DCIT, Circle-1(1), Hyderabad, Hyderabad v. Apollo Health Street Ltd., Hyd, Hyderabad

ITA 332/HYD/2015 | 2010-2011
Pronouncement Date: 21-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 33222514 RSA 2015
Assessee PAN AADCA4278N
Bench Hyderabad
Appeal Number ITA 332/HYD/2015
Duration Of Justice 1 year(s) 6 month(s) 19 day(s)
Appellant DCIT, Circle-1(1), Hyderabad, Hyderabad
Respondent Apollo Health Street Ltd., Hyd, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 21-10-2016
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 21-10-2016
Date Of Final Hearing 21-09-2016
Next Hearing Date 21-09-2016
Assessment Year 2010-2011
Appeal Filed On 01-04-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B HYDERABAD BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 4 35 /HYD/201 5 20 1 0 - 11 M/S. SUTHERLAND HEALTHCARE SOLUTIONS PRIVATE LTD. (FORMERLY KNOWN AS APOLLO HEALTH STREET LTD) HYDERABAD [PAN: AADCA4278N] THE DY. COMMISSIONER OF INCOME TAX CIRCLE-1(1) HYDERABAD 332/HYD/2015 2010 - 11 THE DY. COMMISSIONER OF INCOME TAX CIRCLE-3(2) HYDERABAD M/S. SUTHERLAND HEALTHCARE SOLUTIONS PRIVATE LTD. (FORMERLY KNOWN AS APOLLO HEALTH STREET LTD) HYDERABAD [PAN: AADCA4278N] FOR REVENUE : SMT S. NARASAMMA CIT-DR FOR ASSESSEE : SHRI RAVI BHARADWAJ AR DATE OF HEARING : 21-09-2016 DATE OF PRONOUNCEMENT : 21-10-2016 O R D E R PER B. RAMAKOTAIAH A.M. : THESE ARE CROSS-APPEALS BY ASSESSEE AND REVENUE AGA INST THE ORDERS OF THE ASSESSING OFFICER (AO) U/S. 143(3) R.W .S. 144C OF THE INCOME TAX ACT [ACT] ON THE ISSUES OF TRANSFER PRICING AND CORPORATE TAX MATTERS FOR AY. 2010-11. 2. ASSESSEE WAS FORMERLY KNOWN AS APOLLO HEALTH STRE ET LTD HEADQUARTERED AT HYDERABAD IS A GLOBAL HEALTH CARE SERVICES SUTHERLAND HEALTHCARE SOLUTIONS PVT. LTD. (FORMERLY KNOWN AS APOLLO HEALTH STREET LTD) :- 2 -: COMPANY THAT OFFERS A RANGE OF BUSINESS PROCESS OUTSO URCING TO COMMERCIAL AND HEALTH CARE SERVICE PROVIDERS. FOR A Y. 2010-11 ASSESSEE FILED ITS RETURN OF INCOME DECLARING INCOME OF RS. 73 84 957/- AFTER CLAIMING DEDUCTION U/S. 10A OF THE ACT AND SET- OFF OF BROUGHT FORWARD LOSSES OF RS. 25 17 849/- UND ER NORMAL PROVISIONS OF THE ACT. SINCE THERE ARE INTERNATIONAL T RANSACTIONS THE MATTER WAS REFERRED TO ADDL. CIT TP U/S. 92CA OF THE ACT. THE ADDL. CIT HAS DETERMINED THE TP ADJUSTMENT ON CORPORAT E GUARANTEE PROVIDED BY ASSESSEE TO ITS SUBSIDIARIES IN US. ASSESSEE OBJECTED TO THE SAME BEFORE THE DISPUTE RESOLUTION PANEL [DRP] AND FILED DETAILED OBJECTIONS ON 10-04-2014 AGAINST TH E DRAFT ASSESSMENT ORDER OF THE AO. DRP VIDE ITS ORDER DT. 24- 12-2014 HAS REDUCED THE CORPORATE GUARANTEE ADOPTED AT 3.75% TO 2% AND GAVE PARTIAL RELIEF TO ASSESSEE. ASSESSEE IS AGGRIEVED ON THE TP ADJUSTMENT MADE ON CORPORATE GUARANTEE. IN ADDITION TO THE ABOVE THERE ARE TWO MORE OBJECTIONS RAISED BY ASSESS EE BEFORE THE DRP. WHILE COMPUTING THE DEDUCTION U/S. 10A AO HAS R EDUCED THE COMMUNICATION EXPENSES OF RS. 1 33 89 840/- FROM EXPORT TURNOVER AND HAS NOT REDUCED THE SAME FROM THE TOTAL TU RNOVER THEREBY RESTRICTING THE DEDUCTION U/S. 10A. ON AN OBJEC TION BY ASSESSEE DRP HAS ACCEPTED THE OBJECTION DIRECTED THE AO TO REDUCE THE SAME FROM TOTAL TURNOVER AS WELL. REVENUE IS AGGRIEVED ON THIS DIRECTION. 3. THE THIRD OBJECTION RAISED BEFORE THE DRP WAS WITH REFERENCE TO NOT ALLOWING SET-OFF OF BROUGHT FORWARD LOSSES AND UN-ABSORBED DEPRECIATION. ON THE OBJECTION RAISED BY ASSESSEE DR P HAS DIRECTED THE AO TO VERIFY THE CLAIM OF ASSESSEE AND AL LOW THE SAME AS PER LAW AS THE ISSUE INVOLVED IS FACTUAL IN NATURE . ASSESSEE SUTHERLAND HEALTHCARE SOLUTIONS PVT. LTD. (FORMERLY KNOWN AS APOLLO HEALTH STREET LTD) :- 3 -: RAISED OBJECTION THAT AO HAS NOT FOLLOWED THIS DIRECTION . IN ADDITION TO THE ABOVE THERE IS ONE MORE GROUND FROM A SSESSEE THAT CREDIT OF TDS AND ADVANCE TAX PAID WAS GIVEN LESS THAN THE CLAIM AND ALSO CONSEQUENTIAL LEVY OF INTEREST U/S. 234A 234 B & 234C. 4. AT THE OUTSET LD. COUNSEL SUBMITTED THAT DRP HAS NOT CONSIDERED THE DETAILED OBJECTIONS FILED ON THE FIRST GR OUND OF OBJECTION AND SIMPLY FOLLOWED THE ORDERS IN EARLIER Y EARS FROM AYS. 2008-09 AND 2009-10. IT WAS SUBMITTED THAT ITAT HAS RES TORED THE ISSUE TO THE FILE OF TPO FOR FRESH CONSIDERATION IN EARLIER YEARS AND HAS NO OBJECTION FOR SIMILAR DIRECTION. WITH REFE RENCE TO THE CLAIM OF BROUGHT FORWARD LOSSES AND UN-ABSORBED DEPR ECIATION AND CREDIT OF TDS/ ADVANCE TAX LD. COUNSEL ALSO REQUESTE D FOR A DIRECTION TO THE AO TO FOLLOW THE DIRECTIONS OF DRP ITS ELF. INTEREST U/S. 234A 234B & 234C ARE CONSEQUENTIAL IN NATURE. 5. CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE ORDERS ON RECORD WE ARE OF THE OPINION THAT THE CORPORATE GUARA NTEE ISSUE HAS ARISEN IN EARLIER YEARS. AS STATED IN THE FACTS O F THE CASE ASSESSEE HAS SET UP A WHOLLY OWNED SUBSIDIARY IN US A FOR MARKETING AND DISTRIBUTION OF ITS SERVICES TO US CLIEN TS. AS PART OF BUSINESS STRATEGY THE COMPANY HAS ACQUIRED COMPANIES IN US VIZ. ARMANTI ZAVATA GROUP. TO FUND THE SAME ASSESSEE SUBSID IARY HAD ENTERED INTO FACILITIES AGREEMENT DT. 29-08-2007 WITH BARCLAYS CAPITAL AND BANK OF INDIA NEW YORK BRANCH WHO PROVID ED LOANS BASED ON THE PRIMARY SECURITY OF THE SHARES OF THE ACQ UIRED COMPANIES AND GUARANTEES PROVIDED BY ASSESSEE. THI S ISSUE HAS ARISEN IN EARLIER YEAR AND ITAT IN AY. 2009-10 HAS CONSIDERED THE ISSUE IN DETAIL AND RESTORED THE MATTER TO THE FILE OF AO (REPORTED AS 67 SOT 64). THE CO-ORDINATE BENCH HAS HELD AS UNDE R: SUTHERLAND HEALTHCARE SOLUTIONS PVT. LTD. (FORMERLY KNOWN AS APOLLO HEALTH STREET LTD) :- 4 -: 7. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE C ONTENTIONS. AS FAR AS THE DIRECTIONS OF DRP ARE CONCERNED. WE NOTI CE THAT DRP DID NOT TAKE INTO CONSIDERATION ANY OF THE OBJECTIONS RAISE D BY THE ASSESSEE INCLUDING THE INTERNAL CUP PROVIDED TO IT. IT SIMPL Y FOLLOWED ITS ORDER FOR A.Y. 2008-09 WHEREIN WE WERE INFORMED THAT THE MATT ER WAS ALSO SENT BACK TO THE TPO ON A DIFFERENT ISSUE FOR FRESH CONS IDERATION. THEREFORE THE DIRECTIONS OF THE DRP DO NOT HELP IN ANALYZING THE CASE. BE THAT AS IT MAY WE ARE UNABLE TO UNDERSTAND HOW THE TPO COULD ARRIV E AT THE CREDIT RATING OF THE A.E. AT BBB- WITHOUT THERE BEING ANY ANALYSI S ON THE CREDITWORTHINESS OF THE A.E. MOREOVER HIS FINDING THAT ASSESSEE GOT BENEFIT BY WAY OF CREDITWORTHINESS AND ARRIVED AT THE DIFFE RENCE BETWEEN DOMESTIC BOND YIELD AND THAT OF LOAN AVAILED ALSO C ANNOT BE ACCEPTED AS THE DOMESTIC YIELD CANNOT BE COMPARED WITH THE LOAN S IN THE US AND THE RATES CHARGED THERE. HAD TPO ADOPTED LIBOR RATES AN ALYZING THE ISSUE AT LEAST THERE COULD HAVE BEEN SOME SEMBLENCE OF COMPA RISON. COORDINATE BENCH IN THE CASE OF GLENMARK PHARMACEUTICAL P. LTD . (SUPRA) HAS ANALYSED THE ISSUE ELABORATELY AND VIDE PARA 24 IN THAT ORDER HAS ACCEPTED THE GUARANTEE COMMISSION RATES ADOPTED BY THE ASSESSEE IN THAT CASE AS AT ALP. THE ORDER OF THE COORDINATE BENCH I S AS UNDER: '24. SUMMARY: THEREFORE THERE IS NO DISPUTE ON THE US E OF CUP METHOD AS MOST APPROPRIATE METHOD TO THESE GC TRANSACTIONS. CONTROLLABLE UNCONTROLLED PRICE-CUP METHOD IS APPLIED WHEN A PRI CE IS CHARGED FOR A PRODUCT OR SERVICE AND SERVICE IS THE CASE HERE. FUR THER ACADEMICALLY THE CUP CAN BE INTERNAL OR EXTERNAL. INTERNAL CUP BEING THE COMPARABILITY OF THE SIMILAR TRANSACTION BETWEEN THE ASSESSEE AND THE UNR ELATED PARTY ARE ADMITTEDLY NOT AVAILABLE TO EITHER PARTIES OF THE DIS PUTE. THEREFORE THE EXPLORATION IS FOR EXTERNAL CUP. REVENUE AUTHORITIES HAVE ROPED IN FOUR OR SUCH CUPS AND MOSTLY BANKS WITH BANK GUARANTEE TRANSACTIO N PRICES/RATES. AS DETAILED ABOVE THE GC TRANSACTION RATES AVAILABLE ON THE WEBSITES OF BANK OF INDIA ALLAHABAD BANK HSBC EXIM BANK OF USA AND T HE RABO INDIA FINANCE P LTD ARE HELD BY THE TRIBUNAL AS NOT GOOD CORNPARAB LES ON COMPARABLE FACTS. ON THIS FACTS OF THE PRESENT CASE TOO WE ARE OF THE O PINION THEY ARE NOT APPROPRIATE EXTERNAL CUPS. THE 'EXTERNAL CUP' BY DEF INITION IS A PRICE CHARGED IN COMPARABLE UNCONTROLLED PRICE BETWEEN THIRD PARTI ES WHEN COMPARED TO THE PRICE OF A CONTROLLED TRANSACTION WITH THE AE. NONE OF THE CUPS USED BY THE TPO FALLS WITHIN THE SAID DEFINITION OF EXTERNAL CUP. THUS THERE ARE NO 'INTERNAL CUP' ON ONE SIDE AND THE CUPS USED BY THE TPO/CIT(A) ARE ALSO OUTSIDE THE SCOPE OF THE DEFINITION OF THE 'EXTERNAL CUP' FURTHER AS STATED EARLIER WE FIND THAT THE 'BANK GUARANTEE' RATES ARE PRACTICALLY DIFFE RENT FROM THAT OF THE 'CORPORATE GUARANTEE' RATES. 25. FURTHER WE FIND THERE ARE VARIOUS GC RATES IN EX ISTENCE. WHILE THERE IS GC RATE OF 0.38% WHICH IS APPROVED BY THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD SUPRA THERE IS GC RATE OF 0.5% AS APPROVED BY THE TRIBUNAL IN THE CASE OF EVEREST KANTO CYLINDERS LTD SUPRA AND M /S NIMBUS COMMUNICATION LTD SUPRA THERE IS GC RATE OF 0.25% AS APPROVED BY THE TRIBUNAL IN THE CASE OF SUTHERLAND HEALTHCARE SOLUTIONS PVT. LTD. (FORMERLY KNOWN AS APOLLO HEALTH STREET LTD) :- 5 -: THE ASIAN PAINTS LTD SUPRA. THE GC RATE OF 3% AS ANN OUNCED BY THE BANK FOR THE BANK GUARANTEE TRANSACTIONS STAND DISMISSED BY T RIBUNAL IN ALL THE ABOVE CASES. REASONS FOR SUCH REJECTION INCLUDE: (I) THESE A RE THE 'NAKED QUOTES'; AND (II) THE SAID 3% IS ALWAYS SUBJECTED TO NEGOTIATIONS BETWEEN THE BANK AND ITS CUSTOMER; (III) TPO HAS NOT PROVIDED ADJUSTMENTS AT ALL BEFORE BENCHMARKING THE IMPUGNED TRANSACTIONS AT 3% ETC. IN ANY CASE I T IS OUR OPINION THAT THE BANK GUARANTEE COMMISSION PRICES CANNOT BE USED AS EXTERNAL CUPS TO BENCHMARK THE CORPORATE GUARANTEE COMMISSION PRICES. FURTHER WE FIND THAT. UNLIKE IN OTHER CASES OF NIL CORPORATE GUARANTEE COM MISSION THE PRESENT ASSESSEE HAS CHARGED THE GC RATE OF 0.53% AND 1.47% FR OM ITS AES. THEREFORE IN OUR OPINION THESE RATES ARE COMPETENT GIVEN THE F ACTS OF THE PRESENT CASE QUA THE RATES DISCUSSED AND APPROVED BY THE TRIBUNAL IN ADJUDICATING THE OTHER CASES RELATING TO THE GUARANTEE COMMISSION TRANSACTI ONS BENCH MARKED USING THE CUP METHOD. THEREFORE THE TPO'S COMPARABLES ARE 'IUPS' I.E. INCOMPARABLE UNCONTROLLED PRICES THEREFORE WE ARE OF THE OPINION THE GC RATES OF 0.53% AND 1.47% BENCHMARKED BY THE ASSESSEE ARE FAIR AND REASONABLE AND THEY SHOULD BE ACCEPTED WITHOUT ANY MO DIFICATION. THEREFORE WE DISMISS THE TPO'S CUP AND ORDER DELETION OF THE AD DITIONS MADE BY THE AO ON ACCOUNT OF TRANSFER PRICING PROVISIONS. IN THE R ESULT THE ORDER OF THE CIT(A) ITPO/AO ON THE TP ADJUSTMENTS IS SET ASIDE. THUS THE GROUNDS 1 TO 5 ARE ALLOWED AS ABOVE'. 7.1. SINCE TPO/A.O. DID NOT ANALYSE THE ISSUE PROPE RLY AND THE DRP ALSO HAS NOT APPLIED HIS MIND 00 THE OBJECTIONS RAI SED BY THE ASSESSEE WE ARE OF THE OPINION THAT THIS MATTER HAS TO BE SE T ASIDE TO THE TPO TO ANALYSE THE ISSUE AFRESH BY GIVING DUE OPPORTUNITY TO THE ASSESSEE AND CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE I N ITS PROPER PERSPECTIVE. ASSESSEE IS FREE TO RAISE ANY OTHER CONTENTION ALSO IF REQUIRED. WITH THESE OBSERVATIONS ASSESSEE'S GROUNDS ARE CONSIDERED AS ALLOWED AND ENTIRE ISSUE OF DETERMINATION OF ALP ON CORPORATE GUARANTE E PROVIDED BY THE ASSESSEE TO IT'S AE IS RESTORED TO THE FILE OF A.O. FOR FRESH ADJUDICATION. 5.1. SINCE THE ISSUE HAS ARISEN IN EARLIER YEARS AND THE FINDINGS THEREON HAS A BEARING IN THIS YEAR AND THE ORDER OF AO AND DRP ALSO RELIES ON THE FINDINGS IN THE EARLIER YEAR WE S ET ASIDE THE ISSUE TO THE FILE OF AO/TPO TO CONSIDER THIS AFRESH ON THE LINES DETERMINED IN EARLIER YEARS. NEEDLESS TO SAY ASSESS EE IS FREE TO RAISE ANY OTHER CONTENTIONS ALSO IF REQUIRED. ASSESS EES GROUNDS ON THIS ISSUE ARE CONSIDERED ALLOWED AND ENTIRE ISSU E OF DETERMINATION OF ARMS LENGTH PRICE [ALP] ON CORPORATE GUARANTEE SUTHERLAND HEALTHCARE SOLUTIONS PVT. LTD. (FORMERLY KNOWN AS APOLLO HEALTH STREET LTD) :- 6 -: PROVIDED BY ASSESSEE TO ITS AE IS RESTORED TO THE FILE OF AO/TPO FOR FRESH ADJUDICATION AS DIRECTED IN EARLIER YEAR AS ABOVE. 6. WITH REFERENCE TO GROUND NOS. 1 2 & 3 ON CORPORATE ISSUES WE DIRECT THE AO TO EXAMINE THE SET-OFF OF BROUGHT FOR WARD LOSSES AND DEPRECIATION ON THE BASIS OF THE RECORD AND FOLLOW THE DIRECTIONS OF THE DRP WHICH ARE ALREADY IN RECORD. AO IS ALSO DIRECTED TO EXAMINE THE CREDIT GIVEN FOR TDS AND ADVAN CE TAX PAID AFTER GIVING DUE OPPORTUNITY TO ASSESSEE. INTEREST U /S. 234A 234B & 234C ARE CONSEQUENTIAL IN NATURE. HENCE THESE DOE S NOT REQUIRE ANY FRESH ADJUDICATION. WITH THESE OBSERVATIONS ASSE SSEES GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 7. REVENUE HAS RAISED TWO GROUNDS IN ITS CROSS-APPEA L. GROUND NO. 1 IS ON THE ISSUE THAT HON'BLE DRP ERRED IN NOT CO NSIDERING THE RISK BORNE BY THE TAXPAYER BY WAY OF PROVING [SIC] CO RPORATE GUARANTEE. SINCE THE ISSUE OF ENTIRE TP ADJUSTMENT IN C ORPORATE GUARANTEE IS RESTORED TO THE FILE OF AO FOR FRESH ADJUD ICATION IN ASSESSEES APPEAL AO IS DIRECTED TO KEEP THIS ASPECT IN MIND WHILE CONSIDERING THE ISSUE. REVENUES GROUND IS CONSIDER ED ALLOWED FOR STATISTICAL PURPOSES. 8. THE NEXT ISSUE IN REVENUES APPEAL IS WITH REFERE NCE TO DIRECTION OF DRP IN EXCLUDING THE COMMUNICATION EXPE NSES FROM THE TOTAL TURNOVER ALSO. THIS ISSUE IS SQUARELY COVER ED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. [330 ITR 175] (BOM) A ND ALSO SPECIAL BENCH DECISION OF THE ITAT CHENNAI IN THE CA SE OF ITO VS. SAK SOFT LTD. [313 ITR (AT) 353] WHEREIN IT HAS BEEN H ELD THAT COMMUNICATION CHARGES ETC. ATTRIBUTABLE TO THE DELIVERY O F THE SUTHERLAND HEALTHCARE SOLUTIONS PVT. LTD. (FORMERLY KNOWN AS APOLLO HEALTH STREET LTD) :- 7 -: COMPUTER SOFTWARE OUTSIDE INDIA WHICH ARE TO BE REDUC ED FROM THE EXPORT TURNOVER SHOULD BE REDUCED FROM THE TOTAL TURNOVER AS WELL WHILE COMPUTING THE DEDUCTION U/S. 10A. THEREFORE FO LLOWING THE RATIO LAID DOWN IN THE AFORESAID CASES WE AFFIRM THE ORDER OF DRP. THIS GROUND IS REJECTED. IN VIEW OF THIS REVENUES A PPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. TO SUM-UP APPEAL OF ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSES AND APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD DATED 21 ST OCTOBER 2016 TNMM COPY TO : 1. M/S. SUTHERLAND HEALTHCARE SOLUTIONS PRIVATE LTD . (FORMERLY KNOWN AS APOLLO HEALTH STREET LTD) UNIT- II SURVEY NO. 185(P) 2 ND & 3 RD FLOOR KALAJYOTHI PROCESS KONDAPUR VILLAGE SERILINGAMPALLI HYDERABAD. 2. THE DY. COMMISSIONER OF INCOME TAX CIRCLE-3 (2) HYDERABAD. 3. THE DY. COMMISSIONER OF INCOME TAX CIRCL E-1(1 ) HYDERABAD. 4. DISPUTE RESOLUTION PANEL (DRP) HYDERABAD. 5. THE DIRECTOR OF INCOME TAX INTERNATIONAL TAXATI ON INCOME TAX TOWERS HYDERABAD. 6. THE ADDL. COMMISSIONER OF INCOME TAX (TRANSFER P RICING) HYDERABAD. 7. D.R. ITAT HYDERABAD. 8. GUARD FILE.