Akamai Technologies Solutions (India) Private Limited Vs ACIT (ITAT Bangalore)
Summary: For assessment year 2011-12, Akamai Technologies Solutions (India) Private Limited challenged the transfer-pricing adjustment arising after the TPO rejected its characterisation as a reseller of services purchased from associated enterprises and instead treated it as an IT-enabled services provider. The assessee had reported purchase of services for resale of ₹256,717,524 and had benchmarked its international transactions under the Transactional Net Margin Method using 18 comparables, whereas the TPO selected 10 comparables with an average margin of 18.54% and made an adjustment of ₹44,666,385. The Bangalore ITAT noted that, in the immediately preceding year, the DRP had characterised the assessee as a marketing support service provider after detailed examination, while in the year under appeal it accepted the TPO’s ITeS characterisation without explaining its departure despite there being no change in the facts, circumstances or FAR profile. The Tribunal held that the DRP’s directions, being unsupported by reasons, could not be sustained. During the hearing, the assessee also produced a unilateral Advance Pricing Agreement dated 10 December 2024 entered into with the CBDT under section 92CC, covering assessment years 2012-13 to 2015-16, under which the assessee was characterised as a reseller, TNMM was accepted as the appropriate method and a minimum operating-profit margin of 6% was prescribed. Although the APA did not cover assessment year 2011-12 and therefore did not govern determination of the arm’s-length price for that year, the Tribunal considered its findings relevant because the CBDT had examined the assessee’s functions, assets and risks. The entire issue concerning characterisation was accordingly restored to the Assessing Officer for fresh adjudication, with directions to consider the APA terms if the assessee was found to be a reseller and, if the APA was considered inapplicable, to independently examine the transfer-pricing study. The assessee was also permitted to contend that the 6% margin should apply to the year under appeal because there was no change in the relevant facts or circumstances. The remaining grounds were dismissed as largely premature, and the appeal was allowed for statistical purposes.
DRP Cannot Recharacterise Reseller as ITeS Provider Without Reasons: Bangalore ITAT Directs Consideration of Subsequent APA
The assessee, Akamai Technologies Solutions (India) Private Limited, entered into agreements with its US and Swiss group entities to market, resell and support proprietary services in India. For AY 2011-12, it reported purchase of services for resale of approximately ₹25.67 crore and characterised itself as a reseller. Applying the Transactional Net Margin Method with 18 comparables, the assessee claimed that its international transactions were at arm’s length.
The TPO rejected the transfer-pricing study and recharacterised the assessee as an IT-enabled services provider. Based on a fresh set of ten comparables having an average margin of 18.54%, the TPO proposed a transfer-pricing adjustment of ₹4.47 crore, which was substantially upheld by the DRP.
The Bangalore ITAT observed that, in the immediately preceding year, the DRP had characterised the assessee as a marketing-support service provider after conducting a detailed examination. However, for the year under appeal, despite there being no material change in the facts, circumstances or FAR profile, the DRP accepted the TPO’s ITeS characterisation without undertaking an independent functional analysis or explaining its departure from the earlier view. The Tribunal therefore held that the DRP’s unreasoned and inconsistent direction could not be sustained.
The assessee also produced a unilateral Advance Pricing Agreement dated 10 December 2024 entered into with the CBDT, covering AYs 2012-13 to 2015-16. Under the APA, the CBDT had examined the assessee’s functions, assets and risks, accepted TNMM as the appropriate method, characterised the assessee as a reseller and prescribed a minimum operating-profit margin of 6%.
Although the APA did not directly cover AY 2011-12, the Tribunal held that its findings were relevant because they were based upon an extensive functional examination and concerned the immediately succeeding years. Accordingly, the entire issue of characterisation and determination of the arm’s-length price was restored to the AO for fresh adjudication.
The AO was directed to examine whether the assessee was properly characterised as a reseller. If so, the terms and margin prescribed under the APA could be considered and applied if found reasonable. If the AO considered the APA inapplicable to the year under appeal, he was required to independently examine the assessee’s transfer-pricing study. The assessee was also permitted to contend that, since there was no change in the factual position, the 6% APA margin should apply to AY 2011-12 as well.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. For assessment year 2011–12, the assessee challenges the assessment order dated 23 December 2015, passed by the Assistant Commissioner of Income Tax, Circle–1(1)(1), Bangalore, under section 143(3) read with sections 144C (5) and 144C(13) of the Income-tax Act, 1961. The order was passed pursuant to the directions of the learned Dispute Resolution Panel–1, Bangalore dated 19 November 2015, and determined the assessee’s total income at ₹68,342,116, as against the returned income of ₹24,459,626. The assessee had also challenged the draft assessment order dated 19 February 2014, including the adjustment of ₹34,342,675 made towards the arm’s length price of the international transactions.
2. The assessee has raised the following grounds of appeal: [ITA No. 245/Bang/2016]:
1. The Assessing Officer (“AO”), in pursuance of the Transfer Pricing Order (“TP Order”) and the directions of the Dispute Resolution Panel (“DRP”), erred in law and on facts, in Functions, Assets and Risk (“FAR”) analysis of the Tested party, Le., the Appellant, by fallaciously re-characterising it as Information Technologies Enabled Services (“ITES”), instead of Distribution of Services purchased from its Associated Enterprises;
2. The AO, in pursuance of the TP Order and the directions of the DRP, erred in law and on facts, in re-characterising the nature of International Transaction as Provision of ITES instead of in the nature of Purchase of Services for Resale, thereby leading to fallacious FAR analysis of the Tested party, Le., the Appellant and consequent selection of fallacious Comparables;
3. That on the facts and in the circumstances of the case, the learned AO and the learned DRP erred in upholding the adjustment made by the learned Transfer Pricing Officer (“TPO”) to the transfer price of the international transactions of the Appellant amounting to INR 44,666,385 contending that the same is not at arm’s length in terms of the provisions of sections 92C(1) and 92C(2) of the Income-tax Act, 1961 (“the Act”) read with Rule 10D of the Income-tax Rules, 1962 (“the Rules”). And in doing so the learned DRP allowed a nominal relief of INR 783,895.
4. The AO, in pursuance of the TP Order and the directions of the DRP, erred in law and on facts, in rejecting the filters applied by the Appellant in its Transfer pricing Study (TP Study”) and those proposed during the course of the transfer pricing assessment proceedings for the purposes of inclusion or exclusion of respective Comparables;
5. The AO, in pursuance of the TP Order and the directions of the DRP, erred in law and on facts, in adopting the fresh filters for the purposes of inclusion or exclusion of respective Comparables;
6. The AO, in pursuance of the TP Order and the directions of the DRP, erred in law and on facts, in excluding, FAR Analysis wise similar and compatible Comparables, selected and proposed by the Appellant, through application of appropriate filters, in its TP Study and during the course of transfer pricing assessment proceedings;
7. The AO, erred in law and on facts, in considering and including, FAR analysis wise dissimilar and incompatible Comparables, selected by the TPO, through application of inappropriate filters, even though some of these Comparables were either removed and / or altered by the DRP;
8. The AO, in pursuance of the directions of the DRP, erred in law and on facts, by using single year data of the relevant Financial Year, and hereby rejecting use of multiple year data;
9. The AO, in pursuance of the directions of the DRP, erred in law and on facts, in upholding the computation of the working capital adjustment for differences between the working capital of the Appellant and the Comparables engaged in ITES, instead of Comparables engaged in distribution of Software and Hardware Products;
10. The AO, in pursuance of the directions of the DRP, erred in levying Interest U/s 234D of the Act.
3. The assessee is an Indian company and a subsidiary within a group ultimately held by a US company. It entered into a Service Reseller Agreement with the US entity on 7 January 2010, effective from 1 April 2009, under which it was appointed as a non-exclusive reseller to market, resell, and support proprietary services in India. It also entered into a similar Service Reseller Agreement with a Switzerland-based entity on 12 July 2010, effective from 1 July 2010.
4. The assessee reported international transactions comprising purchase of services for resale of ₹256,717,524, reimbursement of expenses of ₹12,887,052, and recovery of reimbursement of ₹1,769,796.
5. It filed its return of income on 30 November 2011 declaring total income of ₹24,459,626, and the case was selected for scrutiny by issuing notice under section 143(2) of the Act. The Assessing Officer referred the international transactions to the Deputy Commissioner of Income Tax (Transfer Pricing)–1(1)(1), Bangalore, i.e., the learned Transfer Pricing Officer, for determination of their arm’s length price.
6. On examining the transfer pricing documentation, the learned TPO noted that the assessee had characterised itself as a reseller, adopted the Transactional Net Margin Method as the most appropriate method, benchmarked the transactions against 18 comparables in its transfer pricing study, and concluded that the transactions were at arm’s length.
7. The learned TPO, however, rejected the study, holding that the assessee was engaged in rendering IT-enabled services to its associated enterprises. He accordingly characterised the assessee as an ITeS service provider rather than a reseller, conducted a fresh search, selected 10 comparables with an average margin of 18.54%, and made an adjustment of ₹44,666,385.
8. When the matter came before the learned Dispute Resolution Panel and the assessee’s characterisation was challenged under ground no. 3, the learned DRP held as under:
“ Having considered the submission, we examined paragraph 6 and 7 of the order of the TPO in which the TPO has examined the submission made by the assessee, agreement with the AE and the nature of services rendered and arrive at a conclusion in paragraph No. 7.4 of the order under section 92C capital (3) of the act that the services rendered in the nature of IT enabled services. We do not find any in permit in the conclusion drawn by the TPO, accordingly, the above objection is not found acceptable”
9. We note that, in the immediately preceding year, the assessee characterised itself as a reseller, while the learned TPO treated it as an ITeS service provider and the learned DRP characterised it as a marketing support service provider.
10. In the present year, however, the learned DRP has accepted the learned TPO’s view and characterised the assessee as an ITeS service provider. Since there is no change in the facts and circumstances of the case or in the assessee’s FAR profile, we find no basis for the DRP’s departure from its earlier order. The DRP has also given no reasons for agreeing, in this year, with the learned TPO’s characterisation of the assessee as an ITeS service provider. Accordingly, the directions of the learned DRP, being unsupported by reasons, cannot be sustained.
11. During the hearing, the learned authorised representative produced a copy of the unilateral Advance Pricing Agreement dated 10 December 2024, entered into with the Central Board of Direct Taxes under section 92CC of the Income-tax Act, 1961. He submitted that, for assessment year 2012–13, the assessee was chracterised as a reseller after examination of its FAR profile and detailed enquiries, including review of functions, interviews, and site visits, making that characterisation more reliable. Referring to paragraph 6 of the agreement, he further submitted that the covered transaction—purchase of services for resale in India—would be regarded as being at arm’s length if the assessee maintained an operating profit margin of at least 6%. He therefore requested that the matter be restored to the learned Transfer Pricing Officer to reconsider the assessee’s characterisation as a reseller and apply the arm’s length price standard set out in the APA.
12. The learned CIT DR supported the orders of the learned that lower authorities.
13. We have carefully considered the rival contentions and perused the orders of the lower authorities. The dispute concerns the assessee’s characterisation: the assessee claims to be a reseller, whereas the learned TPO treated it as an ITeS service provider, and the learned DRP affirmed that view without giving any cogent reasons. The DRP also failed to consider its own direction for assessment year 2010–11, where, after a detailed analysis spanning more than 20 pages, it had characterised the assessee as a marketing support service provider. In the present year, without examining the assessee’s functions or explaining the departure from its earlier view, the DRP simply agreed with the TPO. In these circumstances, the DRP’s direction treating the assessee as an ITeS service provider is without merit and cannot be upheld.
14. The Advance Pricing Agreement dated 10 December 2024, produced before us, covers assessment years 2012–13 to 2015–16 and not the impugned assessment year 2011–12. Strictly speaking, therefore, its findings do not govern the determination of the arm’s length price for the international transaction undertaken in assessment year 2011–12. However, while entering into the APA, the Central Board of Direct Taxes examined the assessee’s functions, assets, and risks, accepted the Transactional Net Margin Method as the most appropriate method, and, after analyzing the critical assumptions, characterised the assessee as a reseller. The APA also provides that the international transaction would be at arm’s length if the assessee’s operating profit margin is not less than 6%.
15. In view of the above, we restore the entire issue to the file of the learned Assessing Officer for fresh adjudication of ground no. 3 concerning the assessee’s characterisation. If the learned Assessing Officer is satisfied that the assessee is properly characterised as a reseller, he may consider the terms and conditions for determining the arm’s length price under the APA and, if found reasonable, determine the issue in accordance with law. If, however, he is of the view that the APA does not apply to the impugned assessment year, he shall examine the assessee’s transfer pricing study report and decide the matter accordingly. The assessee shall also be at liberty to contend before the learned Assessing Officer that, as there is no change in the facts or circumstances from those considered in the APA, the margin specified therein should be applied to the present year as well.
16. Since the assessee’s characterisation itself remains uncertain, the other grounds of appeal are largely premature and are therefore dismissed. The contentions raised in those grounds may be considered afresh by the learned Assessing Officer while determining the arm’s-length price of the international transaction in dispute.
17. In the result appeal filed by the assessee is allowed as indicated above for statistical purposes.
Order pronounced in the open court on 24th August, 2026.
