BAHWAN CYBERTEK PRIVATE LIMITED,CHENNAI vs. ACIT, CORPORATE RANGE -1,, CHENNAI

ITTPA 51/CHNY/2023Status: DisposedITAT Chennai11 November 2025AY 2014-1513 pages
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What were the facts?

The assessee, Bahwan Cybertek Pvt. Ltd., filed appeals for Assessment Years 2013-14 and 2014-15 against orders of the CIT(A)-16, Chennai. The appeals concerned three main issues: exclusion of foreign exchange loss and restatement of FCNR loan, corporate guarantee commission, and non-grant of Foreign Tax Credit on taxes deemed paid in Oman. The assessee had taken a foreign loan for building construction, arguing the related forex loss was not linked to its software development operations and should be excluded from transfer pricing calculations. The TPO had initially accepted the assessee's margin. The CIT(A) however, included the forex loss. Regarding corporate guarantee, the assessee argued it was a shareholder activity, not an international transaction. The TPO disagreed, treating it as an international transaction and imputing a 1% guarantee fee. The CIT(A) reduced this to 0.5%. For Foreign Tax Credit, the assessee earned dividend income from its Oman subsidiary, which was exempt in Oman to promote economic development. The assessee claimed credit under Article 25 of the India-Oman DTAA, even though no tax was paid.

What did the Tribunal hold?

On the issue of foreign exchange loss, the Tribunal noted that the assessee's TP study excluded it, and the TPO had initially accepted it. The CIT(A) included it without an enhancement notice. The Tribunal found the assessee unable to clearly demonstrate how the CIT(A) included the loss. In the interest of justice, the matter was restored to the CIT(A) for the assessee to explain the inclusion. Regarding corporate guarantee commission, the Tribunal held that following the amendment by Finance Act 2012, specifically Explanation 1(e) to section 92B(2), corporate guarantee commission is to be treated as a deemed international transaction. Therefore, the assessee's contention was rejected, and the ground was dismissed. On the issue of Foreign Tax Credit, the Tribunal held that the Supreme Court in PCIT vs. Krishak Bharti Co-operative Ltd. confirmed that an Indian company is eligible for tax credit under Article 25(4) of the India-Oman DTAA even if no tax was paid in Oman, provided the exemption was to promote economic development. The Tribunal found that the CIT(A) rejected the claim solely for the lack of a specific letter from Omani authorities, which the Supreme Court held was not a mandatory precondition. Following the Supreme Court and the ITAT Bangalore's decision in Kemwell (P.) Ltd., the Tribunal directed the AO to grant the foreign tax credit. The grounds were allowed.

What were the issues?

1. Whether foreign exchange loss arising from an FCNR loan taken for building construction, not directly related to the assessee's software development operations, should be excluded from the transfer pricing study margin. The assessee argued it has no direct nexus with operating income and is a capital-front accounting entry. The revenue contended that the assessee should have filed a rectification application under section 154. 2. Whether corporate guarantee provided to Bank of Muscat for subsidiary credit facilities constitutes an international transaction and what fee should be imputed. The assessee argued it's a shareholder activity. The revenue, citing Finance Act 2012 amendments, treated it as an international transaction. The TPO imputed 1%, and the CIT(A) reduced it to 0.5%. The assessee relied on Bharti Airtel Ltd. vs. ACIT. 3. Whether the assessee is eligible for Foreign Tax Credit under Article 25 of the India-Oman DTAA on dividend income from Oman, which is exempt in Oman to promote economic development, even though no tax was actually paid. The assessee relied on the Supreme Court's decision in PCIT vs. Krishak Bharti Co-operative Ltd. and ITAT Bangalore's decision in Kemwell (P.) Ltd. The revenue supported the CIT(A)'s order.

Which sections of the Income-tax Act were involved?

Section 92CA,Section 154,Section 92B,Section 115BBD

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA

Hearing: 29.10.2025Pronounced: 11.11.2025

PER GEORGE GEORGE K, VICE PRESIDENT:

These appeals filed by the assessee are directed against two orders of Commissioner of Income Tax (Appeals)-16, Chennai both dated 24.03.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Years are 2013-14 & 2014-15. IT(TP)A Nos.50 & 51/Chny/2023 :- 2 -:

2.

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