WEST PHARMACEUTICAL PACKAGING INDIA PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE-8(1), HYDERABAD

The brief facts of the case are that the assessee is engaged in the business of manufacturing flip off seals for the pharmaceutical industry. It is also engaged in rendering marketing support services and Information Technology (IT) support services to its Associated Enterprises (“AEs”). The assessee had filed its return of income for A.Y. 2022-23 on 29.11.2022, declaring a total income of Rs.26,71,52,417/-. During the financial year relevant to the assessment year 2022-23, the assessee had entered into various international transactions, including sale of flip off seals, provision of marketing support services, and provision of IT support services, etc. The case was selected for scrutiny and, during the course of assessment proceedings, a reference under section 92CA of the Act, was made to the learned Transfer Pricing Officer for determination of the arm's length price of the international transactions of the assessee with its AEs. The Ld.

The assessee had filed objections before the Dispute Resolution Panel (DRP) against the TP adjustment proposed by the Ld. TPO in respect of provision of ITeS and interest on trade receivables and raised various contentions. The Ld. DRP, vide its directions issued under section 144C(5) of the Act, dated 27.11.2025, accepted the objections filed by the assessee in respect of the TP adjustment on provision of ITeS and further allowed partial relief in respect of the TP adjustment on interest on trade receivables and directed the Ld. TPO to compute interest by applying the LIBOR rate plus 450 basis points, as against the SBI short-term deposit rate considered by the Ld. TPO. Pursuant to the directions of the Ld. DRP, the A.O. passed the final

Aggrieved by the final assessment order, the assessee is now in appeal before the Tribunal.

The learned counsel for the assessee, Shri Sharath Rao, C.A., referring to various grounds of appeal filed by the assessee, submitted that, when the transactions of the assessee with its AEs are considered to be at arm's length after giving effect to the “Ld. DRP’s directions, then no separate adjustment can be made on interest on trade receivables, since the receivables are closely connected with the principal transactions of the assessee. The learned counsel for the assessee further submitted that, if we consider the working capital adjustment to the comparables selected by the Ld. TPO and arrive at the margin, it works out to 14% as against the assessee's margin of 15%. Therefore, even assuming for a moment that interest on trade receivables is not factored by the assessee, still the transactions of the assessee with its AEs are at arm's length because, even after working capital

The learned counsel for the assessee submitted that, if at all any adjustment is required, in respect of interest on trade receivables, then the Ld. TPO may be directed to apply LIBOR plus 200 basis points and allow a credit period of 60 days, as consistently held by the Tribunals in a number of cases, including the decision in the case of Entain Software Development Services (India) Private Limited Vs. DCIT reported in [TS-436-ITAT-2026 (HYD)-TP].

The learned CIT-DR, Shri Waseem UR Rehman, on the other hand, supporting the order of the Ld. DRP, submitted that the Ld. DRP has considered the objections filed by the assessee with regard to interest on trade receivables and held that even though the transactions of the assessee are benchmarked under the TNMM method, still separate benchmarking is required to be

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The Ld. TPO made an adjustment of Rs. 27,38,548/- in respect of interest on trade receivables from AEs by applying the SBI short- term deposit rate, allowing a credit period of 30 days, and computed interest wherever the outstanding trade receivables from AEs were in excess of 30 days. The Ld. DRP directed the Ld. TPO to adopt LIBOR plus 450 basis points as against the SBI short-term deposit rate on the ground that the payments were to be made in foreign currency and, therefore, LIBOR is the appropriate rate for benchmarking the interest on trade receivables from AEs. The assessee has raised various contentions, including that the transactions of the assessee with its AEs have been accepted to be at arm's length price, and claimed that once the transactions with the AEs are at arm's

The assessee had also made an alternative argument in light of certain judicial precedents and submitted that when the assessee has factored the impact of working capital in its pricing and, further, even after providing working capital adjustment, the margin of the assessee is higher than the margin of the comparables, then no separate adjustment can be made towards interest on trade receivables from AEs. Although we are not convinced with the first argument of the assessee that no separate adjustment is required in respect of trade receivables when the assessee's transactions with its AEs have been accepted to be at arm's length under the TNMM method, but going by the details submitted by the assessee in respect of the working capital adjustment on the comparables selected by the Ld. TPO, we find that, even after providing the working capital adjustment, the margin of the 14 comparables selected by the Ld. TPO worked out to 14%, as against the assessee's margin from its transactions with AEs at 15%. Since the Ld. TPO has considered the opportunity cost of interest on the longer credit period provided to

Therefore, in our considered view, the matter needs to be set aside to the file of the Ld. TPO for necessary verification and to decide the issue in light of the directions given hereinabove. The A.O./Ld. TPO is directed to verify the claim of the assessee in light of the working furnished by the assessee on the margins of the comparable companies after working capital adjustment, and in case the margin of the comparables is less than the margin earned

In the result, the appeal filed by the assessee is allowed for statistical purposes.