Notional interest on export receivables cannot be added where associated and non-associated debtors are treated uniformly.

Notional interest on delayed export receivables could not be added as a transfer pricing adjustment where the assessee treated associated enterprise and non-associated enterprise debtors uniformly and did not charge interest from either class. The appellate findings showed that the delay in realisation of export proceeds was the same across both categories, so no differential benefit or profit shifting outside India was established. On those facts, the proposed adjustment lacked a sustainable basis and was deleted in favour of the assessee.

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Issues: Whether the notional interest adjustment on delayed realisation of export proceeds from associated enterprises was justified.

Analysis: The adjustment was made on the footing that the assessee ought to have charged interest on the outstanding receivables from associated enterprises. The findings accepted by the appellate authorities showed that the assessee did not charge interest from both associated enterprise and non-associated enterprise debtors, and the delay in realisation of export proceeds was uniform in both categories. On those facts, no transfer of profit outside India by omission to charge interest could be inferred. The basis for adding notional interest was therefore not sustainable.

Conclusion: The disallowance of notional interest on delayed export receivables was rightly deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal failed because the transfer pricing adjustment on account of notional interest in respect of export receivables could not be sustained on the facts found.

Ratio Decidendi: Where the assessee treats associated and non-associated enterprise debtors uniformly and no differential benefit or profit shifting is shown, notional interest on delayed receivables cannot be added as a transfer pricing adjustment.

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