Date Of Judgment 26-07-2018, Ita v. M/S.akamai Technologies India Pvt. Ltd. 2/10

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 26 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.464/2016 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME-TAX,"[‘T]FLOOR, BMTC BUILDING,"[‘T]FLOOR, BMTC BUILDING, 80 FEET ROAD,KORAMANGALA,BENGALURU - 560 O95. 2.THR DBEPUTY COMMISSIONBR OF INCOME-TAXCIRCLE-11(1), PRESENT ADDRESSCIRCLE-11(1), PRESENT ADDRESS CIRCLE-1(1)(1),.& FLOOR, BMTC BUILDING,80 FEET ROAD, KORAMANGALA,BBNGALURU - 560 O95. _. APPBLLANTS| (BY SRI.ARAVIND K V, ADV.) AND M/S. AKAMAI TECHNOLOGIES INDIA PVT. LTD.,SALARPURIA SOFTWARE,80/1, "A" WING, 2 oa FLOOR,BELLANDHUR OUTER RING ROAD,BBNGALURU - 560 037.PAN: AAICS 0O950J. _. RESPONDENT (BY MR. MALLAHARAO.K. ADV. FOR|MR.NAGESWAR RAO, ADV.) Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 2/10 THIS [TA IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED:10.03.2010PASSED|IN|IT(TP)ANO.|879/BANG/2013,FORTHEASSESSMENT YEAR 2005-2006 ANNEXURE -D, PRAYING TO: I.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED|ABOVE. [I]. ALLOW THR APPKAL AND SBT ASIDEB THR ORDERPASSED|BYTHEINCOME-TAX.APPBRLLATBTRIBUNAL, BENGALURU IN IT(TP)A NO. 879/BANG/2013 DATED:16.03.2016—ANNBEXURE — D CONFIRMING THR ORDER OF THR APPELLATECOMMISSIONBR AND CONFIRM THR ORDER PASSBD BY THE!DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1),.BENGALURU.. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V. Aravind, Adv. for Appellants — Revenue. |Mr. Mallaharao K.,Adv., forMr. Nageswar Rao,Adv.,for Respondent — Assessee. | This Appeal is filed by the Revenue purportedly|raising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, ‘A’ Bench,Bangalore|1nIT|TPIANo.879/Bang/2013dated16.03.2016, relating to the Assessment Year2005-06 2.ThisAppealhas|beenadmitted|OTL04.01.2018to consider the following substantial|questions of law. Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 3/10 “1. Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in rejecting the diminishing revenue filterused by the Transfer Pricing Officer to exclude thecompanies that do not reflect the normal industrytrend and therefore has directed the inclusion ofM/s.PentasoftTechnologiesLtd,as|aT?appropriate comparable? D2 Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law holding that M/s.R.System International as acomparable company when the said company is having a different accounting year, differentbusiness cycle as compared to that of tax payerand the financial year of both companies aredifferent?r 3,Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in confirming the order of CIT(A) directing theAO/TPO to exclude comparables companies suchas, Mercury Outsourcing Management Ltd andFlextronics Software Systems Ltd on the basis ofabnormal loss without defining what constitutesabnormal loss filter and how the same isdetermined? Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 4/10 4 Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in confirming the order of CIT(A) by holdingthat size and turnover of the company aredeciding factors for treating a company as acomparable and excluded Wipro BPO solution -Ltd, Sutherland Global Services Put. ltd ascomparables in the Segment?| Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 4/10 4 Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in confirming the order of CIT(A) by holdingthat size and turnover of the company aredeciding factors for treating a company as acomparable and excluded Wipro BPO solution -Ltd, Sutherland Global Services Put. ltd ascomparables in the Segment?| 5.Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in confirming the order of CIT(A) holding thatcomparable such as, Pentasoft Technologies Ltdis to be included. The comparable ‘NucleusNetsoft & GI S Ltd’ was excluded withoutappreciating the fact that the taxpayer acceptedthe same as comparableP” 6.Learned Counsel for the Appellants-Revenue submits that Substantial Question No.2 is not pressed. T.said Submission is placed on record. Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 5/10 8.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: Regarding Substantial Question Nos.1 & 5:| “12. Ground No.7 challenges the directionof the lId.CIT(A) to include M/s. PentasoftTechnologies Ltd., in the list of comparables. This:comparable was offered by the respondent-assessee-COMmpanyduringtheCOULrSeof|proceedings before the TPO. TPO rejected thiscompany as comparable for the reson that noannual report was available on public domainand the company was reporting decreasing sales|against the industry trend. The Id. CIT(A) heldthat the diminishing revenue cannot be acceptedas a filter and directed the TPO to include thiscompany in the list of comparables. 12.1 Ld. AR of the respondent —assessee-company drawn our attention to page 215 to 260)of the paper book which contains the Annualreport for 2004-05 and specific attention wasdrawn to page 221 of the paper book whichhighlights the business performance of thecompany, which is as under: NXXXXKXXKXX Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 6/10 12.2 Wehave.consideredtherivalSubmissions and materiaql on record. From theabove it is clear that the though there was fall in|gross revenue, net profit could be maintained atthe same level due to several cost cuttingmeasures and improved margins in the businessundertakenbythe respondent-assessee- Therefore, the criterion of diminishingrevenue is not applicable to this comparablecompany even tf the criterion is held to berelevant. We uphold the order of the ld. CIT(A) indirecting the TPO to include this company in thelist of comparable. The ground of appeal of therevenue dismissed.” Regarding Substantial Question No.3: G11. Ground No.6 challenges the direction of theld.CIT(A)TO excludeMercuryOutsourcingManagement Ltd., and Flextronics Software|systems Ltd., on the basis of abnormal losswithout defining what constitutes abnormal lossfilter and how the same is determined.” Regarding Substantial Question No.4: “10.1We heard the rival submissions andperused the material on record. The Hon’ble Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 7/10 Regarding Substantial Question No.3: G11. Ground No.6 challenges the direction of theld.CIT(A)TO excludeMercuryOutsourcingManagement Ltd., and Flextronics Software|systems Ltd., on the basis of abnormal losswithout defining what constitutes abnormal lossfilter and how the same is determined.” Regarding Substantial Question No.4: “10.1We heard the rival submissions andperused the material on record. The Hon’ble Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 7/10 Bombay High Court in the case of CIT vs. PentairWater India Put. Ltd. (S81 ITR 216) had held thatthe turnover was a relevant factorfor the purposeof comparability of two entitles. However,without going into this issue, as rightly submittedby the learned AR of the respondent-assessee-company, it was held by the co-ordinate benchesof Hyderbabad and Mumbai benches in the casescited supra, Wipro BPO Solutions Ltd., cannot beconsidered as a comparable entity in view of thefactthatit.1SgiganticCOTTLDPAowningintangibles and having substantial brand value. —Co-ordinate bench (Hyderabad) of the Tribunal, inthe case of M/s.Market Tools Research Put. Ltd.,(supra) held as follows: XXXXXXXXX| 10.2 In the case of Maersk Global ServicesCentre (India) P. Ltd.(supra), Mambai Bench of theTribunal held that: XXXXXXXX Therefore respectfully following the decisions ofthe co-ordinate benches of Tribunal in the casescited supra, we hold that WIPRO BOP Solutionscannot be considered as a comparable entity, andthe findings of the ld. CIT(A) are upheldaccordingly. The ground of appeal of the revenue1s dismissed.” Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 8/10 QOThe controversy involved herein is no moreres integrain view ot the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated95.06.2018[Prl. Commissioner of Income Tax & Anr. V/s.M/s.Softbrands India Pvt. Ltd.,]|wherein it has beenobserved that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgmentis quoted below for ready reference: “Conclusion: 03. A substantial quantum of international tradeand transactions depends upon the fair and quickjudicial dispensation in such cases. Had it beena case of substantial question of interpretation ofprovisions of Double Taxation Avoidance Treaties(DTAA), interpretation of provisions of the IncomeTax Act or Overriding Effect of the Treaties overthe Domestic Legislations or the questions likeTreaty Shopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), if based on relevantfacts, such substantial questions of law could Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 9/10 be raised before the High Court underSection260-A|of the Act, the Courts could haveembarked upon such exercise of framing and)answering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the consideredopinion that the present appeals filed by theRevenue do not give rise to any substantialquestion of law and the suggested substantialquestions of law do not meet the requirements ofSection 260-A.of the Act and thus the appealsfiled by the Revenue are found to be devoid ofmerit and the same are liable to be dismissed. | 9/10 be raised before the High Court underSection260-A|of the Act, the Courts could haveembarked upon such exercise of framing and)answering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the consideredopinion that the present appeals filed by theRevenue do not give rise to any substantialquestion of law and the suggested substantialquestions of law do not meet the requirements ofSection 260-A.of the Act and thus the appealsfiled by the Revenue are found to be devoid ofmerit and the same are liable to be dismissed. | 57. We make it clear that the same|yardsticks and parameters will have to beapplied, even if such appeals are filed by theAssessees, because, there may be cases wherethe Tribunal giving its own reasons and findingshas found certain comparables to be goodcomparables to arrive at an‘Arm’s LengthPrice’ in the case of the assessees with which Date of Judgment 26-07-2018, ITA No.464/2016 The Pr. Commissioner of Income-tax & another Vs. M/s.Akamai Technologies India Pvt. Ltd. 10/10 the assessees may not be satisfied and have filedsuch appeals before this Court. Therefore weclarify that mere dissatisfaction with the findings|offacts arrived at by the learned Tribunal is notat all a sufficient reason to invokeSection 260-Aof the Act before this Court. o8. The appeals filed by the Revenue are)therefore dismissed with no order as to costs.” 1Q,In the circumstances, having heard thelearned Counsel appearing for both the parties, We areof the considered opinion that no substantial questionof law arises for consideration in the present case. 11.Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordinglydismissed. Nocosts. AN/-| Sd/-.JUDGE. Sd/-.JUDGE.