TaxTMI 
TaxTMI 
2025 (10) TMI 1461
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....e Appeal 3. Brief facts of the case are that, assessee-SNF (India) Private Limited is a 100% subsidiary of SPCM SA, France has set-up its manufacturing unit in Patancheruvu, Hyderabad and is engaged in the business of manufacture and sale of water-solublepolymers. The assessee's product range is used in a variety of process industries such as oil drilling, paper manufacturing, sugar, textiles, ceramics, cosmetics and agriculture etc. Assessee filed its return of income for the A.Y. 2016-17 on 30.11.2016 admitting a total income of Rs. 1,15,84,090/- and it was subsequently, revised to Rs.(-) 26,82,854/- vide revised return dated 29.03.2018. Subsequently, the case was selected for complete scrutiny under CASS and notice under section 143(2) of Income Tax Act, 1961 (in short 'Act') was issued on 23.08.2018. Thereafter, notice under section 142(1) of the Act was issued on 08.11.2019. It was observed from the Form-3CEB report that the assessee has entered into international transaction with its Associated Enterprise (in short "AE") aggregating to Rs.187.55 Crores. Thereafter, reference was made to Addl. CIT (Transfer pricing), Hyderabad on 15.11.2018 after obtaining appro....
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....27,452 Other Method NA NA NA Royalty for use of Technical know how 6,10,99,097 TNMM OP/OR 3.92% 3.57% to 6.85% Interest on ECB loan 2,98,54,365 Other Method NA NA NA Corporate guarantee availed 0 Other Method NA NA NA Reimbursement of expenses-received 1,34,65,260 Other Method NA NA NA 5. Assessee has used prowess data-base in their search for comparable companies. After applying certain filters, the assessee has short listed nine comparables for bench-marking the international transactions. Assessee has adopted Transactional Net Margin Method (in short "TNMM") as the most appropriate method (MAM). Accordingly, the margin (OP/OR) of the comparable was arrived in the range from 3.57% to 6.85%, whereas the PLI of the assessee stood at 3.92%. As per audited financial statements, financial results of the assessee are as follows: - Description Amount in Rs. Operating Revenue (OR) 3102901320 Operating Cost (OC) 2920048517 Operating Profit (OP) - - OR-OC 182852803 OP/OR (%) 5.89 OP/OC (%) 6.26 6. After examining the submissions made by the assessee during the TP pr....
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....es not charge interest with respect to Non-AE's and accordingly adopted the same policy with respect to the AE. Further, he submitted that outstanding payable to the AE's are more than the outstanding receivable from the AE's. On this issue he referred to Annexure - 2 submitted before the Tribunal wherein the outstanding receivable to SPMC SA stood at 29,17,260/- as against the outstanding payable to the same AE - SPMC SA, stood at 35,37,08,086/-. It was also submitted that the Co-ordinate Bench of the Hyderabad in the case of ADP Private Limited v. DCIT in ITA No. 975/HYD/2024 dated 22.08.2025 has accepted the concept of netting off of overdue receivable against overdue payable from the single AE for the very same AE. Ld.AR submitted that as demonstrated outstanding payables are more than the outstanding receivable from the same AE. He therefore submitted that it is not justifiable to compute the interest by applying LIBOR + 200 basis point son overdue receivable without considering the overdue payables. Therefore, he prayed for the deletion of the addition made in this issue of notional interest on outstanding receivable. 11. Per contra, Ld. Departmental Representa....
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....tted that the Tenure for loan is a long-term period of five years. He further submitted that assessee falls under the automatic approval route prescribed by the ECB guidelines which has been permitted by the Reserve Bank of India (in short "RBI"). He further submitted that the terms and conditions of the loan are within the regular frame work laid down by the RBI. The amount paid in respect of loan is consistent with Arm's length Price. He therefore pleaded that addition made on account of interest on ECB loan is not justifiable and hence prayed for its deletion. 16. Per contra, Ld. DR heavily relied on the orders of the Ld. CIT(A) on this issue and prayed for upholding the same. 17. We have considered the rival submissions and perused the material available on record as well as the decisions cited by the rival parties. It is an admitted proposition that various judicial pronouncements have held that in respect of foreign currency loan in the international market, the LIBOR basis interest has to be adopted. The loans are categorised as long-term and short- term, whereas the banks are adopting 200 basis on the short loans and higher rate of 500 basis points on the long-ter....
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..... 2008-09, wherein the jurisdictional bench of the Tribunal held in favour of the assessee. He also submitted that without the technical-know-how and technical support from its AE in France, the assessee could not have achieved the increased turnover year after year. He further submitted that various judicial pronouncement has justified adoption of TNMM as most appropriate method for determination of arm's length price for the royalty payments. He therefore pleaded that the decision of the jurisdictional Tribunal in assessee's own case be considered on this issue. 21. We have heard rival contentions and perused the material available on record. The TPO has adopted the CUP method as most appropriate method for the payments of royalty by the assessee while determining the ALP thereby rejecting the TNMM adopted by the assessee. The TPO was of the view that the TP study made by the assessee with regard to the payment of royalty was not acceptable, since, the assessee has aggregated the payment of royalty with other transactions. The TPO also viewed that TNMM is the most appropriate method for determining the ALP for trading transactions and not with respect to royalty paymen....