Evolving Systems Networks India Pvt. Ltd. Vs DCIT (ITAT Bangalore)
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.
Karnataka High Court has also taken a view in the case of Business Process Outsourcing India Pvt. Ltd., (supra) that provision for bad and doubtful debts should be taken as operating expenses while computing profit level indicator of the comparable companies. In the light of the aforesaid decisions which have been cited at the time of hearing of the appeal, we are of the view that the claim of the assessee deserves to be accepted
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is a Miscellaneous Petition (MP) filed by the assessee under section 254(2) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) praying that there are apparent mistakes in the order of the Tribunal which requires to be rectified.
2. The issue that was decided by the Tribunal in the aforesaid appeal was the correctness of the determination of ALP in respect of international transaction of rendering software development services by the assessee to its wholly owned holding company which was Associated Enterprise (AE) in terms of section 92 of the Act. One of the issues which was raised by the assessee in ground No.4(h) was the issue with 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 nature by stating that the same was not raised with the lower authority and did not arise from the order of the AO. In this regard, it has been submitted that on the grounds on the treatment of provision for doubtful and bad debts as operating in nature was raised before the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP). A reference has been made to the following pages in the paper book reference evidencing the issue raised and argued before the revenue authorities:
