Notional interest on delayed receivables cannot be added where a debt-free assessee shows no financing cost or borrowed funds.

Notional interest on delayed trade receivables could not be imputed as a transfer pricing adjustment where the assessee was debt-free and no material showed any borrowing cost, financing arrangement, or passing on of interest-bearing funds to associated enterprises. Mere belated realisation of receivables was insufficient to treat the balance as a separate international transaction or to assume an implied financing benefit. The adjustment was deleted.

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Issues: Whether notional interest could be imputed on delayed realization of trade receivables from associated enterprises where the assessee was a debt-free company.

Analysis: The outstanding receivables were treated by the transfer pricing authority as a separate international transaction and interest was computed on the basis of an implied financing benefit. The assessee's case that it was debt-free and had not incurred any interest cost found support in binding precedent holding that, in the absence of borrowing cost or material showing a financing arrangement or passing on of interest-bearing funds to associated enterprises, no notional interest adjustment is warranted merely because receivables were realised belatedly. The Revenue did not bring any material to show actual interest cost, use of borrowed funds, or any demonstrable benefit conferred on the associated enterprise.

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

Ratio Decidendi: Where the assessee is a debt-free company and no material shows that delayed receivables involved any actual financing cost or borrowing-funded benefit to associated enterprises, notional interest cannot be added as a transfer pricing adjustment.

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