Transfer pricing comparables require reliable functional and segmental data; two wind-energy companies were excluded and one remanded for verification.

Persistent-loss exclusion requires verification of the relevant past-year results before a company is treated as an unsuitable comparable. TD Power Systems Ltd. was therefore remanded to the AO/TPO for fresh examination after the Tribunal noted past profits and the need for factual verification. Inox Wind Ltd. was excluded from the manufacturing comparables set because its integrated wind energy business, including manufacturing, EPC, operations and maintenance, and power sales, was materially different and its segmental data did not reliably isolate manufacturing income. Suzlon Energy Ltd. was also excluded because merger/demerger events and mixed revenue streams without usable segmental separation made functional comparison unreliable. The appeal was partly allowed in favour of the assessee.

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Issues: (i) whether TD Power Systems Ltd. was liable to be included in the set of comparables after testing the persistent loss filter; (ii) whether Inox Wind Ltd. was a functionally comparable company for the manufacturing segment; (iii) whether Suzlon Energy Ltd. was a functionally comparable company for the manufacturing segment.

Issue (i): whether TD Power Systems Ltd. was liable to be included in the set of comparables after testing the persistent loss filter.

Analysis: The company was excluded below on the basis of persistent losses. The record placed before the Tribunal showed profits in the preceding years and the assessee relied on segmental and annual report material to dispute the exclusion. The Tribunal accepted that the matter required factual verification in the light of the principle that a company cannot be rejected as persistently loss making without examining the relevant past-year results.

Conclusion: The issue was remanded to the Assessing Officer / Transfer Pricing Officer for verification and fresh consideration in accordance with law, in favour of the assessee.

Issue (ii): whether Inox Wind Ltd. was a functionally comparable company for the manufacturing segment.

Analysis: The company's business profile showed that it was an integrated wind energy solutions provider with manufacturing, EPC, operations and maintenance, and sale of power alongside sale of wind turbine generators. The revenue and segmental material did not permit reliable isolation of the relevant manufacturing income, and the business model was found to be materially different from that of the assessee.

Conclusion: Inox Wind Ltd. was directed to be excluded from the final list of comparables, in favour of the assessee.

Issue (iii): whether Suzlon Energy Ltd. was a functionally comparable company for the manufacturing segment.

Analysis: The company had undergone merger / demerger events effective from dates relevant to the year under consideration, and its revenue from operations clubbed wind turbine, solar and other systems without usable segmental details for wind turbine income. The absence of reliable segmental separation and the mixed business profile made comparability inappropriate.

Conclusion: Suzlon Energy Ltd. was directed to be excluded from the final list of comparables, in favour of the assessee.

Final Conclusion: The transfer pricing dispute was resolved partly in the assessee's favour by excluding two comparables and remanding one comparable for verification, resulting in a partial allowance of the appeal.

Ratio Decidendi: A company cannot be retained as a comparable where its functional profile and unavailable or unreliable segmental data prevent a trustworthy comparison with the tested party, and exclusion on persistent-loss grounds requires verification of the relevant past-year results.

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