Transfer pricing adjustment on outstanding receivables fails without case-specific analysis of working capital and interest impact.

Outstanding receivables from associated enterprises were not treated as an automatic international transaction for transfer pricing purposes; a separate adjustment required case-specific analysis of receivable patterns, working capital impact, and whether any real benefit accrued to the associated enterprise. The record did not show a proper statistical comparison or factual enquiry to support the adjustment, and the receivable period was not shown to be adverse to the assessee on the figures considered by the transfer pricing authority. As the assessee was debt free, no separate interest cost was established to justify an addition. The upward transfer pricing adjustment on receivables was therefore deleted as unsustainable.

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Issues: Whether the transfer pricing adjustment made on account of outstanding receivables from associated enterprises was sustainable, including whether the working capital adjustment already absorbed the impact of delayed receivables and whether the assessee's debt-free status negated a separate interest adjustment.

Analysis: The Explanation to section 92B does not automatically characterise every receivable as an international transaction without context. A separate adjustment requires enquiry into the pattern of receivables, the impact on working capital, and whether the delay actually confers a benefit on the associated enterprise. On the facts, the adjustment was not supported by any proper statistical analysis or case-specific enquiry. The record also showed that the receivable period was not adverse to the assessee when compared with the figures noticed by the transfer pricing authority. Further, as the assessee was debt free, the delayed receivables did not cause the kind of interest cost that would justify a separate addition.

Conclusion: The addition on account of interest on outstanding receivables was deleted and the corresponding upward transfer pricing adjustment was held unsustainable in favour of the assessee.

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