Loss making companies cannot be rejected as comparables simplicitor on ground of losses but can be excluded on other comparability aspects

Yum Restaurants India Pvt. Ltd. v. ACIT (ITAT Delhi) –Since the taxpayer had applied filters in its TP report to reject persistent loss makers, the Tribunal questioned the basis of the taxpayer’s contention that other loss making comparables should not be rejected. Merely because a company is incurring losses, it would not lose its status as a comparable. Declaration of loss is an incidental of business which is at par with the profit. However, since the comparables were rejected by the TPO not only on the ground of losses but after analysis of their financial results using other tools and also after taking other aspects into consideration (apart from only the FAR profile of the comparables) their rejection was justified.

This decision underscores the fact that comparability analysis should not be confined to mere matching of FAR profiles and other factors and tests must also be duly considered while identifying comparable companies.

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH “I” NEW DELHI)

BEFORE SHRI RAJPAL YADAV AND SHRI SHAMIM YAHYA

M/s.Yum ! Restaurants (India) Pvt. Ltd.  Vs.  Additional CIT –  – Assessment Year: 2002-03

Income-tax Officer Vs. Yum ! Restaurants (India) Pvt. Ltd. —ITA No. 4154/Del/2006 – Assessment Year: 2002-03

M/s.Yum ! Restaurants (India) Pvt. Ltd. Vs. Income-tax Officer -ITA No. 142/Del/2007- Assessment Year: 2003-04

Income-tax Officer Vs. Yum ! Restaurants (India) Pvt. Ltd. – ITA No. 480/Del/2007 – Assessment Year: 2003-04
M/s.Yum ! Restaurants (India) Pvt. Ltd. Vs.  Additional CIT -ITA No. 5122/Del/2010- Assessment Year: 2006-07