BAHWAN CYBERTEK PVT. LTD.,CHENNAI V. ACIT, CC-1(1), , CHENNAI

ITTPA 22/CHNY/2024

AI Insights

The case involves Bahwan Cybertek Private Limited, which appealed against the assessment order passed by the Assessing Officer under the Income Tax Act, 1961, concerning the assessment year 2017-18. The primary issues revolved around the inclusion of M/s. Nihilent Limited as a comparable company for transfer pricing and the treatment of corporate guarantee fees as an international transaction. The Tribunal examined the functional comparability of M/s. Nihilent Limited and the appropriateness of the corporate guarantee fee rate. Furthermore, the Tribunal addressed the assessee's claim for a foreign tax credit on dividend income from Oman, which was exempt from tax in the source country.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 787792 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 21-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Appeal Filed On: 27-05-2024
• Other Referred Cases: Carl Zeiss India (P) Limited vs. DCIT, Subex Limited vs. DCIT, Mega Soft vs DCIT, Bharti Airtel Ltd. vs. ACIT, Red Hat India Private Limited Vs Income Tax Officer, Etisalat Software Solutions Private Limited Vs Deputy Commissioner of Income Tax, AMD India Private Limited Vs The Assistant Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: .V. SREENIVASAN; C.I.T
• Assessee Lawyers: N.V. BALAJI
• Keywords: Set aside; Revenue expenditure; Transfer pricing; International transaction; Reasonable cause; Commercial expediency; Capital expenditure; Double taxation relief
• Section: 90; 92B

Judgement Text

" आयकर अपील य अ धकरण, ‘डी’ \u000eयायपीठ, चे\u000eनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI \u0015ी जॉज\u0018 जॉज\u0018 क े, उपा\u001aय\u001b एवं \u0015ी एस.आर.रघुनाथा, लेखा सद%य क े सम\u001b BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 1836/Chny/2024 & C.O.No.62/Chny/2024 (in ITA No.: 1836/Chny/2024) 'नधा\u0018रण वष\u0018 / Assessment Year: 2017-18 Assistant Commissioner of Income Tax, Corporate Circle-1(1) Chennai. vs. Bahwan Cybertek Private Limited, No.148, Bahwan Cybertek IT Park, Rajiv Gandhi Salai (OMR), Okkiyam, Thoraipakkam, Chennai – 600 097. (अपीलाथ)/Appellant) [PAN: AABCB- 2020-P] (*+यथ)/Respondent/ Cross Objector ) IT(TP) A No.: 22/CHNY/2024 'नधा\u0018रण वष\u0018 / Assessment Year: 2017-18 Bahwan Cybertek Private Limited, No.148, Bahwan Cybertek IT Park, Rajiv Gandhi Salai (OMR), Okkiyam, Thoraipakkam, Chennai – 600 097. vs. Assistant Commissioner of Income Tax, Corporate Circle-1(1) Chennai. [PAN: AABCB- 2020-P] (अपीलाथ)/Appellant) (*+यथ)/Respondent) Assessee by : Shri. N. V. Balaji, Advocate Department by : Shri. AR. V. Sreenivasan, C.I.T. सुनवाई क, तार ख/Date of Hearing : 29.10.2025 घोषणा क, तार ख/Date of Pronouncement : 21.11.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : These appeals are filed against the order of the Learned Commissioner of Income Tax (Appeals) -16, Chennai [hereinafter referred to as the “Ld.CIT(A)”] for the assessment year (A.Y.) 2017-18 arising out the final assessment order dated Printed from counselvise.com :-2-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. 26.11.2021 passed by the Assessing Officer, National Faceless Assessment Centre – Delhi, (AO) u/s.143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter “the Act”). 1.1 At the outset, we find that there is a delay of 29 days in filing the appeal filed by the revenue and the revenue explained the reasons for delay in filing the appeal. The revenue has filed affidavit stating the reasons for delay in filing the appeal is due to extreme work pressure related to time barring set-aside cases, giving effect to appellate orders, remedial actions in the cases wherein audit observations were made and to achieve budgetary targets, the workforce was devoted to attending those tasks. After considering the affidavit filed by the revenue and also hearing both the parties, we find that there is a reasonable cause for the revenue in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit the appeal filed by the revenue for adjudication. ITA No. 1836/CHNY/2024: 2. The brief facts emanating from the records are that the assessee is a company engaged in the business of Software Development Services. The assessee filed its return of income for the A.Y.2017-18 on 30.11.2017 declaring a total income of INR 10,44,46,200. The case was selected for scrutiny through CASS and accordingly statutory notices were issued to the assessee. During the assessment proceedings, reference was made to the Transfer Pricing Officer ('TPO') u/s.92CA(1) of the Act for determination of Arms Length Price (\"ALP\") in respect of international transactions Printed from counselvise.com :-3-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. reported in Form No.3CEB. Thereafter, the Assessing Officer (\"AO\") passed an assessment order u/s.143(3) r.w.s. 144C(3) of the Act proposing certain additions to the total income. 3. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) u/s.250 of the Act and the Ld.CIT(A) partly allowed the appeal. Aggrieved by the order of Ld.CIT(A), the revenue filed this appeal which is taken up for adjudication. Accordingly, the revenue has raised the following grounds of appeal: i. The order of the learned CIT(A) is contrary to the facts and circumstances of the case. ii. Whether the LdCIT(A), in the facts and circumstances of the case, is correct in directing to exclude the company M/s Nihilent Ltd the reason being functionally dissimilar whereas as per the annual report of this company it is earning 97% of its revenue from provision of software solutions. iii. Whether the LdCIT(A) is correct in directing to exclude the company M/s. Nihilent Ltd when this company was considered as comparable under the method TNMM where broadly comparable companies can be considered for comparison. iv. Whether the Ld. CIT(A) is correct in directing to re-compute the guarantee fee at the rate of 0.5% ignoring the fact that the TPO has considered CUP as MAM and considered the comparable data given by the assessee itself i.e., 1% guarantee commission and proposed the adjustment. v. The Ld. CIT(A) has erred in accepting the assessee’s contention that the hardware, software expenses merely incurred towards purchases of consumables. vi. The Ld. CIT(A) has failed to furnish the real nature of the said expenses which give enduring benefit to the Assessee and thus capital in nature. vii. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.” 4. Accordingly, the following are the grounds / issues are taken up for adjudication: Printed from counselvise.com :-4-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. S. No. Ground No. Nature of Issues Transfer Pricing Issues 1. I General Ground 2. ii & iii Inclusion of M/s. Nihilent Ltd as comparable company 3. Iv Corporate Guarantee fee Other: 4. v & vi Hardware and Software as capital expenditure 5. Ground No. i is general in nature and hence not adjudicated. 6. The first issue that came up for our consideration in Ground No.ii & iii of revenue’s appeal is inclusion of M/s.Nihilent Limited as a comparable company for the purpose of determining the arms’ length price of software development services rendered by the assessee to its Associate Enterprise (“AE”). 7. The brief facts in relation to this particular ground raised by the revenue are that M/s. Nihilent Limited was included as part of the list of comparable companies during the course of assessment proceedings based on independent search conducted by TPO. The Assessee objected to the inclusion of Nihilent as a comparable company on the basis that it is functionally dissimilar, engaged in diversified activities and absence of segmental information. However, the TPO rejected the contentions of the Assessee stating that it is into Software and Software related services based on the business classification provided by the company as part of its Annual Report filed before the Ministry of Corporate Affairs. Accordingly, the TPO retained the same as part of the list of comparable companies. 8. On appeal before the Ld.CIT(A) after going through the Annual Report of the Printed from counselvise.com :-5-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. company observed that the company is engaged in diversified business activities apart from software development services such as consulting, advanced analytics, business consulting, block chain, data signs and cloud services etc. Further, the Ld.CIT(A) observed that the business classification provided by the company in its Annual Report filed before the MCA is inconclusive since the company itself had classified its business activities into ‘other professional services and business services & other consulting services NEC’ as part of the Annual Report. Further, relying on the decision of co- ordinate bench in the case of Carl Zeiss India (P) Limited vs. DCIT (ITA No. 192/Bang/2022) and Subex Limited vs. DCIT [2023] (147 taxmann.com 559) for the AY 2017-18, wherein Nihilent was held to be engaged in diverse business functions and not comparable to company engaged in software development directed exclusion of M/s.Nihilent Limited from the list of comparable companies. Before us, the Ld.DR referring to the order of the TPO submitted that the Ld.CIT(A) has erred excluding M/s.Nihilent Limited as a comparable company on the basis that it is functionally dissimilar vis-à-vis assessee. The Ld.DR further referred to the Annual Report of M/s.Nihilent Limited and submitted that the M/s.Nihilent Limited is functionally comparable to the respondent company since as per Annual Report the business classification is reported as “IT Consultancy, Software Development and related services”. Further, referring to the Profit and Loss Account, the Assessee is engaged in the business of services which is software related services. Hence, the Ld.DR prayed for inclusion of the same stating the TPO has rightly included the said company as comparable to the respondent. Printed from counselvise.com :-6-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. 9. Per contra, the Ld.AR for the Assessee submitted that the Assessee being engaged in providing software development services cannot be comparable to that of M/s.Nihilent Limited which engaged in providing IT Consultancy Services. The Ld.AR further referred to the Annual Report of the company and submitted that the core activity of Nihilent Limited as per NIC Code No.99831319 allotted, “other professional, technical and business services” and the entire turnover of the company is from the core activity of “other IT consultancy services”. Further, referring to the business background disclosed in Annual Report the Ld.AR submitted that Nihilent Limited is engaged in rendering software services, business consulting in the area of enterprise transformation, change and performance management and providing related IT services. Therefore, the Ld.AR referring to the services offerings disclosed in the Annual Report of the company submitted that Nihilent is into diversified activities such as enterprise transformation, digital transformation and enterprise IT services which is not functionally comparable to the assessee engaged in providing software development services. The Ld.AR relied on the following decisions of the coordinate benches of the Hon’ble Tribunal for the same A.Y.2017-18 wherein it was held that M/s.Nihilent Limited is functionally dissimilar to a company engaged in software development services and the same was directed to excluded from the list of comparable companies: • Red Hat India Private Limited Vs Income Tax Officer (ITA No. 801/Mum/2022) (Mum Trib) • Subex Ltd vs DCIT [2023] (147 taxmann.com 559) (Bang Trib) • Etisalat Software Solutions Private Limited Vs Deputy Commissioner of Income Tax [2022] 144 taxmann.com 162 (Bang Trib) • AMD India Private Limited Vs The Assistant Commissioner of Income Tax [2023] (154 taxmann.com 341) (Bang Trib) • Carl Zeiss India (P) Limited vs. DCIT (153 taxmann.com 519) (Bang Trib) 10. We have carefully heard the rival submissions, perused the order of the lower Printed from counselvise.com :-7-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. authorities, and have gone through the judicial precedent cited before us. We note from the Annual report placed on record before us that M/s.Nihilent Limited classified its core business activity under NIC Code No.99831319 as “other professional, technical and business services” and the entire turnover during the year is from this core business activity which is broadly classified as “other IT consultancy services”. The relevant extract of the Annual Report is as under: 11. Further, Nihilent limited itself has disclosed its business offering in the Annual Report as enterprise transformation, digital transformation and enterprise IT services. Nihilent limited is engaged in global business consulting and IT services solutions. The relevant extracts of the Annual Report is as under: Printed from counselvise.com :-8-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. 12. Further, we find that the identical issues came up for consideration before the Co-ordinate bench of the Tribunal in the case of Red Hat India Private Limited Vs.Income Tax Officer (ITA No. 801/Mum/2022) (Mum Trib) for the same A.Y. wherein it was held that M/s.Nihilent Limited is functionally dissimilar to a company engaged in software development services and the same was directed to excluded from the list of comparable companies. The relevant extracts of the tribunal order is as under: “Nihilent Ltd. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is functionally dissimilar vis-à-vis assessee. This objection was also raised before the Ld. DRP but rejected. The assessee relied upon website of the company which is made available at page A412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data signs, cloud services etc. The annual financials of this company available at page A412 & A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-à-vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded.” Printed from counselvise.com :-9-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. 13. Further, we also find the following decisions of the coordinate bench of the tribunal have held that Nihilent functionally dissimilar to a company engaged in software development and consequently directed exclusion of the same from the list of comparable companies for the AY 2017-18: • Subex Ltd vs DCIT [2023] (147 taxmann.com 559) (Bang Trib) • Etisalat Software Solutions Private Limited Vs Deputy Commissioner of Income Tax [2022] 144 taxmann.com 162 (Bang Trib) • AMD India Private Limited Vs The Assistant Commissioner of Income Tax [2023] (154 taxmann.com 341) (Bang Trib) • Carl Zeiss India (P) Limited vs. DCIT (153 taxmann.com 519) (Bang Trib) 14. In view of the above discussion, respectfully following the judicial precedents cited above, we concur with Ld.CIT(A) in excluding M/s.Nihilent Limited. Therefore, we do not find any reason to interfere in the order of the ld.CIT(A) and uphold the same. As a result, the Ground Nos.ii & iii raised by the Revenue stands dismissed. 15. The next issue that came up for our consideration in Ground No.iv of revenue’s appeal is whether the Ld.CIT(A) was correct in directing to re-compute the guarantee fee at the rate of 0.5 percent ignoring the fact that the TPO has proposed 1 percent as guarantee commissions based on external analysis of bank guarantee rates. 16. The TPO treated corporate guarantee extended to AE subsidiary company as an international transaction u/s.92B of the Act and computed Corporate Guarantee fee at the rate of 1 percent. 17. Aggrieved by the said addition, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) relying on its own decision in assessee’s case for the AY 2013-14, A.Y.2014-15 and this Tribunal decision in the case of Mega Soft vs DCIT Printed from counselvise.com :-10-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. [2022] (145 taxmann.com 111) held that the corporate guarantee constitutes a separate international transaction, however also directed that the corporate guarantee fee be recomputed at 0.5% of the corporate guarantee value. 18. Before us, the Ld.DR strongly supported the order of the TPO and submitted that, the issuance of corporate guarantee falls squarely within the ambit of international transaction as per Section 92B of the Act. Further, Ld.DR argued that a guarantee fee of 1 percent would be appropriate as computed by the TPO based on the external analysis of data relating to guarantee commission charged by the banks in India. 19. Per Contra, the Ld.AR reiterated the submissions made before the TPO and the ld.CIT(A) and relied on the order of the Delhi Bench of the Tribunal in the case of Bharti Airtel Ltd., vs. ACIT, [2014] 43 taxmann.com 150. The Ld.AR submitted that corporate guarantee issued by the assessee to its AE is in the nature of shareholding activity and hence does not constitute an international transaction. The Ld.AR further submitted that the Assessee being a shareholder had extended corporate guarantee with an intention to protect its own investment in the subsidiary which does not require any remuneration. The Ld.AR also argued that extending corporate guarantee to AE creates only a contingent liability and as such, did not having any bearing on the profits, incomes, losses or assets of the assessee. Hence, the Ld.AR argued that extending corporate guarantee to AE cannot be covered within the meaning of international transaction as per Section 92B of the Act even post the amendment made by Finance Act 2012 to Section 92B of the Act. Printed from counselvise.com :-11-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. 20. We have carefully heard the rival submissions, perused the order of the lower authorities, material available on record and the judicial precedent cited before us. In view of the amendment brought out by Finance Act and by inserting Explanation 1(e) to section 92B(2) of the Act, it is clear that the corporate guarantee is to be treated as deemed international transaction. Further, in view of the amendment brought out in the Act, by the Finance Act, 2012, we reject the contentions raised by the assessee. We also find that the Hon’ble High Court of Bombay in the case of CIT v. Everest Canto Cylinders Ltd. [2015] 58 taxmann.com 254 held that that bank guarantee issued by the commercial banks cannot be a yardstick to apply to corporate guarantees issued by an entity, since the latter arise out of commercial expediency and group considerations rather than as profit-making instruments. 21. Further, we also find that the identical issue has been considered by the coordinate bench of this Tribunal in the case of Mega Soft vs DCIT [2022] (145 taxmann.com 111) wherein a guarantee fee of 0.5 percent was held to be appropriate for the purpose of computing the arm’s length price of corporate guarantee. The relevant findings are as under: “9. We have considered relevant materials on record. As regards the arguments of the Ld.AR for the assessee that corporate guarantee per se itself is not an international transaction, we find that after amendment of definition of international transaction, corporate guarantee given by any entity to its AE falls under the definition of international transactions in terms of sec.92B of the Act and thus, any corporate guarantee given by the assessee to its AE is an international transaction, which needs to be bench marked. Further, when it comes to rate, at which, such guarantee commission needs to be benchmarked, then bank guarantee given by the commercial banks cannot be a yardstick to apply to corporate guarantees given by an entity. Further, the guarantee commission rate is depending upon the facts of each case and the risk involved in the transactions between the assessee and its AE. The Hon'ble Madras High Court in the case of Pr. CIT v. Redington (India)Ltd. [2020] 122 taxmann.com 136/[2021] 430 ITR 298 had considered the issue of corporate Printed from counselvise.com :-12-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. guarantee given by an entity to AEs and after considering relevant facts held that rate adopted by the TPO on the basis of internal comparable uncontrolled price charged by the bank @ 0.85% is reasonable for benchmarking corporate guarantee. The Hon'ble Bombay High Court in the case of CIT v. Everest Kanto Cylinders Ltd.[2015] 58 taxmann.com 254/232 Taxman 307/378 ITR 57/277 CTR 511 had considered an identical transaction and held that 0.5% is appropriate rate for bench marking corporate guarantee given by the assessee to its AE. Therefore, considering the facts and circumstances of the case and also by following the decision of the Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Ltd. (supra), we direct the TPO to benchmark corporate guarantee fees @ 0.5% on total corporate guarantee given by the assessee to its AE.” 22. In this view of the matter, by applying the ratio laid down in Everest Kanto Cylinders Ltd. (supra) and by following the decision of coordinate bench in the case of Mega Soft Ltd. Vs DCIT (supra), we concur with the decision of the Ld.CIT(A) in holding Corporate guarantee as a separate international transaction and adopting 0.5% as appropriate for the purpose of computing the arm’s length price of corporate guarantee. It is ordered accordingly. We, therefore, uphold the order of the Ld.CIT(A) and hence no interference called for. As a result, Ground No.iv raised by the Revenue stands dismissed. 23. The next issue that came up for our consideration in Ground No.v and vi of revenue’s appeal is in respect of assessee’s claim of hardware and software expenses incurred as revenue expenditure. 24. Before us, the Ld.DR strongly relied on the findings of the AO that the said expenses were incurred for creating an intangible assets which has enduring benefits to the assessee. The Ld. DR drew our attention to Page 458 to 467 of the paper book filed before us wherein the contract entered into by the Assessee with the customer was placed detailing various hardware and software involved in relation to the contract. Printed from counselvise.com :-13-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. By placing his reliance on the contract, the Ld.DR strongly contended that these hardware and software products stated in the contract would in-turn be utilized for executing the projects with other customer as well. Accordingly, the Ld.DR submitted that this would create an enduring benefit to the Assessee and hence constituted a capital expenditure. 25. Per contra, the Ld.AR for the Assessee supported the order of the ld.CIT(A), wherein it was held that aforesaid expenditure was merely incurred towards purchase of software and hardware consumables which were consumed/utilized for the customer contracts and accordingly, does not result in creation of any intangible asset having enduring benefit. 26. We have carefully heard the rival submissions, perused the material available on records and gone through the orders of the lower authorities. On perusal of the customer contract referred to by the Ld.DR is between the assessee and the Commissionerate of Municipal Administration to supply, install, achieve operational acceptance of the Information system which inter alia includes supply of hardware and software consumables. As demonstrated by the ld.AR the procurement of hardware and software were made by the assessee to supply to the ultimate customers as part of this contract and explained that though these equipments are in the nature of capital expenditure, it is supply of goods in the contract as a whole. Therefore, we are of the opinion that this equipment purchased are not a capital expenditure in the hands of the assessee. Accordingly, we are of the considered view that the aforesaid expenditure which was incurred by the assessee towards purchase of hardware and software Printed from counselvise.com :-14-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. consumables for supply to the customers cannot be construed as capital expenditure resulting in creation of any intangible asset having enduring benefit to the assessee. In view of the above discussion, we concur with the decision the Ld.CIT(A) on treating the said expenditure as revenue expenditure and does not require any interference. As a result, the Ground No.v and vi raised by the Revenue stands dismissed. CO No.62/CHNY/2024 – AY 2017-18: 27. The Assessee has raised the following grounds of cross objection to the revenue appeal and also filed following additional grounds in relation to the same: “Exclusion of M/s. Nihilent Limited: 1. The Appellant has erred in stating that M/s. Nihilent Limited had earned 97 percent of its revenue from software related services whereas this comparable company has earned revenue from diverse businesses which are not comparable to the Respondent engaged in software development services. 2. The Appellant had grossly erred in not appreciating that M/s. Nihilent Limited is functionally dissimilar and engaged in diverse businesses such as global business consulting, IT Services and Solutions Integration, artificial intelligence, block chain and advanced analytics etc disclosed in the financial statements which are not comparable to the Respondent in engaged in software development services. 3. The Appellant had erred in law and on facts in not considering the decision of co-ordinate Bengaluru bench of the Hon’ble ITAT for the very same AY [M/s. Carl Zeiss India (P) Limited (153 taxmann.com 519) and M/s. Subex Limited (2023) (147 taxmann.com 559)] wherein the above facts have been specifically analysed in relation to M/s. Nihilent Limited and the same has been held to be functionally dissimilar to a software development service provider. Corporate Guarantee: 4. The Appellant had erred in law and on facts by incorrectly stating that the bank guarantee fee of 1% could be considered as CUP for the purpose of benchmarking the corporate guarantee provided to the Assessee’s AEs outside India without appreciating the fact that bank guarantees are not comparable to corporate guarantees. Printed from counselvise.com :-15-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. 5. Without prejudice to the above, even if bank guarantees were to be construed as comparable to corporate guarantee, the Appellant had failed to appreciate that the CUP data has been furnished to substantiate that bank guarantee charged by banks in AEs location is 0.5 percent. Hardware and Software Expenses: 6. The Appellant had erred in not appreciating that the Learned CIT(A) had gone through the documentary evidence such as ledger extracts, invoice copies and the customer agreements to hold that the hardware/ software are in the nature of consumables for customer projects. 7. The Appellant erred in stating that the hardware and software results in enduring benefit without even appreciating that the same were in the nature of consumables utilized in the customer projects as rightly held by the CIT(A).” Additional Grounds of Cross Objection: “1. The learned AO, TPO and the CIT(A) had erred in law and on facts by including Great Software Laboratory Private Limited and Cygnet Infotech Private Limited for computing the Arm’s Length Margin even though these companies are not comparable to the Petitioner due to various reasons such as functional dissimilarity, non-availability of segmental information, size, geographical area of operations, valuable intangibles, brand and R&D activity. 2. The learned AO, TPO and the CIT(A) had erred in law and on facts by excluding Akshay Software Technologies Limited, Pure software Private Limited and Jindal Intellicom Private Limited (Seg) companies for computing the Arm’s length Margin even though these companies are functionally similar and comparable to the Petitioner.” 28. During the course of hearing, the Ld.AR submitted that the above grounds raised by the assessee vide the cross objections and additional grounds of cross objection before us, were primarily directed against the appeal filed by the Revenue. Accordingly, having dismissed the appeal filed by the Revenue, we are of the considered view that the cross objections raised by the assessee become academic and infructuous and hence the CO of the assessee is dismissed. IT(TP)A No. 22/Chny/2024 – AY 2017-18 by the Assessee: 29. Coming to the assessee’s appeal, the following grounds were raised: Printed from counselvise.com :-16-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. “General Grounds: 1. The order passed by the Assessing Officer (“AO”)/ Transfer Pricing Officer (“TPO”)/ Commissioner of Income Tax (Appeals) (“CIT(A)”) is incorrect, contrary to law, facts, and circumstances of the present case. Grounds on Transfer Pricing Additions: 2. Upward revision on account of provision of corporate guarantee to AEs – INR 1,50,35,339/- 2.1. The learned AO/TPO/CIT(A) has erred in law and on facts in considering corporate guarantee as a separate international transaction under Section 92B of the Act. 2.2. The learned AO/TPO/CIT(A) ought to have appreciated that provisions of corporate guarantee is in the nature of shareholder activity and as such it cannot be regarded as international transaction. 2.3. The learned AO/TPO/CIT(A) ought to have appreciated that the Appellant does not incur any cost for extending such guarantee and hence the transaction does not have any bearing on the profits, incomes, losses or assets of the company. 2.4. The learned AO/TPO/CIT(A) erred in law and facts by not considering various judicial precedents wherein it was held that the issuance of corporate guarantee may have an influence on profits, income, losses or assets of the entity on whose favour guarantee is issued but it has no impact on person who provided the guarantee as long as it is issued without a consideration. 2.5. The learned AO/TPO/CIT(A) ought to have appreciated that the issuance of corporate guarantee is a transaction of routine nature, and the AE does not derive any direct benefit from such guarantee in terms of reduced interest rate, or any other benefit. 2.6. Without prejudice to the above, the learned CIT(A) erred in directing the TPO to impute an ad-hoc notional fee of 0.5% on the value of corporate guarantee provided to the AEs. 3. Non grant of foreign tax credit deemed to be deducted in Oman – INR 1,04,44,620/-: 3.1. The learned CIT(A) had erred in not allowing the Appellant’s claim for foreign tax credit with respect to the dividend income earned from Oman Printed from counselvise.com :-17-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. as per section 90 of the Act read with Article 25 of the Double Tax Avoidance Agreement between India and Oman (“DTAA”) 3.2. The learned CIT(A) ought to have appreciated that the Appellant had earned dividend income of INR 10,44,46,200/- from its AEs in Oman which was duly offered to tax under section 115BBD of the Act in India 3.3. The learned CIT(A) ought to have appreciated that dividend income was exempt from tax in Oman with a view to promote economic development and foreign investments in Oman Article 8 (bis) of the Omani Tax Laws and clarified and explained vide letter dated 11.12.2000 issued by the Sultanate of Oman, Ministry of Finance, Secretariat General for Taxation, Muscat., hence the Appellant is eligible to claim credit for taxes as per Article 25 of India Oman DTAA. 3.4. The learned CIT(A) ought to have appreciated that the Appellant is eligible to claim credit of taxes deemed to be deducted in Oman on dividend income but for such exemption, against the tax liability for this dividend income in India. 3.5. The learned CIT(A) ought to have followed the Hon’ble Supreme Court in the case of Krishak Bharati Co-operative Ltd [2023] (154 taxmann.com 318) (SC) had upheld the issue in favour of taxpayer, granting tax sparing credit on dividend income received from Oman, which is squarely applicable in the Appellant’s case. 3.6. The learned CIT(A) ought not to have rejected the Appellant’s claim by stating no certificate has been produced from the Omani tax authorities specifically in the Appellant’s case without appreciating the fact that the intention behind exempting the dividend income has already been clarified by Omani Tax Authorities (upheld by the Hon’ble Supreme Court supra) which applies to all the taxpayers in Oman.” 30. Accordingly, the following are the grounds / issues which are taken up for adjudication: S. No. Ground No. Nature of Issues Transfer Pricing Issues 1. 2 Corporate Guarantee fee Other: 2. 3 Foreign tax credit relating to dividend income earned in Oman Printed from counselvise.com :-18-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. 31. The first issue that came up for our consideration in ground No.2 of the appeal is the transfer pricing adjustment on account of provision of corporate guarantee to AEs which was treated as an international transaction by the TPO. Since this issue has already been adjudicated in Revenue’s appeal ITA No.1836/Chny/2024 (supra), we uphold the order of the Ld.CIT(A) in holding corporate guarantee as international transaction and hence no interference called for. As a result, Ground No. 2 raised by the Assessee stands dismissed. 32. The final issue that came up for our consideration in ground No.3 of the assessee’s appeal pertains to the claim of foreign tax credit in respect of dividend income earned by the assessee from its subsidiary in Oman. 33. The brief facts of the case are that the assessee had earned Dividend income from its subsidiary in Oman and offered the same to tax u/s.115 BBD of the Act. There were no claims made towards foreign tax credit in the return of income since no tax was actually paid in Oman towards such dividend income on account of the same being exempt from tax in Oman. Subsequently, during the course of assessment proceedings, the assessee claimed Foreign Tax Credit (“FTC”) as per Article 25(4) of the double tax avoidance agreement between India and Oman (“India - Oman DTAA”). The claim of the Assessee was towards the foreign tax credit in respect of taxes that would have been otherwise payable on such dividend income earned in Oman under Article 11 of the India - Oman DTAA. The Assessee’s claim was based upon the decision of the Hon’ble Delhi High Court in the case of Principal Commissioner of Income-tax v. Krishak Bharati Cooperative Ltd. [2017] 80 taxmann.com 326 (Delhi), wherein the Hon’ble High Printed from counselvise.com :-19-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. Court had allowed credit for taxes under Article 25(4) read with Article 11 of the India – Oman DTAA at the rate of 10 percent under similar circumstances though the assessee had actually not paid any tax in Oman on account of the dividend income being exempt from tax. However, the AO did not consider the submissions of the assessee and hence, no credit was granted. 34. Aggrieved, the assessee filed an appeal before the Ld.CIT(A), raising grounds of appeal seeking foreign tax credit contesting the actions of the AO in not considering its submissions. The Ld.CIT(A) rejected the claim of the assessee for the reason that it had not produced a letter / clarification from Oman tax authorities similar to the letter produced by the tax payer in the judgment of Hon’ble High Court of Delhi in the case of Krishak Bharati Cooperative Ltd., supra. 35. Aggrieved by the order of the Ld.CIT(A), assessee raised this issue before this tribunal. The Ld.AR submitted that the decision of the Hon’ble Delhi High Court (supra) has been affirmed by the Hon’ble Supreme Court in the case of Principal Commissioner of Income-tax Vs. Krishak Bharati Co-operative Ltd. [2023] 154 taxmann.com 318, wherein the Hon’ble Apex court had categorically held that the taxpayer would be eligible for foreign tax credit in India on the dividend income earned in Oman though no tax was actually paid in Oman under Article 25(4) read with Article 11 of India - Oman DTAA. 36. Further, Ld.AR drew our attention to the decision of the Hon’ble Supreme Court (Supra) wherein the Hon’ble Apex court held that the letter obtained by the Assessee Printed from counselvise.com :-20-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. from Omani tax authorities as only a clarificatory communication. Consequently, the Ld.AR submitted that the letter referred by the ld.CIT(A) obtained from Omani tax authorities is merely clarificatory and not mandatory to claim credit under Article 25(4) of India-Oman DTAA. The Ld.AR further submitted that once such letter is issued by the Omani tax authorities clarifying the intention behind exempting dividend income earned in Oman as promoting economic development, the benefit of such clarification extends to all taxpayers, without requiring each taxpayer to obtain a separate certificate as to the intention behind exempting dividend income on a case-to-case basis. 37. The Ld. AR further contended that neither the Act nor India - Oman DTAA casts any burden on the Assessee to furnish a proof as to the reason behind exemption of dividend income in Oman. The Ld.AR also pointed out as to the absence of any procedures prescribed either under the India - Oman DTAA or under the Omani Tax law to approach the Omani tax authorities and obtain a clarification/letter to this effect. Accordingly, the Ld.AR submitted that the revenue cannot import any special condition onto the Assessee when such a requirement has not been specifically laid down in the DTAA. 38. The Ld. AR further relying on the decision of Bengaluru Tribunal in the case of Kemwell (P.) Ltd. V. ACIT [2019] 106 taxmann.com 196 contended that the rationale for exempting the dividend income by itself is a proof that it was for no other purpose other than to promote economic development. Therefore, the Ld.AR submitted that there exists no obligation on the assessee to furnish any proof to establish the intention. In view of the above facts and judicial precedents cited supra, the Ld.AR pleaded that Printed from counselvise.com :-21-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. the claim of the Assessee may be allowed. 39. Per contra, the Ld. DR supported the findings of the Ld.CIT(A) and submitted that DTAA is not intended to promote non taxation in India and Oman. 40. We have carefully heard the rival submissions, perused the order of the lower authorities, relevant articles of India-Oman DTAA and have gone through the judicial precedents cited before us. The ld.CIT(A) in the impugned order had clearly mentioned at para 10.9 (page 30), that dividend income earned by the assessee company was exempt under Omani Tax law. The ld.CIT(A) had rejected the assessee’s contention only for the reason that assessee had not produced a letter / clarification from Omani tax authorities similar to the letter produced by the taxpayer in the case considered by the Hon’ble Delhi High Court in the case of M/s.Krishak Bharathi Co-operative Society Ltd.(supra). On perusal of Article 25 of the India – Oman DTAA, foreign tax credit shall be allowed with respect to taxes paid in Oman as well as taxes deemed to be paid but not actually paid in Oman on account of the tax incentives granted under the Omani tax law. 41. We find that the Hon’ble Supreme Court confirmed the judgment of the Hon’ble Delhi High Court in the case reported in 458 ITR 190 (SC) and held that Indian company is eligible for tax credit under Article 25(4) of India-Oman DTAA though no tax was actually paid in Oman. The Hon’ble Supreme Court at para 19 of the judgment had clearly observed that said letter issued by the Oman authority is only a clarification communication interpreting the provisions contained in Article 8 and Article 8 (bis) of Printed from counselvise.com :-22-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. the Omani Tax Laws. It was further observed by the Hon’ble Apex Court that the letter itself has not introduced any new provision in Omani tax laws. We are of the considered view that once clarification is issued by Omani tax authorities, it applies to all the taxpayers in respect of dividend income earned in Oman and each taxpayer is not expected to obtain a clarification / letter as to the intention behind taxability / non- taxability of dividend income. 42. We also find that the decision of coordinate bench of the Bengaluru Tribunal in the case of Kemwell (P.) Ltd. V. ACIT [2019] 106 taxmann.com 196 wherein it was held that treaty does not cast any burden on the taxpayer to produce a certificate from the source country to prove tax exemption has been introduced in the domestic tax law to promote economic development. In the said case, the Tribunal was considering India- Cyprus DTAA. In the India Cyprus DTAA, Article 25(4) which is identical to the India- Oman DTAA was being interpreted by the Co-ordinate Bench of the Tribunal. The Tribunal had extracted the FAA observation confirmed his finding that there was no necessity for each of the assessee to obtain a certificate from the source country that exemption under the domestic law was to promote economic development. 43. In light of the aforesaid reasoning, we hold that income-tax authorities cannot direct the assessee to comply with any special requirement where there was none for the purpose of affording the credit which is explicitly provided under the Treaty or import ‘general’ or ‘special’ conditions when such a requirement has not been specifically laid down in the DTAA. Therefore, we direct the AO to grant foreign tax credit on taxes payable in Oman but not paid due to specific exemption in Omani tax law. As a result, Printed from counselvise.com :-23-: ITA No.: 1836/Chny/2024, C.O.No.62/Chny/2024 & IT(TP) A No.: 22/CHNY/2024. the above ground No.3 raised by the assessee are allowed. 44. In the result, both the appeals filed by the revenue and the assessee are partly allowed and the cross objection filed by the assessee is dismissed. Order pronounced in the court on 21st November, 2025 at Chennai. Sd/- Sd/- चे\u000eनई/Chennai, /दनांक/Dated, the 21st November, 2025 SP आदेश क, *'त1ल2प अ3े2षत/Copy to: 1. अपीलाथ)/Appellant 2. *+यथ)/Respondent 3.आयकर आयु4त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 2वभागीय *'त'न ध/DR 5. गाड\u0018 फाईल/GF (जॉज\u0018 जॉज\u0018 क े) (GEORGE GEORGE K) उपा\u001aय\u001b /VICE PRESIDENT (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखा सद%य/ACCOUNTANT MEMBER Printed from counselvise.com "