Corporate guarantee and overdue AE receivables treated as international transactions; guarantee commission capped at 0.5%, interest at 6%.

The Tribunal held that a corporate guarantee furnished by the assessee for its AE constituted an "international transaction" under s.92B, as the statutory Explanation expressly includes guarantees; accordingly, the TP adjustment on this count was sustainable in principle. On ALP, it rejected comparison with bank charges paid by the assessee, holding a third party would not assume comparable risk; following co-ordinate bench precedent, it restricted the guarantee commission adjustment to 0.5% of the guaranteed amount. On interest on AE receivables, it directed computation of notional interest at 6% on receivables outstanding beyond 60 days, thereby sustaining adjustment on that basis. On s.35(2AB), it allowed weighted deduction for clinical trial expenditure outside approved facilities, since Form 3CL approval covered such spend.

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Issues Involved:

1. Corporate Guarantee Commission
2. Interest on Receivables from Associated Enterprises
3. Disallowance of Weighted Deduction under Section 35(2AB) of the Income Tax Act

Summary:

1. Corporate Guarantee Commission:

The assessee contested the addition of Rs. 10,93,47,091/- for alleged shortfall in corporate guarantee fees, arguing that the corporate guarantee was a shareholder service and should not be treated as an international transaction. The DRP, however, considered it an international transaction and benchmarked the guarantee commission at 1%. The Tribunal partially allowed the assessee's appeal, restricting the addition to 0.5% on the amount guaranteed, following precedents from various Tribunals.

2. Interest on Receivables from Associated Enterprises:

The assessee argued against the addition of Rs. 3,34,24,193/- for notional interest on delayed receivables, stating that trade receivables are part of normal business and should not be treated as loans. The DRP and lower authorities treated the delayed receivables as a separate international transaction and benchmarked interest using SBI short-term deposit rates. The Tribunal, following its own decision in a similar case, directed the AO to compute notional interest at 6% on receivables beyond 60 days.

3. Disallowance of Weighted Deduction under Section 35(2AB):

The AO disallowed weighted deduction on clinical trials and other R&D expenditures not quantified in Form 3CL. The assessee argued that clinical trials are an integral part of R&D and eligible for deduction. The Tribunal, following its earlier decisions in the assessee's own case, allowed the weighted deduction for clinical trials and other R&D expenditures, as the necessary approvals were in place.

Conclusion:

The Tribunal's order resulted in partial relief for the assessee by adjusting the corporate guarantee commission to 0.5% and allowing the weighted deduction for R&D expenditures. However, it upheld the notional interest on delayed receivables at 6%.

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