The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the decision of the Transfer Pricing Officer (TPO) to reject RRB Energy Ltd. as a comparable company in the transfer pricing assessment citing negative margins, functional differences, and location-specific operations.
Leitwind Shriram Manufacturing Ltd., assessee, a joint venture between Windfin BV (51%) and Shriram EPC (49%), is engaged in the manufacturing of MW-class wind turbine generators (WTC). The company had undertaken transactions with Associated Enterprises (AE) and third-party entities in India.
During the assessment year 2012-13, the TPO found that the revenue generated from AE transactions was high while the profit margins were comparatively low. Consequently, the TPO made a downward adjustment of Rs. 2,01,49,026 based on the average profit margins of selected comparable companies, arriving at 4.33%.
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The TPO rejected RRB Energy Ltd. as comparable because the company reported negative margins due to relocation expenses and a major portion of its income was derived from service-related activities rather than manufacturing. The Dispute Resolution Panel (DRP) upheld this exclusion, stating that RRB Energy Ltd. operated only in Tamil Nadu, whereas the assessee had a multi-state presence, making it functionally different.
The assessee objected to the adjustment by arguing that various commercial and extraordinary factors such as delays in electricity board approvals, an increase in the cost of permanent magnets, foreign exchange fluctuations, and custom duty adjustments had impacted its margins. The DRP dismissed these claims.
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On appeal before the ITAT, the two-member bench comprising S. S Viswanethra Ravi (Judicial Member) and Jagadish (Accountant Member) upheld the TPO’s approach and agreed with the DRP’s conclusions. The tribunal observed that the TPO and DRP had provided valid reasons for the exclusion of RRB Energy Ltd. and the rejection of the custom duty adjustment. The tribunal referenced the ruling in Mobis India Ltd. vs. Dy. CIT [2013] (Chennai-Trib.) and found no merit in the assessee’s claims. The appeal was dismissed.
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