TMI Blog2013 (6) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of automobile sales and service and from this segment, the revenue was of about 80%. The other major segment is hire purchase from which it derives revenue of 18.39% of the revenue. The foreign consultancy segment contributes only 1.7% and total consideration in the segment of foreign consultancy was only ₹ 25 lacs. This company was engaged mainly in the other business activities, hence it cannot be taken as a comparable with assessee company. The company is having a very small turnover in the foreign consultancy segment, therefore, cannot be accepted as comparable. Therefore, companies with a small turnover of ₹ 25 lacs cannot be held to be comparable in this case. In the case of Crisil Limited, DRP held that there is a difference in the financial year. There were also related party transactions of more than 25%. Wherever the related party transactions exceed 25% then also such companies cannot be taken as comparable. Against assessee. Not allowing adjustment on account of the risks and working capital - Held that:- No merits in the taxpayer's claim for risk adjustment as it cannot be allowed as a general rule. It can only be considered when it is demonstrated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent : Shri Peeyush Jain, CIT DR ORDER Per B. C. Meena, Accountant Member :- This appeal is filed by the assessee against the order of the Dy.CIT, Circle 14(1), New Delhi u/s 143(3) read with section 144C of the Income-tax Act, 1961 dated 30.09.2011. 2. The return of income was filed on 31.10.2007 declaring income at ₹ 2,54,66,337/-. The return was processed u/s 143(1) of the Income-tax Act, 1961. On selection for scrutiny, notice u/s 143(2) of the Act was issued on 18.09.2008. The assessment was finalized on 30.09.2011 u/s 143(3) read with section 144C of the Income-tax Act, 1961 at an income of ₹ 4,38,76,245/-. 3. The assessee is engaged in the business of providing technical and administrative services relating to oil and gas exploration and drilling activities. The grounds of appeal read as under :- 1. On the facts and circumstances of the case, the order passed by learned Deputy Commissioner of Income Tax (DCIT) under Section 143(3) read with Section' 144C of the Act is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned DCIT has erred both on facts and in law in asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in law in not applying the comparability criterion judicially and disregarding the comparables identified by the appellant. (ii) On the facts and circumstances of the case, the learned DCIT has erred both on facts and in law in applying arm's length price for determination of income of the appellant based on the data of those companies which are not comparable with the level of operation of the appellant. (iii) On the facts and circumstances of the case, the learned DRP has erred both on facts and in law in arbitrarily rejecting the comparables given by the appellant for determination of arm's length price. (iv) Without prejudice to above and in the alternative, the learned DRP has erred both on facts and in law in ignoring the contention of the appellant that even if the comparables submitted by the appellant are to be ignored, then the comparables of the similarly placed entities were to be considered for determination of arm's length price. 6. On the facts and circumstances of the case, the learned DCIT has erred both on facts and in law in disallowing an amount of ₹ 2,73,339/- on account of charitable donation. 7. On the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables at 14.83% as against 7.90% of the assessee. Ld. AR pleaded that the major issue is inclusion of TSR Darashaw Limited as comparable. The DRP has rejected the contention of the assessee for excluding this company from the list of comparables. Ld. AR submitted that the business profile of this company is changed during the year under consideration due to merger of TSR Darashaw Limited and Tata Share Registry Ltd. This fact is evident from the report as well as the press report in this regard. Ld. AR submitted that the FAR of TSR Darashaw Limited is entirely different than the assessee company for the year under consideration. This company was selected comparable in assessee's T.P. study due to use of two preceding year datas. TPO has used only current year data. In the current year, the functions performed by this company were not similar to assessee company. This fact has also been acknowledged by the ld. TPO in its TP study for Assessment Year 2008-09. It has been noted that post sale of controlling stake in the company in October 2005, the area of operations of the company is BPO/KPO sector with focus on financial service offerings. Accordingly, the business of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B(4) cannot be invoked. Whenever the tax payer wants to use the data of preceding two years' data then onus lies on the assessee to prove that his case falls under the proviso to the Rule. The Hon'ble ITAT in the various decisions has endorsed this view that unless the case is made out under the proviso to rule 10B(4), only current year's data has to be used. This view is supported by various decisions and some of which quoted are as under:- (i) Aztech Software Technology - 294 ITR (AT)(32) (BANG)(SB) (ii) Mentor Graphics Noida Pvt Ltd - 2007-TII-02-ITAT-DEL-TP (iii) Honeywell Ltd - 2009-TIOL-104-ITAT Pune (iv) Customer Services India (P) Ltd - 2009-TIOL-424-ITAT-Del (v) Schefenacker Motherson Ltd. - 2009-TIOL-376-ITAT-Del (vi) Global Vantedge Pvt Ltd. - 2010-TIOL-24-ITAT-Del (vii) M/s. Geodis Overseas (P) Ltd. - 2011-TII-34-ITAT-DEL-TP (viii) M/s. TNT India Pvt Ltd - (2011-TII-39-ITAT-BANG-TP) (ix) M/s. ADP PRIVATE LIMITED (2011-TII-44-ITAT-HYD-TP) (x) M/s. NGC Network (India) Pvt Ltd (2011-TII-45-ITAT-MUM-INTL) (xi) M/s. Symantec Software Solutions Pvt Ltd (2011-TII-60-ITAT-MUM-TP) (xii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was allowed on account of risk, working capital and R D. Ld. DR submitted that there is no need for any adjustment on this count. 10. After hearing both the sides on this issue, we find no merits in the taxpayer's claim for risk adjustment. Risk adjustment cannot be allowed as a general rule. It can only be considered when it is demonstrated that comparables had actually undertaken such risk and these are materially affected their margins. Unless it is shown that risk adjustment had changed, the result of each comparable and there are adequate reasons for such adjustment, no adjustment is justified. In absence of any such situation, no adjustment can be allowed. In our considered view, taxpayer has not been able to show how this risk, if any, is translated into charging a higher margin in comparable companies. Similarly, the assessee's claim that it has no market risk is also not acceptable. Assessee provides service to its group company only. Single customer risk is also a market risk. The performance of company in such cases is entirely dependent on the Associated Enterprises (AE). As soon as the AE runs out of the business or if AE's business gets reduced sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in comparison to the two preceding years makes it non-comparable. Therefore, we find merits in the argument of the assessee and we direct to exclude this company from the comparables. With above observations, we set aside the issue to the file of the Assessing Officer to rework out the OP/OC margins of the remaining comparables and then decide the issue. 15. Thus, issues raised in ground nos.4 5 are decided in the above terms. 16. In the ground no.6, the issue involved is disallowance of ₹ 2,73,339/- on account of charitable donations. During the hearing, the ld. AR did not press this ground, therefore, the same is dismissed for non-prosecution. 17. In Ground No.7, the issue involved is disallowance of ₹ 1,70,785/- on account of entertainment expense out of club/entertainment expenses for personal use. The ld. AR submitted that the assessee was a company and no such disallowances are called for in the hands of company. Ld. AR also relied on the following decisions :- (i) Sayoji Iron Eng. Co. vs. CIT - 253 ITR 749 (Guj.) (ii) Dinesh Mills Ltd. vs. CIT - 254 ITR 673 (Guj.) (iii) Midland Intl. Ltd. vs. DCIT - 109 ITD 198 (Del.) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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