GARWARE FULFLEX INDIA PVT LTD ,MUMBAI vs. DCIT, CIRCLE 1(1)(1), MUMBAI

2. Addition to the 2. Addition to the total income on account of transfer pricing total income on account of transfer pricing adjustment by incorrectly not considering the analysis and adjustment by incorrectly not considering the analysis and adjustment by incorrectly not considering the analysis and documentation documentation Erred in proposing an adjustment of INR 65,42,860 to the value Erred in proposing an adjustment of INR 65,42,860 to the value Erred in proposing an adjustment of INR 65,42,860 to the value of couple of international transactions of the Appellant by not of couple of international transactions of the Appellant by not of couple of international transactions of the Appellant by not considering the analysis and documentation maintained by the g the analysis and documentation maintained by the g the analysis and documentation maintained by the Appellant to determine the arm's length price ('ALP') of aforesaid Appellant to determine the arm's length price ('ALP') of aforesaid Appellant to determine the arm's length price ('ALP') of aforesaid international transactions. international transactions.

3. In connection with interest on overdue receivables, the 3. In connection with interest on overdue receivables, the 3. In connection with interest on overdue receivables, the Ld. TPO and Ld. AO have erred in considering the sa Ld. TPO and Ld. AO have erred in considering the sa Ld. TPO and Ld. AO have erred in considering the said transaction as a separate international transaction transaction as a separate international transaction transaction as a separate international transaction warranting a separate analysis warranting a separate analysis Erred and failed to appreciate that receivable/ payable resulting Erred and failed to appreciate that receivable/ payable resulting Erred and failed to appreciate that receivable/ payable resulting from the international transactions has been treated as closely from the international transactions has been treated as closely from the international transactions has been treated as closely linked transaction to other transaction linked transaction to other transactions and have been evaluated s and have been evaluated on the overall basis considering TNMM, which justifies the on the overall basis considering TNMM, which justifies the on the overall basis considering TNMM, which justifies the transaction is carried out at arm's length price as per the TP transaction is carried out at arm's length price as per the TP transaction is carried out at arm's length price as per the TP study report maintained by Appellant and is not a separate study report maintained by Appellant and is not a separate study report maintained by Appellant and is not a separate international transaction warranting any separate international transaction warranting any separate analysis. analysis.

4. In connection with interest on overdue receivables, the 4. In connection with interest on overdue receivables, the 4. In connection with interest on overdue receivables, the Ld. Ld. Ld. TPO TPO TPO and and and the the the Ld. Ld. Ld. AO AO AO have have have erred erred erred in in in non non- non granting/considering working capital adjustment for the granting/considering working capital adjustment for the granting/considering working capital adjustment for the comparables which subsumes the impact of outstanding comparables which subsumes the impact of outstanding comparables which subsumes the impact of outstanding receivables and payables receivables and payables Erred by n Erred by not allowing/ considering the working capital ot allowing/ considering the working capital adjustment to the margins of comparable companies, thereby adjustment to the margins of comparable companies, thereby adjustment to the margins of comparable companies, thereby eliminating any need for computing interest, despite adequate eliminating any need for computing interest, despite adequate eliminating any need for computing interest, despite adequate provision and judicial guidance on the same. provision and judicial guidance on the same.

5. In connection with the interest on overdue 5. In connection with the interest on overdue receivables, receivables, the Ld. TPO and the Ld. AO have not appreciated the fact the Ld. TPO and the Ld. AO have not appreciated the fact the Ld. TPO and the Ld. AO have not appreciated the fact that the Appellant is primarily a debt that the Appellant is primarily a debt-free Company and free Company and has no incidental interest cost has no incidental interest cost Erred by not appreciating that the Appellant is a primarily a debt Erred by not appreciating that the Appellant is a primarily a debt Erred by not appreciating that the Appellant is a primarily a debt- free company and the resultant free company and the resultant outstanding pursuant to normal outstanding pursuant to normal business transaction does not lead to any interest cost to the business transaction does not lead to any interest cost to the business transaction does not lead to any interest cost to the Appellant.

6. In connection with interest on overdue receivables, the 6. In connection with interest on overdue receivables, the 6. In connection with interest on overdue receivables, the Ld. TPO and Ld. AO have failed to consider the internal Ld. TPO and Ld. AO have failed to consider the internal Ld. TPO and Ld. AO have failed to consider the internal comparability on account of Non comparability on account of Non-AE receivable period vis receivable period vis-à- vis AE receivable period vis AE receivable period Erred to appreciate that in the context of imposing interest on Erred to appreciate that in the context of imposing interest on Erred to appreciate that in the context of imposing interest on overdue receivables, the Non overdue receivables, the Non-AE receivable cycle of the Appellant AE receivable cycle of the Appellant stood at an average overdue of 90 days, in contrast to the AE stood at an average overdue of 90 days, in contrast to the AE stood at an average overdue of 90 days, in contrast to the AE cycle which was cycle which was overdue for only 60 days. Based on the same, overdue for only 60 days. Based on the same, given the comparative uncontrolled circumstance there arose no given the comparative uncontrolled circumstance there arose no given the comparative uncontrolled circumstance there arose no need for arriving at imputed interest on AE outstandings. need for arriving at imputed interest on AE outstandings. need for arriving at imputed interest on AE outstandings. 7. 7.

7. The The The Ld. Ld. Ld. TPO TPO TPO and the and and the the Ld. AO Ld. Ld. AO AO have have have erred erred erred in in in comprehending the nature of the transaction r comprehending the nature of the transaction r comprehending the nature of the transaction related to provision of Guarantee and making adjustment of INR provision of Guarantee and making adjustment of INR provision of Guarantee and making adjustment of INR 5,42,599 as Guarantee Commission 5,42,599 as Guarantee Commission Erred to understand that Appellant has discharged 'Shareholder Erred to understand that Appellant has discharged 'Shareholder Erred to understand that Appellant has discharged 'Shareholder Function' by providing corporate guarantee to its AE and hence Function' by providing corporate guarantee to its AE and hence Function' by providing corporate guarantee to its AE and hence there does not arise any liability there does not arise any liability of charging corporate guarantee of charging corporate guarantee commission to its AE. commission to its AE.

8. Without prejudice to the contention that Guarantee 8. Without prejudice to the contention that Guarantee 8. Without prejudice to the contention that Guarantee Commission is not applicable in case of the Appellant, the Commission is not applicable in case of the Appellant, the Commission is not applicable in case of the Appellant, the Ld. AO erred in not restricting the rate of commission at Ld. AO erred in not restricting the rate of commission at Ld. AO erred in not restricting the rate of commission at 0.5 per cent per annum in light 0.5 per cent per annum in light of the guidance by the of the guidance by the jurisdictional High Court jurisdictional High Court Erred in not appreciating that the Guarantee under consideration Erred in not appreciating that the Guarantee under consideration Erred in not appreciating that the Guarantee under consideration is not comparable to the Bank Guarantee rates as considered is not comparable to the Bank Guarantee rates as considered is not comparable to the Bank Guarantee rates as considered and the same shall be restricted to 0.5 per cent as per the and the same shall be restricted to 0.5 per cent as per the and the same shall be restricted to 0.5 per cent as per the disposition of the Ho disposition of the Hon'ble Mumbai High Court.

9. The Ld. AO has erred in double consideration of Sundry 9. The Ld. AO has erred in double consideration of Sundry 9. The Ld. AO has erred in double consideration of Sundry Creditors Writeback by the CPC and not permitting the Creditors Writeback by the CPC and not permitting the Creditors Writeback by the CPC and not permitting the Rectification Request filed by the Appellant Rectification Request filed by the Appellant Erred that sundry creditors write Erred that sundry creditors write-back was already credited to back was already credited to the Profit and Loss account of the Appellant thereby there was no and Loss account of the Appellant thereby there was no and Loss account of the Appellant thereby there was no need for the CPC to add the same to the total income of the need for the CPC to add the same to the total income of the need for the CPC to add the same to the total income of the Appellant. The Ld. AO also did not give cognizance to the Appellant. The Ld. AO also did not give cognizance to the Appellant. The Ld. AO also did not give cognizance to the Rectification Application highlighting the said fact, thereby Rectification Application highlighting the said fact, thereby Rectification Application highlighting the said fact, thereby leading to a double leading to a double consideration of income.

10. Non consideration of credit of prepaid taxes as per the 10. Non consideration of credit of prepaid taxes as per the 10. Non consideration of credit of prepaid taxes as per the intimation by CPC under section 143(1) of Income Tax Act intimation by CPC under section 143(1) of Income Tax Act intimation by CPC under section 143(1) of Income Tax Act Erred in law, and in facts, in non Erred in law, and in facts, in non-consideration of the prepaid consideration of the prepaid taxes corresponding to the transferor companies pu taxes corresponding to the transferor companies pu taxes corresponding to the transferor companies pursuant to amalgamation with the Appellant. amalgamation with the Appellant.

11. Proposed initiation of penalty proceedings and charge 11. Proposed initiation of penalty proceedings and charge 11. Proposed initiation of penalty proceedings and charge of Interest under section 234A, 234C, and Section 270A of of Interest under section 234A, 234C, and Section 270A of of Interest under section 234A, 234C, and Section 270A of the Act on account of overall adjustment the Act on account of overall adjustment Erred by proposing to initiate the penalty proceedings Erred by proposing to initiate the penalty proceedings Erred by proposing to initiate the penalty proceedings against the Appellant and proposition to charge consequential interest on Appellant and proposition to charge consequential interest on Appellant and proposition to charge consequential interest on account of the the adjustment.

3.1 The assessee company is a leading manufacturer and export The assessee company is a leading manufacturer and export The assessee company is a leading manufacturer and exporter of latex natural rubber and elastic rubber products. Elastomer Inc, of latex natural rubber and elastic rubber products. Elastomer Inc, of latex natural rubber and elastic rubber products. Elastomer Inc, USA Garflex Inc, USA and Garware Fulflex International Pte Ltd. USA Garflex Inc, USA and Garware Fulflex Internation USA Garflex Inc, USA and Garware Fulflex Internation Singapore were the Associated E Singapore were the Associated Enterprises(AEs) of the assess of the assessee. In view of international transaction view of international transactions reported by the assessee reported by the assessee with its AEs, the Assessing Officer made reference to the Ld. Transfer , the Assessing Officer made reference to the Ld. Transfer , the Assessing Officer made reference to the Ld. Transfer Pricing Officer (TPO) u/s 92CA(1) of the Act for determination of Pricing Officer (TPO) u/s 92CA(1) of the Act for determination of Pricing Officer (TPO) u/s 92CA(1) of the Act for determination of arm’s length price of the international transaction arm’s length price of the international transactions entered into by s entered into by the assessee. The Ld. TPO in order passed u/s 92CA(3) of the Act the assessee. The Ld. TPO in order passed u/s 92CA(3) of the Act the assessee. The Ld. TPO in order passed u/s 92CA(3) of the Act dated 28.10.2023 proposed following two adjustments to the value dated 28.10.2023 proposed following two adjustments dated 28.10.2023 proposed following two adjustments of transactions reported by the assessee of transactions reported by the assessee:

Sl. No. Nature of Transaction Nature of Transaction Adjustment Amount (INR) Adjustment Amount (INR) 1. Guarantee Commission Guarantee Commission 5,42,599/ 5,42,599/- 2. Interest on Overdue receivables Interest on Overdue receivables 60,00,261/ 60,00,261/- Total Total 65,42,860/ 65,42,860/- 3.2 The Assessing Officer taking into consideration transfer The Assessing Officer taking into consideration transfer The Assessing Officer taking into consideration transfer pricing adjustment proposed by the Ld. TPO pricing adjustment proposed by the Ld. TPO, issued t , issued the draft assessment order on 27.12.202 assessment order on 27.12.2023. The assessee filed objections he assessee filed objections against the draft assessment order before the Ld. DRP but could not draft assessment order before the Ld. DRP but could not draft assessment order before the Ld. DRP but could not succeed. Pursuant to the direction of the Ld. DRP, the Assessing succeed. Pursuant to the direction of the Ld. DRP, the Assessing succeed. Pursuant to the direction of the Ld. DRP, the Assessing Officer passed the impugned final assessment order after making Officer passed the impugned final assessment order after making Officer passed the impugned final assessment order after making transfer pricing adjustmen transfer pricing adjustment, firstly, for guarantee commission for guarantee commission amounting to Rs.5,42,599/ amounting to Rs.5,42,599/- and, secondly, for interest on overdue interest on overdue receivables amounting to Rs.60,00,260/ receivables amounting to Rs.60,00,260/-. Aggrieved, , the assessee is in appeal before us by way of grounds as reproduced above. in appeal before us by way of grounds as reproduced above. in appeal before us by way of grounds as reproduced above.

5.1 The brief facts relevant to The brief facts relevant to the issue in dispute are that the the issue in dispute are that the details of the international transactions entered into by the details of the international transactions entered into by the details of the international transactions entered into by the assessee, along with the method adopted for benchmarking such assessee, along with the method adopted for benchmarking such assessee, along with the method adopted for benchmarking such transactions, have been tabulated in paragraphs 2 and 3 of the transactions, have been tabulated in paragraphs 2 and 3 of the transactions, have been tabulated in paragraphs 2 and 3 of the order of the learned Transfer Pric order of the learned Transfer Pricing Officer (“Ld. TPO”). ing Officer (“Ld. TPO”). For ready reference, details of said transactions are reference, details of said transactions are reproduced as under: reproduced as under:

Nature of Transactions Nature of Transactions Amount as per Method adopted Method adopted Form 3CEB for Benchmarking Benchmarking

238,48,00,261 TNMM TNMM Export of manufactured elastic Export of manufactured elastic products to AEs ' :: 6,15,46,460 TNMM TNMM Purchase of raw materials from AEs Purchase of raw materials from AEs . ' ■ . . Commission paid to AE Commission paid to AE 1,83,04,099 TNMM TNMM

27,59,349 TNMM TNMM Availing Management Support Availing Management Support Services from AEs Amount as per Method adopted Method adopted Nature of Transactions Nature of Transactions Form 3CEB for Benchmarking Benchmarking 53,94,416 TNMM TNMM Provision of Management Support of Management Support Services to AEs 21,61,519 TNMM TNMM Purchase of Assets from AEs Purchase of Assets from AEs

4,43,97,412 Other Method Other Method Dividend received from AEs Dividend received from AEs

5,00,00,000 Other Method Other Method Issue of Equity Shares Issue of Equity Shares

Provision of Corporate Guarantee on Nil Not applicable Not applicable Provision of Corporate Guarantee on behalf of AEs 18,25,000 Actual cost Actual cost Recovery of set-up fees paid to bank up fees paid to bank (for Corporate Guarantee) from AEs (for Corporate Guarantee) from AEs 4,47,737 Actual cost Actual cost Recovery of bank related expenses (for Recovery of bank related expenses (for corporate guarantee) from AEs corporate guarantee) from AEs

2,85,24,425 Other method Other method Recovery of Freight Expenses from Recovery of Freight Expenses from AEs 11,83,050 Actual Cost Actual Cost Reimbursement of expenses to AEs Reimbursement of expenses to AEs 5.2 The Ld. TPO did not disturb the Most Appropriate Method The Ld. TPO did not disturb the Most Appropriate Method The Ld. TPO did not disturb the Most Appropriate Method (“MAM”) applied by the assessee for benchmarking the aforesaid (“MAM”) applied by the assessee for benchmarking the aforesaid (“MAM”) applied by the assessee for benchmarking the aforesaid international transactions and for determination of their Arm’s international transactions and for determination of their Arm’s international transactions and for determination of their Arm’s Length Price (“ALP”). However, the Ld. TPO observed that certain Length Price (“ALP”). However, the Ld. TPO observed that certain Length Price (“ALP”). However, the Ld. TPO observed that certain outstanding trade receivables from Associated Enterprises (“AEs”) outstanding trade receivables from Associated Enterprises (“AEs”) outstanding trade receivables from Associated Enterprises (“AEs”) had been realised beyond the normal credit period adopted by the had been realised beyond the normal credit period adopted by the had been realised beyond the normal credit period adopted by the assessee. It was further noted that no interest had been charged by assessee. It was further noted that no interest had been ch assessee. It was further noted that no interest had been ch the assessee on such delayed realisation of receivables. According the assessee on such delayed realisation of receivables. According the assessee on such delayed realisation of receivables. According to the Ld. TPO, the delayed realisation of trade receivables to the Ld. TPO, the delayed realisation of trade receivables to the Ld. TPO, the delayed realisation of trade receivables constituted a separate international transaction under section 92B constituted a separate international transaction under section 92B constituted a separate international transaction under section 92B of the Act, for which the assessee had failed to det of the Act, for which the assessee had failed to determine the ALP. ermine the ALP. For this purpose, the Ld. TPO relied on the Safe Harbour rate For this purpose, the Ld. TPO relied on the Safe Harbour rate For this purpose, the Ld. TPO relied on the Safe Harbour rate specified under clause (v) of sub specified under clause (v) of sub-rule (2A) of Rule 10TD of the rule (2A) of Rule 10TD of the Income-tax Rules, 1962 (“the Rules”), prescribing six tax Rules, 1962 (“the Rules”), prescribing six tax Rules, 1962 (“the Rules”), prescribing six-month LIBOR plus 400 basis points as on 30.09.2020 as the ar plus 400 basis points as on 30.09.2020 as the arm’s length rate of m’s length rate of interest. The Ld. TPO accordingly issued a show cause notice to the interest. The Ld. TPO accordingly issued a show cause notice to the interest. The Ld. TPO accordingly issued a show cause notice to the assessee, requiring it to explain why the benchmarking of interest assessee, requiring it to explain why the benchmarking of interest assessee, requiring it to explain why the benchmarking of interest on receivables outstanding for a period exceeding 60 days should on receivables outstanding for a period exceeding 60 days should on receivables outstanding for a period exceeding 60 days should not be undertaken. The contention of not be undertaken. The contention of the assessee to consider the the assessee to consider the average credit period, inclusive of invoices settled within 60 days, average credit period, inclusive of invoices settled within 60 days, average credit period, inclusive of invoices settled within 60 days, was rejected. Thereafter, the Ld. TPO computed the interest on that was rejected. Thereafter, the Ld. TPO computed the interest on that was rejected. Thereafter, the Ld. TPO computed the interest on that portion of trade receivables which exceeded the 60-day credit portion of trade receivables which exceeded the 60 portion of trade receivables which exceeded the 60 period, by applying six period, by applying six-month LIBOR (0.2597% as on 30.09.2020) h LIBOR (0.2597% as on 30.09.2020) plus 400 basis points, aggregating to 4.2597%. For this purpose, plus 400 basis points, aggregating to 4.2597%. For this purpose, plus 400 basis points, aggregating to 4.2597%. For this purpose, the Ld. TPO undertook invoice the Ld. TPO undertook invoice-wise analysis of the receivables from wise analysis of the receivables from AEs, as available at pages 13 to 32 of his order (not reproduced AEs, as available at pages 13 to 32 of his order (not reproduced AEs, as available at pages 13 to 32 of his order (not reproduced herein for brevity). On herein for brevity). On this basis, the Ld. TPO determined the arm’s this basis, the Ld. TPO determined the arm’s length interest on trade receivables at length interest on trade receivables at ₹60,00,261/-.

5.3 The learned Dispute Resolution Panel (“Ld. DRP”) upheld the The learned Dispute Resolution Panel (“Ld. DRP”) upheld the The learned Dispute Resolution Panel (“Ld. DRP”) upheld the action of the Ld. TPO in treating the interest on outstanding action of the Ld. TPO in treating the interest on outstanding action of the Ld. TPO in treating the interest on outstanding receivables as a separate international transaction within the receivables as a separate international transaction within the receivables as a separate international transaction within the meaning of section 92B of the Income meaning of section 92B of the Income-tax Act, 1961 (“the Act”). In tax Act, 1961 (“the Act”). In doing so, the Panel relied upon a series of decisions of the g so, the Panel relied upon a series of decisions of the g so, the Panel relied upon a series of decisions of the coordinate Benches of the Tribunal, inter alia, Zeta Interactive coordinate Benches of the Tribunal, inter alia, coordinate Benches of the Tribunal, inter alia, Systems (India) (P.) Ltd. v. ITO Systems (India) (P.) Ltd. v. ITO [2022] 142 taxmann.com 202 (Hyd. [2022] 142 taxmann.com 202 (Hyd. – Trib.), Satyam Venture Engineering Services (P.) Ltd. v. ACIT Satyam Venture Engineering Services (P.) Ltd. v. ACIT Satyam Venture Engineering Services (P.) Ltd. v. ACIT [ITA No. 362/Hyd/2021, dated 28 362/Hyd/2021, dated 28-06-2022], Apache Footwear India (P.) Ltd. Apache Footwear India (P.) Ltd. v. ACIT [2023] 148 taxmann.com 371 (Hyd. [2023] 148 taxmann.com 371 (Hyd. – Trib.), and Trib.), and Maxim Integrated Products India Sales (P.) Ltd. v. DCIT [2022] 140 Integrated Products India Sales (P.) Ltd. v. DCIT Integrated Products India Sales (P.) Ltd. v. DCIT taxmann.com 578 (Bang. taxmann.com 578 (Bang. – Trib.), wherein it has been consistentl Trib.), wherein it has been consistently held that outstanding receivables from Associated Enterprises held that outstanding receivables from Associated Enterprises held that outstanding receivables from Associated Enterprises (“AEs”), when allowed beyond the stipulated credit period (generally (“AEs”), when allowed beyond the stipulated credit period (generally (“AEs”), when allowed beyond the stipulated credit period (generally 30 days), constitute a separate international transaction warranting 30 days), constitute a separate international transaction warranting 30 days), constitute a separate international transaction warranting independent benchmarking, and that the levy of notional interest at independent benchmarking, and that the levy of notiona independent benchmarking, and that the levy of notiona 6 per cent is fair and reasonable. 6 per cent is fair and reasonable. The Ld. DRP observed that in the The Ld. DRP observed that in the aforesaid decisions, the contention of the assessees to adopt LIBOR aforesaid decisions, the contention of the assessees to adopt LIBOR aforesaid decisions, the contention of the assessees to adopt LIBOR plus basis points as the arm’s length rate had been specifically plus basis points as the arm’s length rate had been specifically plus basis points as the arm’s length rate had been specifically considered and rejected. considered and rejected.

5.4 The Ld. DRP further recorded that the reliance placed by the further recorded that the reliance placed by the further recorded that the reliance placed by the assessee on the judgment of the Hon’ble Delhi High Court in Pr. assessee on the judgment of the Hon’ble Delhi High Court in assessee on the judgment of the Hon’ble Delhi High Court in CIT-2 v. Bechtel India Pvt. Ltd. 2 v. Bechtel India Pvt. Ltd. [ITA No. 379/2016, dated 21 [ITA No. 379/2016, dated 21-07- 2016] was misplaced, as in 2016] was misplaced, as in Bechtel the Hon’ble High Court did not the Hon’ble High Court did not lay down any binding ratio on the issue but merely held that no binding ratio on the issue but merely held that no binding ratio on the issue but merely held that no substantial question of law arose for consideration. In contrast, substantial question of law arose for consideration. In contrast, substantial question of law arose for consideration. In contrast, subsequent pronouncements of the Hon’ble Delhi High Court in subsequent pronouncements of the Hon’ble Delhi High Court in subsequent pronouncements of the Hon’ble Delhi High Court in McKinsey Knowledge Centre India (P.) Ltd. v. Pr. CIT [2018] 96 McKinsey Knowledge Centre India (P.) Ltd. v. Pr. CIT McKinsey Knowledge Centre India (P.) Ltd. v. Pr. CIT taxmann.com 237 (Delhi), of the Hon’ble Karnataka High Court in (Delhi), of the Hon’ble Karnataka High Court in (Delhi), of the Hon’ble Karnataka High Court in Pr. CIT v. AMD India (P.) Ltd. Pr. CIT v. AMD India (P.) Ltd. [ITA No. 274 of 2018, dated 31 [ITA No. 274 of 2018, dated 31-08- 2018], as well as the judgment of the jurisdictional High Court in 2018], as well as the judgment of the jurisdictional High Court in 2018], as well as the judgment of the jurisdictional High Court in CIT v. Patni Computer Systems Ltd. CIT v. Patni Computer Systems Ltd. [2013] 33 taxmann.com 3/215 [2013] 33 taxmann.com 3/215 Taxman 108 (Bom.), support the view that delayed realisation of Bom.), support the view that delayed realisation of Bom.), support the view that delayed realisation of receivables receivables receivables from from from AEs AEs AEs constitutes constitutes constitutes a a a taxable taxable taxable international international international transaction.

5.5 The Ld. DRP further observed that the record disclosed a The Ld. DRP further observed that the record disclosed a The Ld. DRP further observed that the record disclosed a consistent pattern in the conduct of the assessee whereby consistent pattern in the conduct of the assessee whereby consistent pattern in the conduct of the assessee whereby payments from AEs were not collected within the stipulated time, Es were not collected within the stipulated time, Es were not collected within the stipulated time, and no interest was charged on such delayed collections. In the and no interest was charged on such delayed collections. In the and no interest was charged on such delayed collections. In the Panel’s view, deferment in collection of trading debts represents a Panel’s view, deferment in collection of trading debts represents a Panel’s view, deferment in collection of trading debts represents a distinct international transaction, independent of the underlying distinct international transaction, independent of the underlying distinct international transaction, independent of the underlying sale of goods or services, and requires separate benchmarking in goods or services, and requires separate benchmarking in goods or services, and requires separate benchmarking in accordance with Chapter X of the Act. The Panel categorically accordance with Chapter X of the Act. The Panel categorically accordance with Chapter X of the Act. The Panel categorically rejected the assessee’s allegation that the Ld. TPO had “re- rejected the assessee’s allegation that the Ld. TPO had “re rejected the assessee’s allegation that the Ld. TPO had “re characterised” any transaction, holding that delayed receivables characterised” any transaction, holding that delayed receivables characterised” any transaction, holding that delayed receivables were recognised by law as separate transactions per se. sed by law as separate transactions per se. sed by law as separate transactions per se.

5.6 The Ld. DRP emphasised that transfer pricing adjustments The Ld. DRP emphasised that transfer pricing adjustments The Ld. DRP emphasised that transfer pricing adjustments under Chapter X are in the nature of Specific Anti under Chapter X are in the nature of Specific Anti-Avoidance Rules Avoidance Rules (SAAR), intended to counteract tax avoidance in controlled (SAAR), intended to counteract tax avoidance in controlled (SAAR), intended to counteract tax avoidance in controlled transactions, and that th transactions, and that the question of notional or real income does e question of notional or real income does not arise in this context. not arise in this context.

5.7 The assessee’s further objection, that once a working capital The assessee’s further objection, that once a working capital The assessee’s further objection, that once a working capital adjustment had been made in the determination of margins under adjustment had been made in the determination of margins under adjustment had been made in the determination of margins under the Transactional Net Margin Method (“TNMM”), no separate the Transactional Net Margin Method (“TNMM”), no separate the Transactional Net Margin Method (“TNMM”), no separate adjustment for interest on receivables was warranted, was also adjustment for interest on receivables was warranted, was also adjustment for interest on receivables was warranted, was also rejected. The Ld. DRP found that the assessee had not furnished The Ld. DRP found that the assessee had not furnished The Ld. DRP found that the assessee had not furnished any cogent explanation or computation of monthly trade and non- any cogent explanation or computation of monthly trade and non any cogent explanation or computation of monthly trade and non trade receivables/payables or the capital position of either the trade receivables/payables or the capital position of either the trade receivables/payables or the capital position of either the assessee or the comparables, and therefore no case was made out assessee or the comparables, and therefore no case was made out assessee or the comparables, and therefore no case was made out for subsuming interest on receivables within the working capital ing interest on receivables within the working capital ing interest on receivables within the working capital adjustment. The Panel reiterated that interest on receivables adjustment. The Panel reiterated that interest on receivables adjustment. The Panel reiterated that interest on receivables constituted constituted constituted a a a separate separate separate international international international transaction transaction transaction requiring requiring requiring independent benchmarking. independent benchmarking.

5.8 The Ld. DRP also rejected the plea of the assessee The Ld. DRP also rejected the plea of the assessee The Ld. DRP also rejected the plea of the assessee to consider the “net” receivable position (i.e., receivables minus payables) for the “net” receivable position (i.e., receivables minus payables) for the “net” receivable position (i.e., receivables minus payables) for the purposes of computing the ALP adjustment, holding that the the purposes of computing the ALP adjustment, holding that the the purposes of computing the ALP adjustment, holding that the statutory definition under the Explanation to section 92B uses the statutory definition under the Explanation to section 92B uses the statutory definition under the Explanation to section 92B uses the term “receivable” and not “net receivable”. term “receivable” and not “net receivable”.

5.9 In conclusion, the Ld. DRP upheld the methodology adopted by In conclusion, the Ld. DRP upheld the methodology adopted by In conclusion, the Ld. DRP upheld the methodology adopted by the Ld. TPO in applying the “other method” under section 92C(1)(f) the Ld. TPO in applying the “other method” under section 92C(1)(f) the Ld. TPO in applying the “other method” under section 92C(1)(f) of the Act as the Most Appropriate Method for benchmarking the of the Act as the Most Appropriate Method for benchmarking the of the Act as the Most Appropriate Method for benchmarking the delayed receivables, and affirmed the arm’s length rate of interest as delayed receivables, and affirmed the arm’s length rate of in delayed receivables, and affirmed the arm’s length rate of in six-month LIBOR plus 400 basis points for computing the month LIBOR plus 400 basis points for computing the month LIBOR plus 400 basis points for computing the adjustment.

5.10 Before us, the Before us, the ld. counsel for the assessee relied on the counsel for the assessee relied on the submissions made before the Ld. DRP. In support of contention made before the Ld. DRP. In support of contention made before the Ld. DRP. In support of contention that impact of delayed AE receivable got subsumed in working impact of delayed AE receivable got subsumed in working impact of delayed AE receivable got subsumed in working capital/ pricing vis- -a-vis comparables, the Ld. Counsel for the Ld. Counsel for the assessee relied on the decision of PCIT v. Kusum Health Care Pvt. PCIT v. Kusum Health Care Pvt. assessee relied on the decision of Ltd. ITA 765/2016 for assessment year 2010-11 and 11 and decision of Co-ordinate Bench of the Tribunal in the case of ate Bench of the Tribunal in the case of Acquity Solutions Acquity Solutions India Pvt. Ltd. v. DCIT in for India Pvt. Ltd. v. DCIT in India Pvt. Ltd. v. DCIT in ITA No. 4817/Mum/2024 assessment year 2020 assessment year 2020-21. The assessee also relied on the decision 21. The assessee also relied on the decision of the Co-ordinate Bench of the Tribunal in the case of ACIT v. M/s ordinate Bench of the Tribunal in the case of ACIT v. M/s ordinate Bench of the Tribunal in the case of ACIT v. M/s Instas Pharmaceuticals Ltd. in for rmaceuticals Ltd. in ITA No. 281/Ahd/2021 for rmaceuticals Ltd. in ITA No. 281/Ahd/2021 for assessment year 2015 assessment year 2015-16. The ld Counsel also submitted that in The ld Counsel also submitted that in subsequent years, no addition has been made on this issue. subsequent years, no addition has been made on this issue. subsequent years, no addition has been made on this issue.

5.11 On the contrary, the Ld. Departmental Representative (DR) On the contrary, the Ld. Departmental Representative (DR) On the contrary, the Ld. Departmental Representative (DR) relied on the decisions relied on the decisions referred by the ld DRP and referred by the ld DRP and objected to the grounds raised by the assessee and filed a written submission. grounds raised by the assessee and filed a written submission. grounds raised by the assessee and filed a written submission.

6.1 The Ld. DR rebutted all the arguments of ld AR and also filed a rebutted all the arguments of ld AR and also filed a rebutted all the arguments of ld AR and also filed a written synopsis of his arguments, which is place on record. written synopsis of his arguments, which is place on record. written synopsis of his arguments, which is place on record.

7.1 The contention advanced on behalf of the assessee is that The contention advanced on behalf of the assessee is that The contention advanced on behalf of the assessee is that interest on overdue receivables does not constitute an international interest on overdue receivables does not constitute an international interest on overdue receivables does not constitute an international transaction per se, but is inextricably linked with the underlying transaction per se, but is inextricably linked with the underlying transaction per se, but is inextricably linked with the underlying sale transactions, whic sale transactions, which have already been benchmarked under the h have already been benchmarked under the Transactional Net Margin Method (“TNMM”), and hence do not Transactional Net Margin Method (“TNMM”), and hence do not Transactional Net Margin Method (“TNMM”), and hence do not warrant a separate analysis. According to the learned counsel, warrant a separate analysis. According to the learned counsel, warrant a separate analysis. According to the learned counsel, receivables beyond the stipulated credit period are merely incidental receivables beyond the stipulated credit period are merely incidental receivables beyond the stipulated credit period are merely incidental to the primary interna to the primary international transactions of sale of goods or tional transactions of sale of goods or rendering of services, and any notional interest thereon cannot be rendering of services, and any notional interest thereon cannot be rendering of services, and any notional interest thereon cannot be characterised as a distinct international transaction under section characterised as a distinct international transaction under section characterised as a distinct international transaction under section 92B of the Act. It was urged that clause (i)(c) of the Explanation to 92B of the Act. It was urged that clause (i)(c) of the Explanation to 92B of the Act. It was urged that clause (i)(c) of the Explanation to section 92B—introduced introduced introduced by by by the the the Finance Finance Finance Act, Act, Act, 2012, 2012, 2012, with with with retrospective effect from 1 April 2002 retrospective effect from 1 April 2002—uses the term “receivable” in uses the term “receivable” in conjunction with “capital financing”, and therefore, applying the conjunction with “capital financing”, and therefore, applying the conjunction with “capital financing”, and therefore, applying the rule of ejusdem generis ejusdem generis, only those receivables in the nature of only those receivables in the nature of capital financing or borrowings should be regarded as international cing or borrowings should be regarded as international cing or borrowings should be regarded as international transactions, not those arising from trading transactions. transactions, not those arising from trading transactions. transactions, not those arising from trading transactions.

7.2 Per contra, the learned Departmental Representative, placing Per contra, the learned Departmental Representative, placing Per contra, the learned Departmental Representative, placing reliance on the statutory provisions, submitted that the Explanation reliance on the statutory provisions, submitted that the Explanation reliance on the statutory provisions, submitted that the Explanation to section 92B explicitly brings within its ambit “capital financing, on 92B explicitly brings within its ambit “capital financing, on 92B explicitly brings within its ambit “capital financing, including … deferred payment or receivable or any other debt including … deferred payment or receivable or any other debt including … deferred payment or receivable or any other debt arising during the course of business”, thereby covering delayed arising during the course of business”, thereby covering delayed arising during the course of business”, thereby covering delayed trade receivables from AEs. It was argued that, post the clarificatory trade receivables from AEs. It was argued that, post the clarificato trade receivables from AEs. It was argued that, post the clarificato amendment of 2012, overdue receivables are statutorily recognised amendment of 2012, overdue receivables are statutorily recognised amendment of 2012, overdue receivables are statutorily recognised as a form of capital financing, necessitating benchmarking and as a form of capital financing, necessitating benchmarking and as a form of capital financing, necessitating benchmarking and arm’s length compensation in the form of interest. arm’s length compensation in the form of interest. The The Clause (i)(c) of this Explanation explicitly provides that the of this Explanation explicitly provides that the expression: expression:

[Explanation. For the removal of doubts, it is hereby clarified that [Explanation. For the removal of doubts, it is hereby clarified that [Explanation. For the removal of doubts, it is hereby clarified that- (i) the expression "international transaction" shall include (i) the expression "international transaction" shall include (i) the expression "international transaction" shall include- a. The purchase... a. The purchase... b. The purchase... b. The purchase... c. capital financing, including any type of long c. capital financing, including any type of long-term or short term or short-term borrowing, lending or guarantee, purchase or sale of marketable ing, lending or guarantee, purchase or sale of marketable ing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or securities or any type of advance, payments or deferred payment or securities or any type of advance, payments or deferred payment or receivable or or any any other other debt debt arising arising during during the the course of business business.”

7.3 On a plain reading of the Explanation to section 92B, we a On a plain reading of the Explanation to section 92B, we a On a plain reading of the Explanation to section 92B, we are of the considered opinion that delayed receivables, being in the nature the considered opinion that delayed receivables, being in the nature the considered opinion that delayed receivables, being in the nature of a debt arising during the course of business, fall squarely within of a debt arising during the course of business, fall squarely within of a debt arising during the course of business, fall squarely within the statutory definition of an international transaction. The the statutory definition of an international transaction. The the statutory definition of an international transaction. The legislature, by way of the 2012 amendment, has made it explicit legislature, by way of the 2012 amendment, has ma legislature, by way of the 2012 amendment, has ma that that that such such such transactions transactions transactions are are are liable liable liable to to to arm’s arm’s arm’s length length length price price price determination under section 92C. We are, therefore, unable to determination under section 92C. We are, therefore, unable to determination under section 92C. We are, therefore, unable to accept the assessee’s plea founded on accept the assessee’s plea founded on ejusdem generis ejusdem generis, as the word “receivable” is associated with “any other debt arising during the “receivable” is associated with “any other debt arising “receivable” is associated with “any other debt arising course of business”, and is not confined solely to borrowings or course of business”, and is not confined solely to borrowings or course of business”, and is not confined solely to borrowings or capital loans. The TPO and the DRP, in our view, have rightly capital loans. The TPO and the DRP, in our view, have rightly capital loans. The TPO and the DRP, in our view, have rightly characterised the extended credit period as an implicit financing characterised the extended credit period as an implicit financing characterised the extended credit period as an implicit financing transaction and benchmarked it accordingly. transaction and benchmarked it accordingly.

7.4 It was next contended that any notional interest on receivables was next contended that any notional interest on receivables was next contended that any notional interest on receivables is already subsumed in the working capital adjustment made under is already subsumed in the working capital adjustment made under is already subsumed in the working capital adjustment made under TNMM, since delayed collection imposes a financing cost on the TNMM, since delayed collection imposes a financing cost on the TNMM, since delayed collection imposes a financing cost on the creditor, which is compensated through higher margins. The DR, creditor, which is compensated through higher margins. The DR, creditor, which is compensated through higher margins. The DR, however, countered that beyond the arm’s length credit period, ver, countered that beyond the arm’s length credit period, ver, countered that beyond the arm’s length credit period, such cost is ordinarily recovered through explicit interest charges, such cost is ordinarily recovered through explicit interest charges, such cost is ordinarily recovered through explicit interest charges, and failure to benchmark delayed receivables separately would and failure to benchmark delayed receivables separately would and failure to benchmark delayed receivables separately would distort the arm’s length price. distort the arm’s length price.

7.5 Having considered the rival su Having considered the rival submissions, we are of the view bmissions, we are of the view that while a properly computed working capital adjustment under that while a properly computed working capital adjustment under that while a properly computed working capital adjustment under TNMM as held in the case of Kusum health care p Ltd (supra) and as held in the case of Kusum health care p Ltd (supra) and as held in the case of Kusum health care p Ltd (supra) and Acquity Solutions India P Ltd (supra) Acquity Solutions India P Ltd (supra) may, in certain cases, obviate may, in certain cases, obviate the need for a separate inter the need for a separate interest adjustment, such subsumption can est adjustment, such subsumption can only be recognised if: (i) the assessee has furnished a reliable only be recognised if: (i) the assessee has furnished a reliable only be recognised if: (i) the assessee has furnished a reliable computation of monthly trade receivables and payables for itself computation of monthly trade receivables and payables for itself computation of monthly trade receivables and payables for itself and the comparables; (ii) the receivables in question do not exceed and the comparables; (ii) the receivables in question do not exceed and the comparables; (ii) the receivables in question do not exceed the industry standard the industry standard arm’s length period; and (iii) the adjustment arm’s length period; and (iii) the adjustment demonstrably captures the impact of such delays. In the present demonstrably captures the impact of such delays. In the present demonstrably captures the impact of such delays. In the present case, the assessee has neither provided invoice-level data for case, the assessee has neither provided invoice case, the assessee has neither provided invoice comparables nor demonstrated that its working capital adjustment comparables nor demonstrated that its working capital adjustment comparables nor demonstrated that its working capital adjustment factors in abnormal delays beyond the industry norm. al delays beyond the industry norm. al delays beyond the industry norm.

7.6 We find merit in the DRP’s observation that balance sheet We find merit in the DRP’s observation that balance sheet We find merit in the DRP’s observation that balance sheet figures, being year figures, being year-end snapshots, do not reflect intra end snapshots, do not reflect intra-year variations or identify delays beyond the normal credit period. variations or identify delays beyond the normal credit period. variations or identify delays beyond the normal credit period. Moreover, receivables pending for Moreover, receivables pending for less than and more than one year less than and more than one year are are are indiscriminately indiscriminately indiscriminately aggregated aggregated aggregated in in in such such such data. data. data. In In In these these these circumstances, working capital adjustment and interest adjustment circumstances, working capital adjustment and interest adjustment circumstances, working capital adjustment and interest adjustment serve distinct purposes; where a specific financing element in the serve distinct purposes; where a specific financing element in the serve distinct purposes; where a specific financing element in the form of extended credit is identifi form of extended credit is identified, a separate benchmarking of ed, a separate benchmarking of interest is warranted. interest is warranted.

7.7 The Ld. DRP has correctly observed that the assessee failed to The Ld. DRP has correctly observed that the assessee failed to The Ld. DRP has correctly observed that the assessee failed to furnish proper working capital adjustment to the margins of the furnish proper working capital adjustment to the margins of the furnish proper working capital adjustment to the margins of the assessee and the comparable, comparable, which could obviate the need for which could obviate the need for interest adjustment. The assessee interest adjustment. The assessee alleged the TPO for not granting the TPO for not granting working capital adjustment to the comparable margin but the working capital adjustment to the comparable margin but the working capital adjustment to the comparable margin but the assessee never quantified the working capital adjustment in its assessee never quantified the working capital adjustment in its assessee never quantified the working capital adjustment in its documentation. Any abnormal delay ny abnormal delay in realising the debtor above in realising the debtor above the industry standard period i the industry standard period is not captured by the balance sheet. s not captured by the balance sheet. As in the balance sheet receivables pending for more than one year As in the balance sheet receivables pending for more than one year As in the balance sheet receivables pending for more than one year and the less than 1 year both are being treated at par and therefore, and the less than 1 year both are being treated at par and therefore, and the less than 1 year both are being treated at par and therefore, working working capital capital adjustment adjustment don’t take take into into account account the t international international international transaction transaction transaction of of of interest interest interest at at at delayed delayed delayed receivables receivables receivables particularly beyond the industrial standard period. The decisions particularly beyond the industrial standard period. The decisions particularly beyond the industrial standard period. The decisions relied upon by the assessee covers the delay within the normal relied upon by the assessee covers the delay within the normal relied upon by the assessee covers the delay within the normal industrial standard period and therefore, same are distinguishable industrial standard period and therefore, same are distinguisha industrial standard period and therefore, same are distinguisha on facts in the instant case, the Assessing Officer has considered on facts in the instant case, the Assessing Officer has considered on facts in the instant case, the Assessing Officer has considered the each transaction of receivable and computed the interest on the the each transaction of receivable and computed the interest on the the each transaction of receivable and computed the interest on the periods for which delay was exceeding 60 days. Thus contentions of periods for which delay was exceeding 60 days. Thus contentions of periods for which delay was exceeding 60 days. Thus contentions of the assessee are accordingly rejected. the assessee are accordingly rejected.

7.8 The assessee failed to substantiate that the working capital assessee failed to substantiate that the working capital assessee failed to substantiate that the working capital adjusted margins subsume any interest on outstanding receivables. adjusted margins subsume any interest on outstanding receivables. adjusted margins subsume any interest on outstanding receivables. When the assessee itself has not computed such comparison of the hen the assessee itself has not computed such comparison of the hen the assessee itself has not computed such comparison of the working capital adjust working capital adjusted margin of the tested party with the ed margin of the tested party with the comparables, it cannot find fault with the Ld. TPO for not taking t cannot find fault with the Ld. TPO for not taking t cannot find fault with the Ld. TPO for not taking into consideration working capital adjusted margin while arm’s into consideration working capital adjusted margin while arm’s into consideration working capital adjusted margin while arm’s length valuation of the purchase or sales transaction to avoid the length valuation of the purchase or sales transaction to avoid the length valuation of the purchase or sales transaction to avoid the chargeability of the interest on overdue receivable as a separate chargeability of the interest on overdue receivable as a separate chargeability of the interest on overdue receivable as a separate international transaction. nternational transaction.

7.9 We also note that the TPO’s methodology was precise, adopting We also note that the TPO’s methodology was precise, adopting We also note that the TPO’s methodology was precise, adopting an invoice-by-invoice approach and charging interest only on the invoice approach and charging interest only on the invoice approach and charging interest only on the portion of receivables outstanding beyond 60 days, thereby portion of receivables outstanding beyond 60 days, thereby portion of receivables outstanding beyond 60 days, thereby excluding the agreed credit term alread excluding the agreed credit term already embedded in the pricing. y embedded in the pricing. Interest was computed prospectively from Day 61 until actual Interest was computed prospectively from Day 61 until actual Interest was computed prospectively from Day 61 until actual realisation, at the rate of six realisation, at the rate of six-month LIBOR plus 400 basis points, a month LIBOR plus 400 basis points, a rate drawn from the Safe Harbour Rules under Rule 10TD, read rate drawn from the Safe Harbour Rules under Rule 10TD, read rate drawn from the Safe Harbour Rules under Rule 10TD, read with Rule 10AB of the Income with Rule 10AB of the Income-tax Rules, 1962, as indicative of an , 1962, as indicative of an arm’s length outcome. This granular approach accords with the arm’s length outcome. This granular approach accords with the arm’s length outcome. This granular approach accords with the transfer pricing framework and avoids distortion by averaging transfer pricing framework and avoids distortion by averaging transfer pricing framework and avoids distortion by averaging periods of compliance with those of delay. periods of compliance with those of delay.

7.10 It was the assessee assessee who sought to average receivable day who sought to average receivable days (including those paid within time) to dilute the impact, whereas the (including those paid within time) to dilute the impact, whereas the (including those paid within time) to dilute the impact, whereas the TPO rightly focused on each specific instance of delay. By affirming TPO rightly focused on each specific instance of delay. By affirming TPO rightly focused on each specific instance of delay. By affirming the transaction-wise wise wise analysis analysis analysis and and and corresponding corresponding corresponding interest interest interest computation, computation, computation, the the the DRP DRP DRP has has has upheld upheld upheld a a a fair fair fair and and and defensible defensible defensible benchmarking method. marking method.

7.11 The plea that the assessee is a debt The plea that the assessee is a debt-free entity and therefore free entity and therefore incurs no actual cost of funds is devoid of merit. Transfer pricing incurs no actual cost of funds is devoid of merit. Transfer pricing incurs no actual cost of funds is devoid of merit. Transfer pricing provisions are not contingent upon actual expenditure; they are provisions are not contingent upon actual expenditure; they are provisions are not contingent upon actual expenditure; they are aimed at determining the price which wou aimed at determining the price which would have been charged ld have been charged between independent enterprises under comparable conditions. between independent enterprises under comparable conditions. between independent enterprises under comparable conditions. Even a debt-free independent party would, in the ordinary course, free independent party would, in the ordinary course, free independent party would, in the ordinary course, charge interest for extended credit. The absence of third-party charge interest for extended credit. The absence of third charge interest for extended credit. The absence of third borrowings is therefore irrelevant. borrowings is therefore irrelevant.

7.12 Regarding the argument concerning the period of AE and non Regarding the argument concerning the period of AE and non Regarding the argument concerning the period of AE and non- AE receivables, we find that the assessee failed to discharge the AE receivables, we find that the assessee failed to discharge the AE receivables, we find that the assessee failed to discharge the onus of establishing a valid internal comparable. The assessee onus of establishing a valid internal comparable. The assessee onus of establishing a valid internal comparable. The assessee contended that its receivable cycle with AEs was not longer than contended that its receivable cycle with AEs was not longer than contended that its receivable cycle with AEs was not longer than that with non-AE customers. It was contended that on average the AE customers. It was contended that on average the AE customers. It was contended that on average the AE receivables were realised within 60 days , whereas the non-AE AE receivables were realised within 60 days , whereas the non AE receivables were realised within 60 days , whereas the non receivables were outstanding for a longer period, thus, according to receivables were outstanding for a longer period, thus, according to receivables were outstanding for a longer period, thus, according to the assessee, it did not confer any special benefit on AEs in terms of the assessee, it did not confer any special benefit on AEs the assessee, it did not confer any special benefit on AEs credit period. The assessee contended that in view of this internal credit period. The assessee contended that in view of this internal credit period. The assessee contended that in view of this internal comparison no notional interest should be imputed on the AE comparison no notional interest should be imputed on the AE comparison no notional interest should be imputed on the AE receivables. The arguments of the assessee are not acceptable for receivables. The arguments of the assessee are not acceptable for receivables. The arguments of the assessee are not acceptable for two fold reasons. The reliance on AE versus non he reliance on AE versus non he reliance on AE versus non-AE receivable cycles is unsubstantiated. The assessee has provided only overall cycles is unsubstantiated. The assessee has provided only overall cycles is unsubstantiated. The assessee has provided only overall averages without invoice averages without invoice-level data, contractual terms, or recovery level data, contractual terms, or recovery timelines for non-AE customers. AE customers. Without such details , one cannot Without such details , one cannot assume that third-party delays were exactly party delays were exactly analogous to AE analogous to AE delays. Moreover the fact that internal CUP was not applied in the oreover the fact that internal CUP was not applied in the oreover the fact that internal CUP was not applied in the benchmarking of international international transaction (Sales/Service) indicates transaction (Sales/Service) indicates the inapplicability of internal the inapplicability of internal CUP for benchmarking credit terms as for benchmarking credit terms as well. In absence of demonstrated arm well. In absence of demonstrated arm’s length credit policy with gth credit policy with non-AEs, the claim of AEs were not granted favourable he claim of AEs were not granted favourable he claim of AEs were not granted favourable terms, remains un-substantiated. substantiated.

7.13 Further, the learned TPO adopted the “other method” as per Further, the learned TPO adopted the “other method” as per Further, the learned TPO adopted the “other method” as per rule 10AB of the Income rule 10AB of the Income-tax ( in short the Act) rules, 1962, to tax ( in short the Act) rules, 1962, to determine the answer and interest on delayed receivables. The he answer and interest on delayed receivables. The he answer and interest on delayed receivables. The learned TPO took guidance from the Safe Harbour Rules and noted learned TPO took guidance from the Safe Harbour Rules and noted learned TPO took guidance from the Safe Harbour Rules and noted that the safe harbour interest rate applicable for outbound that the safe harbour interest rate applicable for outbound that the safe harbour interest rate applicable for outbound loans/advances to wholly loans/advances to wholly-owned subsidiaries ( Rule 10 TD) under owned subsidiaries ( Rule 10 TD) under clause 5 (v) of the relevant notification , which was six he relevant notification , which was six he relevant notification , which was six-months LIBOR +400 basis points for the year in question. The learned TPO LIBOR +400 basis points for the year in question. The learned TPO LIBOR +400 basis points for the year in question. The learned TPO used this rate as an indicative of arm’s used this rate as an indicative of arm’s-length rate for notional loan length rate for notional loan represented by the overdue receivables. The learned DR submitted represented by the overdue receivables. The learned DR submitted represented by the overdue receivables. The learned DR submitted that that the TPO’s action he TPO’s action of applying the other method under Rule applying the other method under Rule 10AB read with “safe ha safe harbour rates” is found to be in is found to be in consonance with jurisdictional precedents. jurisdictional precedents. Before the assessee has not brought Before the assessee has not brought on record any comparison under CUP or any other method on record any comparison under CUP or any other method on record any comparison under CUP or any other method prescribed under the rules. In some circumstances, we feel the bed under the rules. In some circumstances, we feel the bed under the rules. In some circumstances, we feel the ‘other method’ of taking safe harbour rate for comparison, is ‘other method’ of taking safe harbour rate for comparison, is ‘other method’ of taking safe harbour rate for comparison, is justified.

7.14 Further, as regards the contention of the learned counsel that Further, as regards the contention of the learned counsel that Further, as regards the contention of the learned counsel that no addition on this account has been made in subsequent years, we no addition on this account has been made in subsequent years, we no addition on this account has been made in subsequent years, we find that the learned counsel has not furnished any material to find that the learned counsel has not furnished any material to find that the learned counsel has not furnished any material to demonstrate whether, in those years, the returns were subjected to demonstrate whether, in those years, the returns were subjected demonstrate whether, in those years, the returns were subjected scrutiny assessment. On the contrary, the order of the learned TPO scrutiny assessment. On the contrary, the order of the learned TPO scrutiny assessment. On the contrary, the order of the learned TPO for Assessment Year 2022 for Assessment Year 2022-23, as placed in the paper book at pages 23, as placed in the paper book at pages 982 to 1054, clearly reflects that a transfer pricing adjustment was 982 to 1054, clearly reflects that a transfer pricing adjustment was 982 to 1054, clearly reflects that a transfer pricing adjustment was made on account of interest on overdue receivables made on account of interest on overdue receivables. In view of these . In view of these facts, the argument advanced by the learned counsel for deletion of facts, the argument advanced by the learned counsel for deletion of facts, the argument advanced by the learned counsel for deletion of the addition on this issue stands rejected. the addition on this issue stands rejected.

7.15 In view of above discussion, we find no infirmity in the action In view of above discussion, we find no infirmity in the action In view of above discussion, we find no infirmity in the action of the Ld. TPO/DRP in benchmarking the interest on delay of the Ld. TPO/DRP in benchmarking the interest on delay of the Ld. TPO/DRP in benchmarking the interest on delay receivable as a separate international transaction and applying rate receivable as a separate international transaction and applying rate receivable as a separate international transaction and applying rate of LIBOR + 400 bps on the delay beyond the 00 bps on the delay beyond the period of 60 days. The period of 60 days. The ground Nos. 3 to 6 raised by the assessee ground Nos. 3 to 6 raised by the assessee are are accordingly dismissed.

The ground No. 7 & 8 Corporate Guarantee The ground No. 7 & 8 Corporate Guarantee

Bank name Bank name Rate KotakMahindraBank KotakMahindraBank 0.45% StandardCharteredBank StandardCharteredBank 0.75% CitiBank 0.90% HDFCBank HDFCBank 1.80%

IDBI 2.00%

UnionBankoflndia UnionBankoflndia 3.00% ICICI 3.00% Count 8 35th percentile 35th percentile 0.90 % Median 1.90% 65th Percentile 65th Percentile 2.40 % 8.1 Further, the Ld. TPO relying on the decision Co Further, the Ld. TPO relying on the decision Co Further, the Ld. TPO relying on the decision Co-ordinate Bench of the Tribunal Tribunal Tribunal in in in the the the case case case of of of M/s M/s M/s Glenmark Glenmark Glenmark Pharmaceuticals Ltd. (ITA No. 5031/Mum/2012 and Ltd. (ITA No. 5031/Mum/2012 and Ltd. (ITA No. 5031/Mum/2012 and ITA No. 5488/Mum/2012), wherein it is held that bank guarantee are wherein it is held that bank guarantee are wherein it is held that bank guarantee are different from the corporate guarantee, naked quote cannot be different from the corporate guarantee, naked quote cannot be different from the corporate guarantee, naked quote cannot be accepted and downward adjustment should be accepted and downward adjustment should be made to comparable made to comparable corporate guarantee corporate guarantee rate. Considering the decision of the Co . Considering the decision of the Co- ordinate Bench in the case of Glenmark Pharmaceuticals Ltd. ordinate Bench in the case of Glenmark Pharmaceuticals Ltd. ordinate Bench in the case of Glenmark Pharmaceuticals Ltd.

(supra), the Ld. TPO made (supra), the Ld. TPO made a downward adjustment of 50 bps and downward adjustment of 50 bps and determined the arm’s length rate of the corporate guarantee in the determined the arm’s length rate of the corporate gua determined the arm’s length rate of the corporate gua case of assessee at 1.4%. Before us, the Ld. Counsel for the case of assessee at 1.4%. Before us, the Ld. Counsel for the case of assessee at 1.4%. Before us, the Ld. Counsel for the assessee submitted that such guarantees assessee submitted that such guarantees adjustment is beyond adjustment is beyond the ambit of the transfer pricing adjustment. But said contentions of ambit of the transfer pricing adjustment. But said contentions of ambit of the transfer pricing adjustment. But said contentions of the assessee are not acceptable not acceptable. The provision of . The provision of the corporate guarantee to associated enterprises is associated enterprises is explicitly recognized as an recognized as an international transaction under the international transaction under the Act. The Explanation (i)(c) he Explanation (i)(c) to section 92B inserted by the Finance Act, 2012 with retrospective section 92B inserted by the Finance Act, 2012 with retrospective section 92B inserted by the Finance Act, 2012 with retrospective effect from 01.04.2002, clarifies that “ca effect from 01.04.2002, clarifies that “capital financing, including pital financing, including any type of guarantee” falls within the scope of international any type of guarantee” falls within the scope of international any type of guarantee” falls within the scope of international transaction. In the light of this amendment any corporate guarantee transaction. In the light of this amendment any corporate guarantee transaction. In the light of this amendment any corporate guarantee extended by an Indian entity on behalf of its foreign AE squarely extended by an Indian entity on behalf of its foreign AE squarely extended by an Indian entity on behalf of its foreign AE squarely falls within the ambit of intern falls within the ambit of international transaction. ational transaction. We note that Hon’ble Allahabad High Court in the case of Jubilant Pharmova Ltd. Hon’ble Allahabad High Court in the case of Jubilant Pharmova Ltd. Hon’ble Allahabad High Court in the case of Jubilant Pharmova Ltd. v. Add. CIT (supra) affirmed that by virtue of 2012 amendment, a affirmed that by virtue of 2012 amendment, a affirmed that by virtue of 2012 amendment, a parental corporate guarantee has to be regarded as an international parental corporate guarantee has to be regarded as an international parental corporate guarantee has to be regarded as an international transaction under sect transaction under section 92B of the act.

8.2 The contention of the assessee that such guarantee is a share The contention of the assessee that such guarantee is a share The contention of the assessee that such guarantee is a share holder activity not warranting comparability y not warranting comparability is also not acceptable is also not acceptable for the reason that corporate guarantee is not a casual incident of for the reason that corporate guarantee is not a casual incident of for the reason that corporate guarantee is not a casual incident of the parenthood, but a conscious , but a conscious assumption of risk assumption of risk and provision of valuable financial service of valuable financial services to its AE. By way of securing the AE’s to its AE. By way of securing the AE’s borrowing, the guarantor enables the AE to obtain funds which it the guarantor enables the AE to obtain funds which it the guarantor enables the AE to obtain funds which it might not have been been possible to obtain otherwise on its own credit possible to obtain otherwise on its own credit or to obtain them at or to obtain them at a significantly lower interest rate. This a significantly lower interest rate. This enhancement of the AE’s creditworthiness is a clear intra-group enhancement of the AE’s creditworthiness is a clear intra enhancement of the AE’s creditworthiness is a clear intra service conferred on the A ce conferred on the AE, creating a benefit which independent E, creating a benefit which independent parties would ordinarily price. parties would ordinarily price.

8.3 The Ld. TPO has adopted a reasoned approach by The Ld. TPO has adopted a reasoned approach by The Ld. TPO has adopted a reasoned approach by adjusting bank guarantee rate bank guarantee rate to downward looking to risk profile by pa risk profile by parental guarantee at an ALP of 1.40% tee at an ALP of 1.40% rate consistent ent with judicial precedents. The Rule 10D of the Safe Habour Rule prescribed Rule 10D of the Safe Habour Rule prescribed Rule 10D of the Safe Habour Rule prescribed rate of 1% as such guarantee thereby validating the 1.4% rates as within of 1% as such guarantee thereby validating the 1.4% of 1% as such guarantee thereby validating the 1.4% reasonable bound. Hon’ble Bombay High in the case of CIT v. reasonable bound. Hon’ble Bombay High in the case of CIT v. reasonable bound. Hon’ble Bombay High in the case of CIT v. Everest Kento Cylinders Ltd. Everest Kento Cylinders Ltd.(supra) cautioned that bank guarantee cautioned that bank guarantee fees cannot be blindly equated to corporate guarantees without fees cannot be blindly equated to corporate guarantees without fees cannot be blindly equated to corporate guarantees without adjustments. Further, the rate which was upheld by the Hon’ble adjustments. Further, the rate which was upheld by adjustments. Further, the rate which was upheld by Bombay High Court in the case of Everest Kento Cylinders Ltd. Bombay High Court in the case of Everest Kento Cylinders Ltd. Bombay High Court in the case of Everest Kento Cylinders Ltd. (supra) was decided long (supra) was decided long back and there has been substantial has been substantial change in the financial market from year to year, therefore, change in the financial market from year to year change in the financial market from year to year guarantee rates of earlier years cannot be invoked in the year under guarantee rates of earlier years cannot be invoked in the ye guarantee rates of earlier years cannot be invoked in the ye consideration unless it is established that financial market consideration unless it is established that financial market consideration unless it is established that financial market conditions is identical to year for which reference is made. conditions is identical to year for which reference is made. conditions is identical to year for which reference is made.

8.4 In the present case, it is evident that that AE derived a In the present case, it is evident that that AE derived a In the present case, it is evident that that AE derived a tangible benefit by way of enhanced creditworthiness and access tangible benefit by way of enhanced creditworthiness and tangible benefit by way of enhanced creditworthiness and funds at favourable terms solel funds at favourable terms solely due to the parent’s guarantee, y due to the parent’s guarantee, thus, such benefit cannot be left un uch benefit cannot be left un-compensated compensated under arm’s length principle. The adjustment made by the length principle. The adjustment made by the ld. TPO thus found to TPO thus found to be factually and legally correct. Accordingly be factually and legally correct. Accordingly, we do not interf we do not interfere in the finding of the lower authorities. The ground No. 7 and 8 raised the finding of the lower authorities. The ground No. 7 and 8 raised the finding of the lower authorities. The ground No. 7 and 8 raised by the assessee are accordingly dismissed. by the assessee are accordingly dismissed.