Leitwind Shriram Manufacturing Ltd. Vs DCIT (ITAT Chennai)
The Income Tax Appellate Tribunal (ITAT) Chennai has upheld the Transfer Pricing Officer’s (TPO) decision to exclude RRB Energy Ltd. as a comparable company in the transfer pricing case involving Leitwind Shriram Manufacturing Ltd. The tribunal found that RRB Energy had negative margins and functional differences, making it unsuitable for comparison under the transactional net margin method (TNMM).
The case pertained to the assessment year 2012-13, where the TPO made a downward adjustment of ₹2.01 crore to the associated enterprise (AE) purchases of Leitwind Shriram Manufacturing Ltd., a joint venture engaged in manufacturing MW-class wind turbine generators. The company had contested the exclusion of RRB Energy Ltd. as a comparable, arguing that it was functionally similar. However, the Dispute Resolution Panel (DRP) upheld the TPO’s decision, noting that RRB Energy had operations only in Tamil Nadu and had relocated its manufacturing facility and corporate office, resulting in abnormally high expenses and negative margins.
The assessee also sought adjustments under Rule 10B of the Income Tax Rules, citing commercial factors such as delays in electricity board approvals, increased costs of raw materials, foreign exchange fluctuations, and customs duties. The DRP rejected these arguments, ruling that such challenges were industry-wide and had already been factored into the TPO’s margin calculations. The panel relied on ITAT Chennai’s decision in Mobis India Ltd. vs. DCIT (2013), which supported the exclusion of companies with significant financial instability from comparability analysis.
