Transfer pricing on outstanding receivables: separate interest adjustment deleted where working capital adjustment already captured the impact.

Transfer pricing adjustment on alleged interest imputation for outstanding receivables from associated enterprises was held unsustainable where the assessee was debt-free, the receivables were within the contractual credit period context, and the working capital adjustment had already captured the receivables impact. The tribunal noted that the Revenue could not substitute its own view of the business arrangement without showing that the delay in realisation gave a separate benefit to the associated enterprises. The separate interest adjustment was therefore deleted.

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Issues: Whether the transfer pricing adjustment made on account of interest imputation on outstanding receivables from associated enterprises was sustainable.

Analysis: The receivables issue was examined in the context of the contractual credit period, the assessee's debt-free position, and the effect of working capital adjustment already reflected in the transfer pricing analysis. The adjustment was found to be unsustainable because the Revenue cannot substitute its view for the assessee's business arrangement, and the impugned addition was made without adequate basis to show that the delayed receivables constituted a separate benefit to the associated enterprises. The decision followed the approach that, where the assessee is debt-free and the receivables impact is already factored into the working capital computation, a further separate interest adjustment is not warranted.

Conclusion: The transfer pricing adjustment on outstanding receivables was deleted and the issue was decided in favour of the assessee.

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