Overdue AE trade receivables treated as separate transaction u/s92B; notional interest TP adjustment upheld, rate revised to LIBOR+Rule 10CB.

Whether prolonged overdue trade receivables from an AE constitute a separate international transaction warranting notional interest adjustment was decided against the assessee: given persistent non-realisation over years, the assessee's non-debt-free status and conduct benefiting the AE, and applying the Explanation to s. 92B, the delay beyond reasonable credit period was treated as an advance requiring separate benchmarking; TP adjustment on notional interest was upheld. The interest rate was partly modified: the TPO was directed to compute interest at LIBOR plus markup as per Rule 10CB, instead of LIBOR + 400. The claimed set-off of alleged excess remuneration against the TP adjustment was rejected as pertaining to a different, unrelated segment. The appeal was dismissed.

---

---

Issues: (i) Whether the impugned order passed under section 264/143(3)/144C(13) is bad in law or time-barred; (ii) Whether the transfer pricing adjustment of INR 7,00,24,912 for notional interest on overdue inter-company receivables is maintainable and at what rate interest is to be computed; (iii) Whether the claim for refund of excess Dividend Distribution Tax (INR 15,17,84,747) should be allowed.

Issue (i): Whether the impugned order dated 30.06.2024 passed under section 264/143(3)/144C(13) is barred by limitation or otherwise void.

Analysis: The objection was general and unsupported by specific adjudication in the record. The Tribunal found no merit in the contention that the order was time-barred or void ab initio and treated the ground as not requiring separate relief.

Conclusion: The limitation and void-ab-initio grounds are dismissed against the assessee.

Issue (ii): Whether the TPO/DRP were justified in making a transfer pricing adjustment of INR 7,00,24,912 towards notional interest on overdue receivables from associated enterprises and whether the rate LIBOR+400 bps is appropriate.

Analysis: The Tribunal examined facts showing large and prolonged receivables from the AE, finance costs borne by the assessee, and the AE's bankruptcy filing, and considered relevant authorities holding that delay in recovery beyond a reasonable credit period can amount to an international transaction requiring separate benchmarking. The Tribunal held the facts distinguishable from earlier favourable orders to the assessee and directed recomputation of interest by the TPO in accordance with Rule 10CB of the Income Tax Rules, adopting LIBOR plus an appropriate markup rather than upholding the fixed LIBOR+400 bps without application of Rule 10CB. The Tribunal also rejected set-off of excess remuneration against the TP adjustment on the ground that the amounts relate to different segments and are not inter-related.

Conclusion: The transfer pricing adjustment is sustained. Interest on overdue intercompany receivables is to be benchmarked as an international transaction and recomputed by the TPO @ LIBOR plus an appropriate markup in accordance with Rule 10CB. The claim for set-off of excess remuneration is rejected.

Issue (iii): Whether the assessee's claim for refund of excess DDT of INR 15,17,84,747 should be allowed.

Analysis: In light of the Tribunal (Special Bench) precedent cited and its applicability, the Tribunal found no merit in the assessee's refund claim and followed the Special Bench reasoning.

Conclusion: The claim for refund of excess DDT is dismissed.

Final Conclusion: The appeal is dismissed; the transfer pricing adjustment for notional interest on overdue receivables is upheld subject to recomputation of interest by the TPO in accordance with Rule 10CB applying LIBOR plus an appropriate markup, and other grounds including limitation and DDT refund are rejected.

Ratio Decidendi: Prolonged delay in recovery of intercompany receivables can constitute an international transaction susceptible to transfer pricing adjustment by imputing notional interest, which must be benchmarked and recomputed in accordance with Rule 10CB of the Income Tax Rules.

---