Ponni Sugars Faces Revised Tax Order on Bagasse Transfer Pricing

Ponni Sugars (Erode) Ltd announced on March 27, 2026, that it has received a directive from the Commissioner of Income Tax (Transfer Pricing) (CIT-TP). The order mandates a revision of a previous decision concerning the Arm's Length Price (ALP) for the inter-unit transfer of bagasse for Assessment Year 2021-22.

The company views the transfer pricing methodology required by the CIT-TP as legally unsound and intends to challenge the order. Ponni Sugars cites significant potential financial implications stemming from the revision.

Order Details

The directive instructs the Transfer Pricing Officer (TPO) to re-examine the ALP determination for bagasse exchanged between the company's own units during the 2021-22 tax year. Transfer pricing rules are designed to ensure that transactions between related entities are priced at market rates, preventing the artificial shifting of profits for tax avoidance. Disputes over these valuations can lead to substantial financial adjustments.

Past Tax Disputes

This is not Ponni Sugars' first tax dispute. In late January 2026, the company disclosed receiving a TPO order for AY 2023-24, which proposed significant adjustments and a potential penalty related to inter-segment transactions.

The company has a history of successfully litigating tax matters. In March 2025, the Madras High Court sided with Ponni Sugars, allowing a petition that challenged the reopening of its assessment for AY 2012-13, deeming it invalid. Previously, in September 2025, the Madras High Court upheld the company's entitlement to a purchase tax subsidy, blocking its retrospective withdrawal by the state government. India's transfer pricing regulations, based on OECD guidelines, have been in place since 2001.

What Happens Next

Following the CIT-TP's order, the TPO will re-evaluate the transfer pricing for bagasse. Ponni Sugars will have the opportunity to present its case during this reassessment. The company faces potential financial adjustments and increased legal expenses as a result of this ongoing process. The final outcome could influence how inter-unit transactions are priced in the sugar and power generation sectors.

Potential Risks

If the revised order is upheld, it could lead to significant tax adjustments and penalties, impacting the company's profitability and cash flows for multiple years. The decision to challenge the order also points to the possibility of prolonged and costly legal battles. Furthermore, repeated disputes could create lasting uncertainty for internal cost allocations and profit attribution between the company's segments.

Industry Context

Ponni Sugars operates in the sugar and co-generation sectors, competing with major players such as Bajaj Hindusthan Sugar Ltd., Shree Renuka Sugars Ltd., and Balrampur Chini Mills Ltd. Many integrated sugar companies in India, including peers like DCM Shriram Industries Ltd., also operate cogeneration plants that utilize bagasse, making inter-unit resource transfer pricing a common consideration.

Looking Ahead

Investors will be watching Ponni Sugars' legal strategy for challenging the CIT-TP's order. The specific details of the revised order from the TPO will be critical, as will any quantification of the financial impact once the reassessment is finalized or during legal proceedings. Future disclosures will likely cover the outcome of the challenge and any potential appeals.