TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 1139
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.... regard to treating provision for bad and doubtful debts as non-operating in nature while computing the operating margin of the comparables. Ground No.4(h) reads as follows: 4(h) treating provision for bad and doubtful debts as non-operating in nature while computing the operating margin of the comparables. 3. In the impugned order, the Tribunal has held as follows: "11. The only other ground pressed was with regard to the action of the TPO in treating provision for bad and doubtful debts as part of non operating expense while computing operating margin of comparables. On this issue, which is raised for the first time, we do not find any grounds raised before the lower authorities and hence this ground does not arise out of the order of the AO and hence dismissed. No other grounds raised in the grounds of appeal as well as the additional grounds were pressed for adjudication as in the opinion of the counsel for the learned counsel for the Assessee, those grounds would become academic." 4. In this MP, the Assessee has submitted that the Tribunal was not correct in dismissing the ground with respect to the treatment of provision for doubtful and bad debts as non operating in nat....
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.....4(h) is concerned, the DRP dealt with the issue in the following manner: "2.9 Ground of Objection No. 9: The learned TPO and learned AO has erred, in law and in facts, by considering provision for bad and doubtful debts as non-operating expenses. Having considered the submissions, this Panel has been consistently holding that provisions are not an ascertained liability which is not allowable for purpose of computation of business profit under the IT Act. We are also of the view that the provision for bad & doubtful debts is not made in all the cases. There is no rationale to consider such provision as operating in nature. Even otherwise, for the comparability analysis, such provisions are excluded from the tested parties as well as the comparable, the error in the margins of the relevant year are taken care of. This view of the Panel finds support from several decisions ofthe Hon'ble ITAT, for example in the case of M/s Telcordia Technologies India Pvt. Limited 22 taxmann.com 96/ 137 ITD 1 (Mum)is squarely applicable to the assessee case in which it was decided that the provision for doubtful debt cannot form part of operating cost. Further, In the case of Thyssen Krupp ....
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....ed as under:- "47. In Ground No. 10 the assessee pointed out to the mistakes in computation of PLI. It was submitted that the TPO has considered provision for doubtful debts and provision for doubtful advances are non-operating in nature and the action was upheld by the DRP. In this regard it was submitted that provision for doubtful debts is a provision which is to be made as a part of the operating activities of business governed by the principles of prudence, and therefore it is not correct to contend that the same is non-operating in nature. Reliance in this regard is placed on the decision of the Delhi Bench of the Tribunal in the case of Rolls-Royce India (P.) Ltd. v. DCIT [2016] 69 taxmann.com 209 (Delhi - Trib.). Therefore it was submitted that the aforesaid items are to be treated as being operating in nature. 48. The ld. DR relied on the order of the DRP. 49. We are of the view that in the light of the decision of the Tribunal in the case of Rolls-Royce India (P.) Ltd. (supra), the PLI should directed to be reworked by considering the provision for doubtful debts as operating expenditure. We hold and direct accordingly." In the case of Rolls-Royce India (P) Ltd (s....
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....n nature, which was not accepted by the TPO. The Tribunal accepted the submission of the assessee and accordingly it has held that it is a non-operating in nature. Thus, we notice that the above said decision has been rendered by the Mumbai bench of Tribunal in a different context. In the case of Telcordia Technologies India P Ltd, the Tribunal has made following observations in respect of Provision for doubtful debts, while considering the company named M/s R Systems International Ltd:- "While working out the operating profit, only items of receipts and expenditure, which have direct relation for determining the profit has to be taken into account. Operating profit has to be seen in a comparable transaction under comparable circumstances. The profit level indicators are derived from uncontrolled party engaged in similar business activity under similar circumstances which is the measure of arm's length result. If the assessee's business transactions do not have accretion of doubtful debts and doubtful advances, such an adjustment has to be made in the comparability analysis of the comparable party to determine the arms length price. Thus, both these expenses have been rig....