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2022 (12) TMI 500 - ITAT HYDERABADTP Adjustment - assessee did not exercise the option of converting the accumulated interest and the bad debts into equity - as argued transfer pricing adjustment proposed without resorting to any transfer pricing exercise as per any of the methods prescribed in section 92C (1) to determine the ALP, is bad in law and has to be deleted - HELD THAT:- We fail to understand how merely conversion of the accumulated interest and bad debts into equity would amount to their recovery. It is the settled principle of law that the Revenue officers cannot sit in the armchair of the businessman, while taking the decisions basing on the business expediency. It’s not out of place at this juncture to refer to the observations of the Hon’ble Bombay High Court in the case of Harshad J Choksi [2012 (8) TMI 710 - BOMBAY HIGH COURT] wherein it was held that if an amount cannot be deducted as a bad debt in view of non-compliance of the conditions precedent as provided under section 36(2) of the Act, the same will not prevent the assessee from claiming deduction of the same as business loss incurred in the course of carrying on the business. It is not in dispute that the interest that is written off was in fact shown in the P&L Account on accrual basis and such interest income was assessed as business income in the earlier assessment years, or that the bad debts written off were already offered as part of sales during the earlier assessment years. It is also not in dispute that when the interest in the earlier years was offered as business income, the same was accepted by the Department. In these circumstances, it is not known how the writing off of such amounts would affect the ALP of the transaction. Apart from that, it is also not in dispute that the Ld. TPO did not refer to any particular method prescribed in section 92C(1) of the Act. When the Revenue accepted the TNMM in respect of the sales and purchases, and CUP method in respect of the interest received on loans and reimbursement of expenses, the writing off of these two amounts are subsumed into the transactions of receipt of interest on loans, and it does not necessitate any separate benchmarking. Viewing from any angle, we find it difficult to sustain the addition made on account of the writing off by the assessee of the dues from Aurobindo (Datong) Bio Pharma Co. Ltd., China and bad debts from ZAO Aurobindo Pharma Ltd., Russia and accordingly allow the grounds of appeal.
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