer negotiation, regulatory compliance, logistics and overall commercial decision-making were handled by the assessee own in-house teams. The Ld. CIT(A) further upheld the action of the TPO to exclude Priya International Ltd. (Indenting Commission Segment) as a comparable on the ground that the above company was predominantly engaged in trading of chemicals and indenting services constitute only a minor part of its overall operations. Further, even if segmental financial data of the indenting service is available, the margins of such segment cannot be used in isolation from the enterprise-wide capital deployment and overall risk profile of trading-dominated organizations. In contrast, the assessee’s AEs are limited risk entities bearing no inventory, market risk and credit exposure. Further, the assessee had not furnished any FAR matrix to demonstrate that Priya International Ltd., even at the segmental level is functionally and risk-wise comparable to its A.E. Therefore, mere availability of segmental data does not cure this fundamental FAR mismatch. Although, TNMM is relatively tolerant to product differences, but is not indifferent to functional and risk differences that materially affect the margins. Therefore, the Ld. CIT(A) rejected the arguments of the assessee and upheld the TP adjustment made towards providing Marketing Support Services by the AEs.

Insofar as TP adjustment on interest received on loans to AEs, the Ld. CIT(A) rejected the arguments of the assessee by holding that the Ld. TPO had applied CUP Method and adopted the benchmark rate to compute the Arm's Length interest. Since the loans given to AEs are denominated in foreign currency, the Indian reference rates adopted by the Ld. TPO are not appropriate for benchmarking a loan denominated in foreign currency, and the correct approach is to use LIBOR or foreign currency reference rates. Therefore, the Ld. CIT(A) by taking into account the relevant details of loans given to AEs, directed the Ld. TPO to adopt LIBOR plus 200 basis points and recompute the Arm's Length interest on loan-wise and period-wise basis.

Insofar as the interest on delayed trade receivables from AEs, the Ld. CIT(A) directed the Ld. TPO to adopt LIBOR plus 200 basis points as the Arm's Length interest rate, instead of SBI short-term deposit rate, and recompute the Arm's Length Price on invoice-by-invoice basis by holding that since the receivables are denominated and realized in foreign currency, the use of SBI short-term deposit rupee rate is not appropriate. Further, computing the notional interest on the entire closing balance after granting the credit period of only 30 days results in excessive adjustment. Therefore, the Ld. CIT(A) held that the reasonable approach for computing interest is to consider invoice-wise credit allowed to the AEs, and after allowing the 90 days' credit period, directed the Ld. TPO to adopt LIBOR plus 200 basis points and compute interest on delayed trade receivables from AEs.

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

Shri M.V. Prasad, C.A. and Shri K. S. Rajendra Kumar (IRS Retd.), learned counsels for the assessee, referring to the petition filed for admission of the additional ground, submitted that the assessment is void ab initio as the assessment order has been passed beyond the time limit prescribed under Section 153B of the Income-tax Act, 1961. The learned counsel further submitted that the additional ground is a pure legal ground which goes to the root of the matter and, in view of the decision of the Hon'ble Supreme

Shri Waseem UR Rehman, Ld. CIT-DR and Shri K. Prasad, Ld. Sr. AR., for the Revenue, on the other hand, did not opposed the admission of the additional ground filed by the assessee.

Having heard both sides and considered the petition filed by the assessee on 15.06.2026 seeking admission of the additional ground, we find that, the additional ground raised by the assessee is a pure legal ground challenging the validity of the assessment order on the ground that it is barred by limitation under Section 153B of the Income-tax Act, 1961. Since the issue goes to the roots of the matter and does not require any further investigation into facts, in the light of the decision of the Hon'ble Supreme

Ground Nos. 1 and 13 of the assessee's appeal are general in nature and do not require any specific adjudication and, thus, the same are dismissed.

The next issue that came up for our consideration from Ground No. 9 of the assessee's appeal is the validity of the assessment order passed by the A.O. in light of the approval under Section 153D of the Income-tax Act, 1961. 18. The learned counsels for the assessee, Shri M.V. Prasad, C.A. and Shri K. S. Rajendra Kumar, (IRS Retd.) submitted that, in view of the insertion of Section 292BC of the Income-tax Act, 1961 by the Finance Act, 2026, with retrospective effect from 01.04.2021, and the challenge before various Hon'ble High Courts regarding the constitutional validity of the said amendment, the assessee does not wish to press the said ground at this stage and, therefore, submitted that the issue may be kept open to be decided at an appropriate stage, if the need arises. Therefore, Ground No. 12 of the assessee's appeal is kept open for adjudicating at an appropriate stage, if the need arises.

The next issue that came up for our consideration from Ground Nos. 2 to 4 of the assessee's appeal is TP adjustment in respect of international transactions of commission paid to the AEs for rendering marketing support services.

The learned counsel for the assessee submitted that the assessee company is in the business of manufacturing and sale of pharma products, availed marketing support services from its AEs, i.e., MSN Pharmaceuticals Inc., USA, MSN Labs Americas S.A.S., Colombia, MSN Labs Peru S.A.C., Peru, and MSN Laboratories Europe Limited, UK, and paid commission ranging between 5.88% and 12.50% on FOB value of Exports for A.Y. 2020-21, and rates ranging between 6% and 12.50% for A.Y. 2021-22 towards marketing and business promotional services rendered in the respective territories. The assessee has furnished the details of products sold using the services of the AEs, copies of the agreements, sample copies of invoices, and detailed working of the commission paid to the AEs. The assessee has benchmarked the transaction of payment of commission under TNMM by considering that the assessee is the tested party and adopted OP/OC as the PLI by conducting a search in the Capitaline database. The assessee arrived at a five final set of comparables with an arithmetic mean of 14.81% for A.Y. 2020-21 and 14.32% for A.Y. 2021-22, respectively, and claimed that the transaction of payment of commission for marketing support services is at ALP. The Ld. TPO accepted TNMM as the Most Appropriate Method for benchmarking payment of commission towards marketing support services. However, the Ld. TPO has rejected three comparables, i.e., Kestone Integrated Marketing Services Private Limited, Ketchum Sampark Private Limited, and Priya International Limited (Indenting Commission Segment), on the ground of functional dissimilarity. The Ld. TPO recomputed the arithmetic mean PLI of the remaining two comparable companies at 6.33% for A.Y. 2020-21 and 6.55% for A.Y. 2021- 22, and adopted the same as the ALP of the rate of commission, and made TP adjustment of Rs.18,55,13,219/- for A.Y. 2020-21 and Rs.15,98,53,588/- for A.Y. 2021-22. 21. The learned counsel for the assessee further submitted that the scope of the marketing support services rendered by the AEs of the assessee in their respective territories includes finding and introducing new customers for the assessee's products, obtaining purchase orders from the customers, promoting the sale of products, providing periodic forecasts of the requirement for the products in their territory, providing periodic market intelligence information on potential new products and prevailing market prices, securing the necessary approvals for the assessee's products from the drug authorities in their territories, coordinating with the customs authorities of the countries within their territory for speedy clearance of the shipments, etc. The assessee pays commission to the AEs at a specified rate as per the agreement between the parties, for which the AEs have raised invoices on the basis of the total value of the products sold to the customers identified by the AEs. Since the marketing support services rendered by the AEs of the assessee are functionally similar to the indenting services provided by Priya International Limited and the segmental financial results of the said company are available in the annual report of Priya International Limited, the assessee selected the Indenting Commission Segment of Priya International Limited as a comparable in the benchmarking analysis for the international transaction of marketing support services.

The learned counsel for the assessee further submitted that there is no dispute with the observation of the Ld. TPO that Priya International Limited is predominantly engaged in trading activity and the revenue from the indenting services constitutes 19.68% and 25.60% of its turnover for A.Y. 2020-21 and A.Y. 2021-22. However, the Ld. TPO has completely overlooked the submission of the assessee that, though Priya International Limited is engaged in trading/distribution of chemicals as well as indenting services, the segmental financial results of the indenting services are available in its audited financial statements, and such segmental financial results only have been considered by the assessee in the TP study report for the purpose of benchmarking the transaction. He further submitted that it is a well-accepted practice in transfer pricing benchmarking analysis to consider the segmental financial results of a functionally similar business segment of a potentially comparable company for such analysis, in cases where such companies have diverse business activities. This principle is supported by the decision of the Hon'ble Delhi High Court in the case of Microsoft India (R&D) (P.) Ltd. vs. DCIT, reported in (2023) 153 taxmann.com 199 (Delhi). The Hon'ble Supreme Court has dismissed the SLP filed by the Revenue against the said decision, as reported in PCIT vs. Microsoft India (R&D) (P.) Ltd., reported in (2024) 161 taxmann.com 770 (SC). He also relied upon the following decisions:

Pegasystems Worldwide India Private Limited vs. ACIT, reported in (2015) 64 taxmann.com 470 (Hyderabad Tribunal).

The learned counsel further submitted that since the indenting services of Priya International Limited are functionally similar to the assessee company and segmental data is available in the annual report, the assessee has rightly considered Priya International Limited as a comparable. However, the Ld. TPO and the Ld. CIT(A), without assigning any reasons, simply rejected the company for the purpose of benchmarking. Therefore, he submitted that Priya International Limited should be considered as a comparable for the purpose of benchmarking analysis. The learned counsel for the assessee further submitted that the observation of the Ld. CIT(A) that, even if segmental financial data of indenting services is available, the margins of such segment cannot be viewed in isolation from the enterprise-wide cost structure, capital deployment and overall risk profile of a trading-dominated organization, is contrary to the facts because the indenting transaction does not involve any inventory risk or any credit risk, in the absence of purchase and sale of goods and carrying of inventory. He further submitted that the AEs of the assessee are also not adding any inventory risk and, therefore, the activities performed by the AEs are similar to the indenting services of Priya International Limited and, therefore, the arguments of the Ld. CIT(A) are totally incorrect.

The learned counsel for the assessee further submitted that when TNMM is used for benchmarking analysis, it is less sensitive and more tolerant to product differences, and it requires functional similarity only for employing the said method for benchmarking analysis. He further referred to the OECD Transfer Pricing Guidelines for Multinational Enterprises and submitted that, once the functional profile of any comparable is comparable to a third party, then product differences should be ignored. Therefore, the observation of the Ld. CIT(A) that there is a functional dissimilarity between the assessee company and Priya International Limited is incorrect. He further submitted that, in many cases, the Indenting Commission Segment of M/s. Priya International Limited has been accepted as comparable for benchmarking the transaction of marketing support services. In this regard, he relied upon the following judicial precedents:

Shri Waseem UR Rehman, Ld. CIT-DR and Shri K. Prasad, Sr. AR., on the other hand, supporting the order of the Ld. CIT(A), submitted that the Ld. TPO has rightly rejected Priya International Limited because it is totally a trading company and more than 75% of its revenue is coming from the said segment. Further, the assessee has failed to submit FAR analysis to prove that it is similar to the assessee company. The Ld. CIT(A) has given valid reasons for rejecting Priya International Limited from the list of comparables, because its revenue is predominantly from trading activities, that too in chemical products, which is altogether different from the products dealt with by the assessee's AEs, and the rate of commission varies from different segments and, therefore, considering Priya International Limited for benchmarking analysis is incorrect. They further submitted that TNMM is tolerant to product differences, but it is required to compare FAR analysis so as to select any company for the purpose of benchmarking analysis. In the present case, the reasons given by the Ld. TPO and the Ld. CIT(A) clearly show that Priya International Limited is altogether different from the assessee company and, therefore, the Ld. TPO has rightly excluded Priya International Limited for the purpose of computing ALP of payment for marketing support services. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record, and had gone through the orders of the authorities below. The facts borne out from the record show that the assessee has engaged the services of its AEs in different territories for availing marketing and business promotion services for sale of products in different countries. The assessee has availed services from AEs, i.e., MSN Pharmaceuticals Inc., USA, MSN Labs Americas S.A.S., Colombia, MSN Labs Peru S.A.C., Peru, and MSN Laboratories Europe Limited, UK, and paid commission ranging between 5.88% to 12.50% on the FOB value of sales for A.Y. 2020-21, and rates ranging from 6% to 12.50% for A.Y. 2021-22. The assessee has also justified payment of commission to the AEs by carrying out benchmarking analysis of commission paid by adopting TNMM as the Most Appropriate Method and has selected a final set of five comparables with similar activities and computed the arithmetic mean PLI of 14.81% and 14.32% for A.Y. 2020-21 and A.Y. 2021- 22, respectively, which includes Priya International Limited (Indenting Commission Segment). The assessee has also furnished the basis for payment of commission, including the agreement between the assessee and the AEs, workings of the commission on the basis of FOB value of sales in different territories, and also provided various evidences for rendition of services by the AEs in respect of business and marketing support services, which includes introducing new customers, obtaining purchase orders, providing periodic forecasts of the requirements for the products, providing periodic market intelligence information on potential new products, coordinating with the customs authorities of the countries within their territory for speedy clearance of the shipments, etc. In fact, the Ld. TPO has not disputed the fact that the assessee has availed services from the AEs and also paid commission for rendering marketing support services. The only dispute is with regard to computation of PLI of comparable companies. The assessee has selected a final set of five comparables with arithmetic mean of 14.81% and 14.32%, respectively, for A.Y. 2020-21 and A.Y. 2021-22, whereas the Ld. TPO has retained final set of two comparables, i.e., Vaishali Pharma Limited and Daksh Pharmaceuticals Private Limited, with arithmetic mean of 6.33% for A.Y. 2020-21 and 6.55% for A.Y. 2021-22. In other words, the Ld. TPO accepted TNMM as the Most Appropriate Method for benchmarking payment of commission towards marketing support services; however, rejected three comparables selected by the assessee, i.e., Kestone Integrated Marketing Services Private Limited, Ketchum Sampark Private Limited, and Priya International Limited (Indenting Commission Segment). The assessee has not challenged the rejection of the above two comparables, i.e., Kestone Integrated Marketing Services Private Limited and Ketchum Sampark Private Limited. The only comparable remaining, challenged by the assessee, is Priya International Limited (Indenting Commission Segment).

The Ld. TPO has rejected Priya International Limited from the list of comparables mainly on two grounds, i.e., the major activity of Priya International Limited is trading in chemicals and the revenue from the indenting services is merely 19.68% and 25.60% of its turnover for both the assessment years. Further, the rate of commission in the pharma products sector cannot be compared with the rates of commission in other sectors, as they vary from sector to sector. The Ld. CIT(A) concurred with the findings of the Ld. TPO and further held that the assessee has failed to demonstrate how any specific activity of the AEs influenced customer acquisition, pricing, market penetration, and revenue growth. The learned counsel for the assessee has furnished the annual reports of Priya International Limited and, from the perusal of the relevant annual reports, there is no dispute with regard to the fact that Priya International Limited is predominantly engaged in trading activity and the revenue from the indenting services is less than 25% of the total revenue for both the assessment years. However, if we go by the FAR analysis of Priya International Limited, it is similar to the functions performed by the AEs of the assessee in the field of marketing support services, which is evident from the fact that the indenting services of Priya International Limited are exactly in the nature of providing marketing support services, although in different products. Therefore, for comparison of any company, the core issue that needs to be considered is the FAR analysis of the company, instead of the revenue generated from different segments. In the present case, there is no dispute with regard to the fact that the annual report of Priya International Limited shows segmental data in respect of trading activity and indenting services. The assessee has considered the segmental results of indenting services for the purpose of benchmarking analysis and, from the details submitted by the assessee, the AEs of the assessee and the Indenting Services Segment of Priya International Limited are similar low-risk entities, bearing no inventory risk, market risk, and credit exposure. Like Priya International Limited, the assessee's AEs are also not carrying any inventory cost because they are only engaged in providing marketing support services, right from obtaining new customers to coordinating with customers and authorities for speedy clearance of the shipments, etc. Therefore, in our considered view, when the FAR analysis of the comparable company is similar to the tested party, and further there is segmental information available in the annual report, the Ld. TPO ought not to have rejected the above company only on the ground that it is predominantly engaged in trading activity. In our considered view, what is to be considered is the activity carried out by the comparable company in the field of marketing support services and, from the above details, if reliable data can be considered for the purpose of comparison, then there is no bar in considering the company's segmental data, even though it is engaged in different activities, as held by various Tribunals and Courts, including the Hon'ble Delhi High Court in the case of Microsoft India (R&D) (P.) Ltd. vs. DCIT, and so on. Since the Indenting Services Segment of Priya International Limited is similar to the AEs of the assessee in the field of marketing support services, in our considered view, the assessee has rightly included Priya International Limited in the list of comparables for benchmarking analysis for payment of commission towards rendering marketing support services. Therefore, to this extent, we are in agreement with the arguments of the learned counsel for the assessee that the A.O. and the Ld. CIT(A) have rejected the above company without considering the FAR analysis.

Coming back to the arguments of the Ld. CIT(A), the Ld. CIT(A) rejected Priya International Limited on multiple grounds, including the reasons on which the Ld. TPO has excluded the above company on the ground of trading in different products, and also held that, even if segmental financial data of indenting services is available, the margins of such segment cannot be viewed in isolation from the enterprise-wide cost structure, capital deployment, and overall risk profile of a trading- dominated organization. In contrast, the assessee's AEs are limited risk entities bearing no inventory risk, market risk, and credit exposure. We do not subscribe to the reasons given by the Ld. CIT(A) for the simple reason that indenting transactions do not involve any credit risk or inventory risk, in the absence of purchase and sale of goods and carrying of inventory, and the same is the case with the marketing support services rendered by the AEs of the assessee. Like Priya International Limited, which is rendering indenting services, the AEs of the assessee, also rendering marketing support services, do not carry any inventory risk and credit risk. Further, the reasons given by the Ld. CIT(A) that the rate of commission in the pharma sector cannot be compared with the rates of commission in other sectors is also devoid of merit, going by the product comparability of companies under TNMM, because once the TNMM is used for benchmarking analysis, it is less sensitive and more tolerant to product differences, and it requires functional similarity only for applying the said method for benchmarking analysis. This principle is also supported by the OECD Transfer Pricing Guidelines for Multinational Enterprises, where it has been clearly laid down that the Transactional Net Margin Method can be less sensitive to some differences in the characteristics of products than the Comparable Uncontrolled Price Method or Resale Price Method. In practice, when applying the Transactional Net Margin Method, greater emphasis is generally placed on functional comparability than on the characteristics of the products. In the present case, if we compare the FAR analysis of the assessee's AEs and that of Priya International Limited, both are rendering similar services and, therefore, even if there is a difference in the products dealt with by the AEs and Priya International Limited, the functions performed, assets employed, and risks assumed by both the parties are similar and, therefore, once the FAR analysis is similar, there is no reason for rejection of the above company on other grounds. Therefore, we are of the considered view that the Ld. TPO and, subsequently, the Ld. CIT(A) erred in rejecting Priya International Limited from the final set of comparables.

The assessee has relied upon various judicial precedents in support of his contention and argued that the Indenting Services Segment of Priya International Limited has been accepted as a comparable for benchmarking the transactions of marketing support services or similar services by the Ld. TPO/Ld. DRP. In this regard, the assessee relied upon the following judicial precedents:

In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the Indenting Services Segment of Priya International Limited is comparable to the transaction of marketing support services in the case of the assessee, though they are dealing in different products like pharmaceutical products and chemicals, and therefore, in our considered view, the Ld. TPO erred in rejecting Priya International Limited as a comparable for benchmarking the international transactions of marketing support services rendered by the AEs. The Ld. CIT(A), without appreciating the relevant facts, upheld the reasons given by the Ld. TPO. Therefore, we set aside the order of the Ld. CIT(A) on this issue and direct the A.O./Ld. TPO to include Priya International Limited in the list of comparables and recompute the ALP of the rate of commission and TP adjustment, if any, on payment of commission towards marketing and business support services for A.Y. 2020-21 and A.Y. 2021-22. 31. The next issue that came up for our consideration from Ground Nos. 5 to 7 of the assessee's appeal is TP adjustment in respect of international transaction of interest received on foreign currency loans advanced to AEs.

The learned counsel for the assessee submitted that during the previous year’s relevant to the assessment years under consideration, the assessee has received interest of Rs.12,03,21,103/- and Rs.6,59,63,793/- on the foreign currency loans advanced to two AEs, i.e., MSN Pharmaceuticals Inc., USA and MSN Laboratories Europe Limited, UK. The assessee had given two loans to MSN Pharmaceuticals Inc., USA and, as per the loan agreement between the assessee and the AE, the coupon rate of interest on the said loans is LIBOR plus 200 basis points for one loan and LIBOR plus 100 basis points for the second loan. The assessee has also advanced a loan to MSN Laboratories Europe Limited, UK, and the coupon rate of interest, as per the agreement between the parties, is LIBOR plus 100 basis points. The assessee benchmarked the transaction of receipt of interest on foreign currency loans given to the AEs under the CUP Method by comparing the same with the prime lending rates in USA and UK, and by relying on RBI Master Circulars, and claimed that the transaction of receipt of interest on foreign currency loans given to the AEs is at Arm's Length Price. The Ld. TPO rejected the benchmarking analysis of the assessee and determined the TP adjustment in respect of the transaction of receipt of interest on the said foreign currency loans by adopting six months' average LIBOR plus 200 basis points as the Arm's Length rate of interest, and made TP adjustment of Rs.2,47,46,677/- for A.Y. 2020-21 and Rs.2,90,78,855/- for A.Y. 2021-22. The Ld. TPO rejected the benchmarking analysis and applied six months' average LIBOR plus 200 basis points on the grounds that the appropriate rate for benchmarking foreign currency loans is LIBOR plus 200 basis points depending upon the risk and credit rating of the AEs. The Ld. TPO had also relied upon the decision of the ITAT Hyderabad Benches in the case of Dr. Reddy's Laboratories Limited vs. ACIT in ITA Nos. 2229/Hyd/2011 and 85/Hyd/2013. The Ld. TPO further noted that the assessee has also failed to substantiate its argument that the loans given to its foreign subsidiaries are for the purpose of business exigencies because there are other options available to the assessee for extending such support. Further, as per Rule 10B(1)(a) of the Income-tax Rules, 1962 relevant to the CUP Method, the test to be applied for determining the Arm's Length Price of a transaction is whether, in a comparable uncontrolled transaction, an independent third party would charge interest on the loans given by it, and the answer is definitely yes. Therefore, the Ld. TPO observed that, the assessee has not charged interest as per the prevailing rate and, therefore, adopted LIBOR plus 200 basis points and worked out the Arm's Length rate of interest at 4.006% for A.Y. 2020-21 and 2.371% for A.Y. 2021-22, and made TP adjustment of Rs.2,47,46,677/- and Rs.2,90,78,855/-, respectively, on the ground that when the loans are denominated and repayable in foreign currency, the appropriate benchmarking is the market-determined interest rate applicable to that currency and, in this regard, a reasonable and workable benchmarking is to adopt the relevant LIBOR rate plus the appropriate spread of 200 basis points, having regard to the group relationship and risk profile.

The learned counsel for the assessee submitted that the Ld. CIT(A) erred in sustaining the TP adjustment made by the Ld. TPO in respect of receipt of interest on foreign currency loans given to AEs by placing reliance on the decision of the ITAT Hyderabad Bench in the case of Dr. Reddy's Laboratories Limited vs. ACIT (supra), without appreciating the fact that the above judgment was rendered in the year 2017, whereas the transactions of the assessee pertain to the financial years 2019-20 and 2020-21, where further developments have taken place in respect of interest on foreign currency loans. The learned counsel for the assessee further submitted that the Hon'ble Rajasthan High Court, in the case of CIT vs. Vaibhav Gems Limited, reported in (2017) 88 taxmann.com 12 (Rajasthan), held that the assessee will be entitled to the benefit of the average LIBOR rate existing at that time, which was 0.79%, and addition of ad hoc 2% to the LIBOR rate is not proper in respect of the loan extended by the assessee to its AE. He further, referring to the decision of the Hon'ble Delhi taxmann.com 274 (Ahmedabad Tribunal), held that where the assessee had given loans to its subsidiary but had not charged any interest on the said loan amounts, the appropriate rate of interest for benchmarking receipt of interest is three months' average LIBOR without any mark-up, and therefore, submitted that when the assessee and the subsidiary are carrying similar risks and there is no difference in credit rating, making a mark-up of 200 basis points is incorrect. Therefore, he submitted that when the LIBOR rate without any mark-up has been held to be the Arm's Length rate of interest, the Ld. TPO ought not to have adopted LIBOR plus ad hoc 200 basis points for benchmarking the interest.

The learned counsel for the assessee further submitted that, although the Ld. TPO and the Ld. CIT(A) relied upon the decision of the ITAT, Hyderabad Bench in the case of Dr. Reddy's Laboratories Limited vs. ACIT (supra), but the fact remains that, in the above case, the Coordinate Bench of the Tribunal has considered the mark-up of 1% to 3% on different factual situations. If we go by the above findings, there is no particular formula for the application of ad hoc 200 basis points or 300 basis points, and it is fully dependent upon the transaction between the AE and the assessee. Therefore, when the assessee has adopted LIBOR plus 100 basis points or 200 basis points, depending upon the terms and conditions of the loan between the assessee and the AE, the Ld. TPO and the Ld. CIT(A) cannot make an ad hoc addition of 200 basis points for the purpose of benchmarking the interest receipts on foreign currency loans given to the AEs.

The learned counsel for the assessee further submitted that both the AEs to whom the assessee has advanced foreign currency loans are wholly owned subsidiaries of the assessee company, which were set up for the purpose of expanding the market for the products of the assessee in the foreign territories. The said AEs are exclusively dealing with the products of the assessee company. The loans were advanced to the said AEs with a view to providing the required working capital to facilitate the trading operations, and there is a connection between the loan and business exigencies. Therefore, it cannot be said that it is a case of shifting profits to the foreign tax juri iction by charging interest on foreign currency loans at a lower rate than the Arm's Length rate. Therefore, he submitted that on this ground also, the addition made by the Ld. TPO and upheld by the Ld. CIT(A) should be deleted.

The Ld. CIT-DR, on the other hand, supporting the order of the Ld. CIT(A), submitted that it is a well-established principle of law by the decisions of various Tribunals that, for benchmarking interest on foreign currency loans, the average LIBOR plus appropriate spread for the risk involved is to be considered. If we go by the reasons given by the Ld. TPO and the purpose of the loan, the Ld. TPO has rightly considered six months' average LIBOR plus 200 basis points, depending upon the risk involved in the transactions. The Ld. CIT(A), after considering the relevant facts, has rightly directed the Ld. TPO to recompute the Arm's Length interest by adopting LIBOR plus 200 basis points on a loan-wise and period-wise basis. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the other facts as discussed below. There is no dispute with regard to the fact that the assessee company is in the business of manufacturing and selling pharmaceutical products, has established various subsidiaries in foreign territories for expanding its market and sale of products. The assessee company has also advanced loans to its subsidiaries in USA and UK for furtherance of its business and also charged interest on the said foreign currency loans by applying LIBOR plus appropriate spread depending upon the conditions of the loan agreements between the assessee and the AEs. In fact, the assessee has given two foreign currency loans to MSN Pharmaceuticals Inc., USA and MSN Laboratories Europe Limited, UK. Further, as per the loan agreement dated 22.01.2014, the assessee has charged interest at LIBOR plus 200 basis points. Insofar as the loans given as per the loan agreements dated 30.03.2017 and 17.03.2018, the assessee has received interest at LIBOR plus 100 basis points. Similarly, the assessee has received interest at LIBOR plus 100 basis points in respect of the loan given to MSN Laboratories Europe Limited, UK. The Ld. TPO, rejecting the benchmarking analysis of the assessee, had adopted six months' average LIBOR plus 200 basis points as the Arm's Length rate of interest and supported his contention by relying upon the decision of the ITAT, Hyderabad Bench in the case of Dr. Reddy's Laboratories Limited vs. ACIT (supra). On appeal, the Ld. CIT(A) has not given any reasons for rejecting the benchmarking analysis carried out by the assessee and the rate adopted by the assessee for carrying out such benchmarking analysis. The assessee has challenged the applicability of LIBOR plus 200 basis points adopted by the Ld. TPO and upheld by the Ld. CIT(A) on multiple grounds and claimed that, when the assessee and the subsidiaries are having the same credit rating, then adding a mark-up of 100 basis points for benchmarking interest is incorrect.

We have given our thoughtful consideration to the facts of the case and arguments of both the sides and in our considered view, LIBOR is the appropriate rate of interest for benchmarking foreign currency loans, whether it is a loan received by the assessee or a loan given to the AEs. To this aspect, there is no dispute between the parties because the assessee has also adopted LIBOR for benchmarking the interest rate on foreign currency loans. The only dispute is with regard to the adoption of mark-up for the possible risk involved in the transactions between the assessee and the AEs. Many Tribunals and Courts have adopted different rates of spread depending upon the terms and conditions between the parties and also the risks involved in the transactions. Primarily, the additional rate of interest by way of mark-up is considered only when the loan transactions between the parties are different from the normal transactions in the territory between the lending banks or financial institutions and the borrower. In case there are differential risk parameters of the lending company and the borrower AE, then it is appropriate to add further mark- up on the LIBOR rate so as to cover up the possible risk involved in the transactions. However, when there are transactions between the holding company and the subsidiary company, and further, the loans are given to the subsidiary company only for the purpose of business exigencies, then the additional mark-up required to be provided to cover up the risk is to be considered in the light of the business exigencies and the credit rating of the lending company and the borrowing AE. In the present case, the assessee had given foreign currency loans to its 100% subsidiaries and, since the subsidiaries are low-risk companies and do not carry any risk, obviously, the credit rating of the subsidiaries is fully dependent upon the credit rating of the assessee company. In our considered view, there is no further risk involved in the loan transactions between the assessee and its AEs. Therefore, there is no question of application of ad hoc mark-up for the possible risk while benchmarking the receipt of interest on foreign currency loans. This principle is supported by the decisions of various High Courts, including the decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Vaibhav Gems Limited (supra), and also the decision of the Hon'ble Delhi High Court in the case of CIT vs. Cotton Naturals India Private Limited (supra), wherein it was observed that when the financial position and credit rating of the subsidiaries would be broadly the same as that of the holding company, in such a situation, the domestic Prime Lending Rate would have no applicability, and the international rate, i.e., LIBOR, should be taken as the benchmark rate for the international transaction, without any ad hoc mark-up for the possible risk.

In the present case, the assessee has given foreign currency loans at different points of time to different AEs in different territories, and further, the loans are given in furtherance of business transactions between the assessee and the AEs. Therefore, in our considered view, the rate of interest charged by the assessee company, i.e., LIBOR plus 100 or 200 basis points, depending upon the terms and conditions between the assessee and the AEs, should be accepted as the Arm's Length rate of interest for benchmarking the receipt of interest on foreign currency loans. The Ld. TPO, without appreciating the relevant facts, simply made TP adjustment by adopting six months' average LIBOR plus 200 basis points. The Ld. CIT(A), without assigning any reason, sustained the addition made by the Ld. TPO. Thus, we set aside the order of the Ld. CIT(A) and direct the A.O./TPO to delete the TP adjustment in respect of interest received/receivable on foreign currency loans given to the AEs for both the assessment years, i.e., A.Y. 2020-21 and A.Y. 2021-22. 40. The next issue that came up for our consideration from Ground Nos. 8 to 11 of the assessee's appeal is TP adjustment in respect of international transaction of interest on delayed realization of trade receivables from AEs.

The learned counsel for the assessee submitted that the assessee had shown outstanding trade receivables from the AEs and had not charged any interest on delayed realization of the receivables. The assessee benchmarked the said international transaction of interest on overdue receivables under the CUP Method in the TP study report, wherein it was concluded that the transaction is at Arm's Length since the period within which the receivables were realized from the AEs is less than the period within which the receivables were realized from third parties. The assessee has also made a supplementary benchmarking analysis under TNMM, wherein it was concluded that the Arm's Length Price determination for the transaction of delayed realization of receivables is subsumed within the Arm's Length Price determination of the principal international transaction of sale of products to the AEs and, consequently, further benchmarking analysis separately is incorrect. The Ld. TPO rejected the benchmarking analysis of the assessee and determined the TP adjustment in respect of the transaction of interest on delayed trade receivables from the AEs at Rs.4,52,55,508/- and Rs.7,11,92,098/- for A.Y. 2020-21 and A.Y. 2021-22, respectively, by applying the SBI short-term deposit rate as the Arm's Length rate of interest and by allowing a credit period of 30 days. On appeal before the Ld. CIT(A), the Ld. CIT(A) directed the Ld. TPO to adopt LIBOR plus 200 basis points as the Arm's Length rate of interest instead of the SBI short-term deposit rate applied by the Ld. TPO and also directed the Ld. TPO to compute interest on an invoice-by-invoice basis without taking into account the average trade receivables.

The learned counsel for the assessee submitted that the assessee did not charge any interest on delayed realization of export receivables from non-AEs and, therefore, non-charging of interest on delayed receivables from the AEs is at Arm's Length, if we go by the internal CUP Method. He further submitted that the assessee is exporting its pharmaceutical products to its AEs as well as non-AE foreign parties and the assessee is following a uniform policy of not charging any interest on the delayed recovery of export receivables from the AEs as well as non-AEs. The exports made by the assessee to the AEs and non-AEs pertain to the same category of products and to the same export markets, such as North America, South America, and Europe. The terms and conditions of the sales also remain the same, except for the credit period. Irrespective of the credit period, no interest is charged to the AEs and non-AEs. Therefore, charging interest on delayed trade receivables from the AEs is incorrect. In this regard, he relied upon the decision of the Hon'ble Bombay High Court in the case of CIT vs. Indo American Jewellery Limited, reported in (2014) 44 taxmann.com 310 (Bombay). He also relied upon the decision of the ITAT Chennai Bench in the case of Gimpex Private (Chennai Tribunal). The assessee has also relied upon the following judicial precedents:

Bausch & Lomb Eyecare (India) Private Limited vs. ACIT, reported in (2015) 60 taxmann.com 141. 7. KGK Creations Private Limited vs. Juri ictional A.O., reported in (2025) 173 taxmann.com 57 (Mumbai Tribunal).

S. Vinodkumar Diamonds Private Limited vs. DCIT, reported in (2023) 147 taxmann.com 284 (Mumbai Tribunal).

The learned counsel further submitted that, when the principal transactions of the assessee with its AEs are at Arm's Tribunal). The counsel learned for the assessee also relied upon the following decisions:

Vestas Technology R&D Chennai Private Limited vs. ACIT, reported in (2022) 140 taxmann.com 50 (Chennai Tribunal).

The learned counsel for the assessee further submitted that, without prejudice to the above, the assessee had earned a margin of 30.47% and 35.26% for A.Y. 2020-21 and A.Y. 2021-22, respectively. As per the TP study reports of the assessee, the ALP of 15 comparables was at 13.60% and 12.59%, respectively. Further, after working capital adjustment, the mean PLI of 15 comparables was at 13.83% and 13.61% for A.Y. 2020-21 and A.Y. 2021-22, respectively. Further, as per the TP analysis of the Ld. TPO, without working capital adjustment, the mean PLI of 30 comparables was at 14.49% and 23.99% for A.Y. 2020-21 and A.Y. 2021-22, respectively. From the above, it is very clear that the net margin of the assessee is much higher than the ALP as per the benchmarking analysis made in the TP study reports, both prior to and after the working capital adjustment. Therefore, even if you reduce the opportunity cost of interest on the longer credit period given to the AEs, still the net profit margin (OP/TC) of the assessee is almost double the amount of margin earned by the comparables selected by the Ld. TPO. Therefore, making further additions towards interest on trade receivables from the AEs is incorrect. In this regard, he relied upon the decision of the Hon'ble 431 (Delhi). The learned counsel for the assessee further relied upon the following judicial precedents:

ERM India Private Limited vs. National e-Assessment Centre, New Delhi, reported in (2021) 132 taxmann.com 220 (Delhi Tribunal).

Alcatel-Lucent India Limited vs. ACIT, reported in (2023) 149

The Ld. CIT-DR, on the other hand, supporting the order of the Ld. CIT(A), submitted that trade receivables from the AEs are separate international transactions, which is evident from the definition of "international transaction" as per Section 92B of the Income-tax Act, 1961. Further, even if the assessee has carried out the benchmarking analysis of the transactions at the entity level on an aggregate basis, still the credit period given to the AEs should be compared with the credit period given to non-AEs, and in case the assessee has allowed excess credit period to the AEs, the same should be benchmarked by taking into account the standard credit period allowed to Non-AEs and also by applying the appropriate rate of interest. He further submitted that the Ld. CIT(A), after considering the relevant facts, has rightly concluded that trade receivables from the AEs are international transactions which need to be benchmarked separately and further directed the Ld. TPO to adopt LIBOR plus 200 basis points as the most appropriate rate of interest and also directed the Ld. TPO to consider the invoice-by-invoice credit period without going into the average credit period and value of receivables. Therefore, he submitted that there is no error in the order of the Ld. CIT(A) and the same should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The assessee agitated the TP adjustment made in respect of trade receivables from the AEs on multiple grounds, including on the issue of parity between the credit period allowed to the AEs and non-AEs, higher margin earned on transactions with the AEs when compared to the comparables, and further on removing the differential levels of working capital so as to arrive at a fair margin earned by the tested party and the comparables. Insofar as the first argument of the assessee, i.e., there is parity between the credit period allowed to the AEs and non-AEs and, thus, there is no question of making TP adjustment on interest receivable on trade receivables from the AEs, in our considered view, this argument holds good in a situation where the tested party and the AEs are taxed at the same tax territory, but not in a case where the AE and the tested party are residents of different tax juri ictions because the purpose of testing the transactions of the taxpayer with its AEs, in the light of the provisions of Section 92B of the Income-tax Act, 1961, is to determine whether the transactions of any taxpayer with its AEs are at Arm's Length when compared to third-party transactions. Therefore, once the definition of international transaction includes trade receivables from the AEs, then the same should be separately benchmarked irrespective of the fact that all international transactions are aggregated and benchmarked at entity level. Therefore, we reject the arguments taken by the learned counsel for the assessee on this aspect. Insofar as the 2nd argument of the learned counsel for the assessee in the light of the margins of the assessee and the margins of the comparables, and the claim that the assessee has earned higher margins on its primary transactions with its AEs on sale of products and services on an aggregate basis and, therefore, taking out one transaction of trade receivables and making separate benchmarking analysis is incorrect, in our considered view the argument is also devoid of merit, going by the purpose of the transfer pricing mechanism and the process of examining the transactions between the taxpayer and the AEs. Therefore, we reject the arguments of the learned counsel for the assessee on this issue also.

Having said so, let us come back to the third and final argument of the learned counsel for the assessee in the light of the net profit margin (OP/TC) of the assessee as per the TP study report for both the assessment years and the Arm's Length Price as per the fresh benchmarking analysis made by the Ld. TPO, without working capital adjustment, on 30 comparables for A.Y. 2020-21 and 32 comparables for A.Y. 2021-22. The learned counsel for the assessee submitted that, from the detailed analysis of the PLI of the assessee as per the TP study report, before and after working capital adjustment, the same is much higher than the PLI of the comparables as considered by the Ld. TPO. Therefore, when the assessee has earned higher margins on the transactions with its AEs, then interest cost, if any, incurred on account of working capital levels or the possible income that may be earned by the assessee from the amount of receivables held up is subsumed in the margins. Therefore, even if we exclude the amount of adjustment made by the A.O. towards interest on trade receivables from the AEs for both the assessment years, still the assessee's net profit margin is higher than the margin of the comparables and thus, the Ld. TPO and the Ld. CIT(A) erred in making separate adjustment towards interest receivable on trade receivables from the AEs.

Computation of PLI is very important step in transfer pricing analysis. The PLI of companies differs from various factors including higher cost of working capital and its financing. Therefore, it is necessary to remove factors which account for different levels of PLI in comparable. Further, working capital adjustment accounts for the time value of money, neutralization of the effects of different trade terms, trade transactions, credit period, and inventory levels between the tested party and the comparables. The purpose of providing working capital adjustment is to ensure that the pricing and Profit Level Indicators (PLIs) are compared on a level playing field. The logic centers on the fact that the time gap between investing in production and collecting revenue is very important when comparing the transactions of the AEs and the tested party. This gap is measured in terms of the number of days of inventory plus the number of days of receivables minus the number of days of payables held by the enterprise. An appropriate interest rate is applied to this difference to adjust the operating income level of the comparables or the tested party, effectively removing the financial burden or benefit of disparity working capital levels. A company with higher trade receivables or inventory ties up capital to fund the same. They either incur interest on borrowings or lose potential investment returns on the amount of working capital held on account of higher trade receivables and inventory. A company that negotiates longer payment terms with suppliers benefits from free vendor financing, freeing up cash for other uses. Therefore, to narrow the gap between the amount held up in working capital, the OECD Transfer Pricing Guidelines generally require adjusting the comparable results to match the tested party's working capital structure or adjusting both parties to a theoretical zero working capital, so as to give better comparable results for transfer pricing purposes. Therefore, going by the above principles, one has to give proper and effective adjustment for the disparity in working capital levels held by the tested party and the comparables so as to arrive at the correct Profit Level Indicator of both the parties to ascertain as to whether the tested party's transactions with its AEs are at Arm's Length Price when compared to third-party transactions.

In the present case, going by the TP analysis carried out by the assessee, the assessee has earned a net profit margin (OP/TC) of 30.47% for A.Y. 2020-21 and 35.26% for A.Y. 2021-22. Further, as per the TP study report of the assessee, the PLI of 15 comparables, without working capital adjustment, was at 13.60% for A.Y. 2020-21 and 12.59% for A.Y. 2021-22. Further, after working capital adjustment, the PLI of the comparables has arrived at 13.83% and 13.61% for A.Y. 2020-21 and A.Y. 2021-22, respectively. As against this, the Ld. TPO has conducted a fresh benchmarking analysis by selecting 30 comparables for A.Y. 2020- 21 with a PLI of 14.49% and 32 comparables for A.Y. 2021-22 with a PLI of 23.99%, without working capital adjustment. From the above, it is very clear that the net profit margin of the assessee is much higher than the margins of comparables as per the benchmarking analysis carried out in the TP study report, both prior to and after the working capital adjustment. Though the Ld. TPO did not work out the PLI after working capital adjustment, but the net profit margin of the assessee is much higher than the ALP worked out by the Ld. TPO without such adjustment. Therefore, in view of the difference in the net profit margins of the assessee and the comparables without working capital adjustment, it would be certainly lower than the net profit margin of the assessee if such adjustment towards working capital is provided. Therefore, in such a situation, a further addition towards interest on trade receivable from the AEs for the possible opportunity cost of interest that may be incurred by the assessee for providing a longer credit period to the AEs or the loss of potential investment returns on that cash is incorrect. This principle is supported by the decision of Hon’ble Delhi High Court in the case of Principal CIT vs. Kusum Healthcare Private Limited, reported in (2018) 99 taxmann.com 431 (Delhi), wherein it has been clearly held that, when the assessee had already factored the impact of receivables on working capital and thereby on its pricing and profitability vis-à-vis that of its comparables, any further adjustment only on the basis of outstanding receivables would distort the financial picture and recharacterize the transaction, which is not permissible. A similar view has been taken by the Hon'ble Delhi High Court in the case of Principal CIT vs. Calcom Vision Ltd., reported in (2020) 122 taxmann.com 302 (Delhi), wherein it has been held that, once the impact of receivables on working capital is evaluated and the consequent profitability and pricing are compared vis-à-vis the comparables, there is no requirement of any further adjustment only on the basis of outstanding receivables.

In the present case, going by the net profit margin earned by the assessee for both the assessment years, when compared to the net profit margin earned by the comparables, in our considered view, the net profit margin earned by the assessee is substantially higher than the margin of the comparables, with and without working capital adjustment, and therefore, further addition towards interest on trade receivables from the AEs is incorrect, when such opportunity cost of interest or possible loss of revenue is already factored subsumed in the pricing of the products. Therefore, we are of the considered view that, the A.O./Ld. TPO and the Ld. CIT(A) erred in making the addition only on the basis of the longer credit period allowed to the AEs without considering this aspect. However, the fact remains that the details of the net profit margins of the assessee vis-à-vis the comparables submitted by the assessee need to be verified by the Ld. TPO in the light of our discussion given hereinabove to ascertain the correct amount of net profit margin earned by the assessee vis-à-vis the comparables. Therefore, we set aside this issue to the file of the ld.AO/Ld. TPO and direct the AO/Ld. TPO to verify the claim of the assessee in the light of our discussion given hereinabove. In case the Ld. TPO finds that, after adjusting the working capital levels, the margin of the assessee is higher than the margin of the comparables, then we direct the A.O./Ld. TPO to delete the addition made towards TP adjustment in respect of interest on trade receivables from AEs for A.Y. 2020-21 and A.Y. 2021-22. 51. In the result, the appeals filed by the assessee for both the assessment years are allowed for statistical purposes.

The Revenue, in Ground Nos. 1 and 2 of its appeal, has challenged the directions of the Ld. CIT(A) to adopt LIBOR plus 200 basis points as the Arm's Length rate of interest instead of the SBI short-term deposit rate for benchmarking the interest on delayed trade receivables from AEs. Since we have restored the issue relating to TP adjustment in respect of interest on delayed trade receivables from AEs to the file of the Ld. TPO for fresh examination in the light of our findings hereinabove, the grounds raised by the Revenue challenging the directions of the Ld. CIT(A) to adopt LIBOR plus 200 basis points as the Arm's Length rate of interest become infructuous and thus, grounds taken by the revenue are dismissed.

In the result, the appeal filed by the Revenue for A.Y. 2021- 22 is dismissed.

To sum up, the appeals filed by the assessee for both the assessment years i.e., A.Ys. 2020-21 and 2021-22 are allowed for statistical purposes and the appeal of the Revenue for A.Y. 2021- 22 is dismissed.

The Principal Commissioner of Income Tax (Central), Hyderabad. 4. तिभागीयप्रतततितर्, आयकर अपीलीय अतर्करण, हैदराबाद / DR, ITAT, Hyderabad 5. गार्ाफ़ाईल / Guard file