TaxTMI 
TaxTMI 
2026 (1) TMI 1467
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....he 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/....
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.... 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 c....
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....ther 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 Pri....
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....key industries to which we provide our services include BFSI, media and entertainment, mobility and telecommunications, life sciences and healthcare, manufacturing, retail and consumer products. We have also been engaged by the government and public sector companies in several countries. The Company derived a majority of revenues from South Africa where we have long standing relations with corporate clients. As a part of our global strategy, we are expanding our operations in other geographies such as United States, United Kingdom, Australia, Ireland, India, Nigeria and Tanzania. Towards this, we acquired Investment in Nihilent Analytics Limited (previously known as ICRA Techno Analytics Limited) a Business Intelligence and analytics company with offices in India and the USA, and partners across Asia, Europe and America. In terms of the digital strategy, the Company has trained core team of 50 mid- senior leaders on design thinking. The Company is in the process of commissioning User Experience Lab in the new premises. Our customer engagements comprise holistic analysis of problems which span across people, process, technology, as well as learning and inn....
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....t service provider working on cost + markup model, hence ordered to be excluded." 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 revenu....
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....eard 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 rel....
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....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. 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 supporte....
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....verse 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. 5. Without prejudice to the above, even if bank guarantees were to be construed....
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....ry 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....
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....lready 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 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 i....
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....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 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 I....