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2021 (6) TMI 172 - AT - Income TaxEnhancing the income by invoking the provisions of section 10A - HELD THAT:- As decided in own case [2020 (3) TMI 228 - ITAT PUNE] AO has not proved that any arrangement had been arrived between the parties which resulted in higher profits. Consequently, the re-working of the profits by Assessing Officer by invoking section 10A r.w.s. 80- IA(10) of the Act is not justified. The action of the Assessing Officer to restrict the deduction u/s 10A as against the claim of assessee is hereby set-aside. Thus, assessee succeeds on this aspect. Disallowing the economic adjustment as bad debt - HELD THAT:- As assessee claimed to have disallowed the expenditure in respect of provision for bad debt in the computation of total income for A.Y. 2005-06 and accordingly, the said provision should be treated, in our opinion as non-operating expenditure for the purpose of computing profitability under the transfer pricing provisions. Further, we note that d. CIT(A) held the bad debt is an operating expenditure but however observed exclusion of companies by the AO/TPO having bad debt for the purpose of comparability is not justified. Therefore, we agree with the finding of ld. CIT(A) to the extent of inclusion of comparable companies having bad debt in the final set of comparable companies. Therefore, in the facts and circumstances of the case considering the submissions of ld. AR and ld. DR, we deem it proper to remand the matter to the file of AO and accordingly, the AO/TPO is directed that the provision for bad debt should be treated as non-operating expenditure while computing the profitability of the assessee which has been disallowed as an expense while computing the income under the ITR. The ad-hoc bad debts filter as applied by the TPO liable to be rejected and to include the comparable companies having bad debt should be considered in the final set of comparables.
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