In days gone past I used to pull the throttle on take off to simulate engine failure. I still pull the release in gliders for the same reason. I do this without warning ( on checks ).
The difference in the way I do it compared to this case is that I only do it in conditions where I can safely recover if the student stuffs it up!
It seems in this case the ATO did it too low, at too low a speed, in an unfamiliar aircraft?
The testing officer is the PIC and wears the prang.