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2018 (4) TMI 1599 - AT - Income TaxAddition of bad and doubtful debts - TPA - actual sales were accounted for in earlier years and debts were created in earlier years and the provision is made when it is seen that the recovery of such debt is doubtful - Held that:- In the present case, the issue in dispute is regarding provision for bad and doubtful debts made in the present year. This is not the case of the assessee that sale were accounted for in earlier year on estimate basis and now the exact amount of sales is known and therefore, the excess amount of debts created in earlier year on estimate basis is to be reduced now to make at par with actual debt. In the present case, actual sales were accounted for in earlier years and debts were created in earlier years on the basis of actual sales and invoices and now, the provision is made when it is seen that the recovery of such debt is doubtful. The whole purpose of TP study and TP exercise is to compare the price charged by the assessee for its income or prices paid by the assessee for its expenses from or to its AE and for that purpose, we use various methods including TNMM as per which, the profits of tested party and uncontrolled comparables are compared to come to conclusion that prices are at arms length or not. If the provision for doubtful debts is reduced from profit, the numerator is reduced but the denominator is not reduced because the turnover has been considered in earlier year and cannot be considered in the present year. Hence such provision for doubtful debts has to be ignored and added back in the profit of the tested party or of the comparable as the case may be while making the TP analysis. Hence on this issue, we find no reason to interfere in the order of AO and DRP. Exclusion of comparable - selection criteria - Held that:- Set aside the order of AO/TPO/DRP on this aspect i.e. the final list of comparables and the matter is restored back to the file of AO/TPO for fresh decision with the direction that the AO/TPO should examine and decide afresh this aspect i.e. list of final comparables by deciding the functionality aspect as well as turnover filter aspect and while doing so this, judgment of Hon’ble Delhi High Court rendered in the case of Chryscapital Investment Advisors (India) (P.)Ltd. Vs. DCIT [2015 (4) TMI 949 - DELHI HIGH COURT] should also be considered
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