TGS Minmet Private Limited TP DRP functional Comparability Dispute

The assessee-company, engaged in trading of iron ore and coal with its associated enterprises, challenged a transfer pricing adjustment of approximately Rs. 5.51 crores arising from benchmarking analysis conducted by the Transfer Pricing Officer. 

The principal grievance of the assessee was that the Revenue selected manufacturing companies engaged in production of sponge iron, billets, rolled products, and ferrous materials as comparables despite the assessee functioning merely as a trader.

The Tribunal found substantial inconsistency between the findings recorded by the TPO and the DRP. While the TPO himself acknowledged that the assessee was engaged in trading activities, the DRP proceeded on the assumption that both the assessee and the selected comparables operated in the same line of producing ferrous products. 

The Tribunal observed that the DRP order lacked detailed factual analysis and failed to adequately examine the functional profile and product comparability of the entities involved.

Emphasizing that transfer pricing adjustments can only be sustained where entities are functionally comparable, the Tribunal set aside the matter to the DRP for fresh examination. 

The DRP was directed to undertake a proper product-profile and business-activity analysis of the selected comparables and thereafter arrive at a fresh determination after granting adequate opportunity to the assessee.