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1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 26TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.464/2016
BETWEEN :
THE PR. COMMISSIONER OF INCOME-TAX, 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(1), PRESENT ADDRESS CIRCLE-1(1)(1), 7TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095.
... APPELLANTS
(BY SRI.ARAVIND K V, ADV.)
AND
M/S. AKAMAI TECHNOLOGIES INDIA PVT. LTD., SALARPURIA SOFTWARE, 80/1, "A" WING, 2ND & 3RD FLOOR, BELLANDHUR OUTER RING ROAD, BENGALURU - 560 037. PAN:AAICS 0950J.
... 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.
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THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:16.03.2016 PASSED IN IT(TP)A NO. 879/BANG/2013, FOR THE ASSESSMENT YEAR 2005-2006 ANNEXURE -D, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 879/BANG/2013 DATED:16.03.2016 ANNEXURE – D CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V. Aravind, Adv. for Appellants – Revenue. Mr. Mallaharao K., Adv., for Mr. Nageswar Rao, Adv., for Respondent – Assessee. .
This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore in IT[TP]A No.879/Bang/2013 dated 16.03.2016, relating to the Assessment Year 2005-06.
This Appeal has been admitted on 04.01.2018 to 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.
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“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in rejecting the diminishing revenue filter used by the Transfer Pricing Officer to exclude the companies that do not reflect the normal industry trend and therefore has directed the inclusion of M/s.Pentasoft Technologies Ltd, as an appropriate comparable?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law holding that M/s.R.System International as a comparable company when the said company is having a different accounting year, different business cycle as compared to that of tax payer and the financial year of both companies are different?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in confirming the order of CIT(A) directing the AO/TPO to exclude comparables companies such as, Mercury Outsourcing Management Ltd and Flextronics Software Systems Ltd on the basis of abnormal loss without defining what constitutes abnormal loss filter and how the same is determined?
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.
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Whether on the facts and in the circumstances of the case, the Tribunal is right in law in confirming the order of CIT(A) by holding that size and turnover of the company are deciding factors for treating a company as a comparable and excluded Wipro BPO solution Ltd, Sutherland Global Services Pvt. ltd as comparables in the Segment?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in confirming the order of CIT(A) holding that comparable such as, Pentasoft Technologies Ltd is to be included. The comparable ‘Nucleus Netsoft & GI S Ltd’ was excluded without appreciating the fact that the taxpayer accepted the same as comparable?”
Learned Counsel for the Appellants-Revenue submits that Substantial Question No.2 is not pressed.
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.
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The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding Substantial Question Nos.1 & 5: “12. Ground No.7 challenges the direction of the ld.CIT(A) to include M/s. Pentasoft Technologies Ltd., in the list of comparables. This comparable was offered by the respondent- assessee-company during the course of proceedings before the TPO. TPO rejected this company as comparable for the reson that no annual report was available on public domain and the company was reporting decreasing sales against the industry trend. The ld. CIT(A) held that the diminishing revenue cannot be accepted as a filter and directed the TPO to include this company 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 Annual report for 2004-05 and specific attention was drawn to page 221 of the paper book which highlights the business performance of the company, which is as under: xxxxxxxxxx
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.
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12.2 We have considered the rival submissions and material on record. From the above it is clear that the though there was fall in gross revenue, net profit could be maintained at the same level due to several cost cutting measures and improved margins in the business undertaken by the respondent-assessee- company.
Therefore, the criterion of diminishing revenue is not applicable to this comparable company even if the criterion is held to be relevant. We uphold the order of the ld. CIT(A) in directing the TPO to include this company in the list of comparable. The ground of appeal of the revenue dismissed.”
Regarding Substantial Question No.3: “11. Ground No.6 challenges the direction of the ld.CIT(A) to exclude Mercury Outsourcing Management Ltd., and Flextronics Software Systems Ltd., on the basis of abnormal loss without defining what constitutes abnormal loss filter and how the same is determined.” Regarding Substantial Question No.4: “10.1 We heard the rival submissions and perused 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.
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Bombay High Court in the case of CIT vs. Pentair Water India Pvt. Ltd. (381 ITR 216) had held that the turnover was a relevant factor for the purpose of comparability of two entitles. However, without going into this issue, as rightly submitted by the learned AR of the respondent-assessee- company, it was held by the co-ordinate benches of Hyderbabad and Mumbai benches in the cases cited supra, Wipro BPO Solutions Ltd., cannot be considered as a comparable entity in view of the fact that it is gigantic company owning intangibles and having substantial brand value. Co-ordinate bench (Hyderabad) of the Tribunal, in the case of M/s.Market Tools Research Pvt. Ltd., (supra) held as follows: xxxxxxxxx 10.2 In the case of Maersk Global Services Centre (India) P. Ltd.(supra), Mambai Bench of the Tribunal held that: xxxxxxxx Therefore respectfully following the decisions of the co-ordinate benches of Tribunal in the cases cited supra, we hold that WIPRO BOP Solutions cannot be considered as a comparable entity, and the findings of the ld. CIT(A) are upheld accordingly. The ground of appeal of the revenue is 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.
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The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 [Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt. Ltd.,] wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference: “Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, 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.
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be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an ‘Arm’s Length Price’ 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.
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the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
In the circumstances, having heard the learned Counsel appearing for both the parties, We are of the considered opinion that no substantial question of law arises for consideration in the present case.
Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
AN/-