Indian Kanoon - Search engine for Indian Law

3.2.20.1 The Panel has considered the argument. It is trite that both the provision of bad debts and debts written back fall in the realm of normal business operations and therefore, there is no warrant for treating them generally as non-operating. Reliance, to that effect, on Techbooks International, Kenexa Technologies and Sony India is well-placed, but its consideration in the computation of the operating margins is not automatic and one has to see whether provision for doubtful debts is on the sale of the present year or of an earlier year. If it does not form part of the sale of the present year, it cannot be considered in the computation of operating margins because in such a situation it will increase the numerator, i.e. the profit but not the denominator, i.e., the turnover because the corresponding turnover was factored in the computation of the operating margins of the earlier years. Any receipt or expenditure, although operating in nature cannot be considered for this purpose unless it pertains to the current year turnover because if it relates to earlier years, it will lead to absurd results, since the numerator will stand increased or decreased as the case may be but the denominator will not reflect the inclusion of the corresponding turnover, while calculating the percentage of profit of the assessee and comparables. The Panel is fortified in its reasoning by the decision of the Bangalore Bench of the Hon'ble ITAT vide its order dated 27th November, 2018 in M/s. Marvell India Pvt Ltd v ACIT in MP No 338/Bang/2018 (in ITA No.2173/Bang/2017). The Tribunal, distinguishing Kenexa Technologies and Sony India in this regard, explained the law, thus: