IN 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 435/Hyd/2015 2010-11 M/s. Sutherland Dy. Healthcare Solutions Commissioner of Private Ltd., Income Tax, (Formerly known as Circle-1(1), Apollo Health Street HYDERABAD Ltd) HYDERABAD [PAN: AADCA4278N] 332/Hyd/2015 2010-11 Dy. M/s. Sutherland Commissioner of Healthcare Solutions Income Tax, Private Ltd., Circle-3(2), (Formerly known as HYDERABAD 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 ORDER PER B. RAMAKOTAIAH, A.M. : These are cross-appeals by Assessee and Revenue against orders of Assessing Officer (AO) u/s. 143(3) r.w.s. 144C of Income Tax Act [Act] on issues of Transfer Pricing and Corporate Tax matters for AY. 2010-11. 2. Assessee was formerly known as Apollo Health Street Ltd headquartered at Hyderabad, is global health care services Sutherland Healthcare Solutions Pvt. Ltd., :- 2 -: (Formerly known as Apollo Health Street Ltd) company that offers range of business process outsourcing to commercial and health care service providers. For AY. 2010-11, assessee filed its return of income declaring income of Rs. 73,84,957/- after claiming deduction u/s. 10A of Act and set- off of brought forward losses of Rs. 25,17,849/- under normal provisions of Act. Since there are international transactions, matter was referred to Addl. CIT, TP u/s. 92CA of Act. Addl. CIT has determined TP adjustment on corporate guarantee provided by assessee to its subsidiaries in US. Assessee objected to same before Dispute Resolution Panel [DRP] and filed detailed objections on 10-04-2014 against draft assessment order of AO. DRP vide its order dt. 24-12-2014 has reduced corporate guarantee adopted at 3.75% to 2% and gave partial relief to assessee. Assessee is aggrieved on TP adjustment made on corporate guarantee. In addition to above, there are two more objections raised by assessee before DRP. While computing deduction u/s. 10A, AO has reduced Communication Expenses of Rs. 1,33,89,840/- from Export Turnover and has not reduced same from Total Turnover, thereby restricting deduction u/s. 10A. On objection by assessee, DRP has accepted objection, directed AO to reduce same from Total Turnover as well. Revenue is aggrieved on this direction. 3. third objection raised before DRP was with reference to not allowing set-off of brought forward losses and un-absorbed depreciation. On objection raised by assessee, DRP has directed AO to verify claim of assessee and allow same as per law as issue involved is factual in nature. Assessee Sutherland Healthcare Solutions Pvt. Ltd., :- 3 -: (Formerly known as Apollo Health Street Ltd) raised objection that AO has not followed this direction. In addition to above, there is one more ground from assessee that credit of TDS and advance tax paid was given less than claim and also consequential levy of interest u/s. 234A, 234B & 234C. 4. At outset, Ld. Counsel submitted that DRP has not considered detailed objections filed on first ground of objection and simply followed orders in earlier years from AYs. 2008-09 and 2009-10. It was submitted that ITAT has restored issue to file of TPO for fresh consideration in earlier years and has no objection for similar direction. With reference to claim of brought forward losses and un-absorbed depreciation and credit of TDS/ Advance tax, Ld. Counsel also requested for direction to AO to follow directions of DRP itself. Interest u/s. 234A, 234B & 234C are consequential in nature. 5. Considering rival contentions and perusing orders on record, we are of opinion that corporate guarantee issue has arisen in earlier years. As stated in facts of case, assessee has set up wholly owned subsidiary in USA for marketing and distribution of its services to US clients. As part of business strategy, company has acquired companies in US viz., Armanti Zavata Group. To fund same Assessee subsidiary had entered into Facilities agreement dt. 29-08-2007 with Barclays Capital and Bank of India New York Branch who provided loans based on primary security of shares of acquired companies and guarantees provided by assessee. This issue has arisen in earlier year and ITAT in AY. 2009-10 has considered issue in detail and restored matter to file of AO (reported as 67 SOT 64). Co-ordinate Bench has held as under: Sutherland Healthcare Solutions Pvt. Ltd., :- 4 -: (Formerly known as Apollo Health Street Ltd) 7. We have considered issue and examined contentions. As far as directions of DRP are concerned. we notice that DRP did not take into consideration any of objections raised by assessee including internal CUP provided to it. It simply followed its order for A.Y. 2008-09 wherein we were informed that matter was also sent back to TPO on different issue for fresh consideration. Therefore, directions of DRP do not help in analyzing case. Be that as it may, we are unable to understand how TPO could arrive at credit rating of A.E. at BBB- without there being any analysis on creditworthiness of A.E. Moreover, his finding that assessee got benefit by way of creditworthiness and arrived at difference between domestic bond yield and that of loan availed also cannot be accepted as domestic yield cannot be compared with loans in US and rates charged there. Had TPO adopted LIBOR rates analyzing issue, at least there could have been some semblence of comparison. Coordinate Bench in case of Glenmark Pharmaceutical P. Ltd., (supra) has analysed issue elaborately and vide para 24 in that order has accepted guarantee commission rates adopted by assessee in that case as at ALP. order of Coordinate Bench is as under: "24. Summary: Therefore, there is no dispute on use of CUP method as most appropriate method to these GC transactions. Controllable Uncontrolled Price-CUP method is applied when price is charged for product or service and service is case here. Further, academically, CUP can be internal or external. Internal CUP, being comparability of similar transaction between assessee and unrelated party, are admittedly not available to either parties of dispute. Therefore, exploration is for external CUP. Revenue authorities have roped In four or such CUPs and mostly Banks with bank guarantee transaction prices/rates. As detailed above GC transaction rates available on websites of Bank of India, Allahabad Bank, HSBC, EXIM BANK OF USA and Rabo India Finance P Ltd, are held by Tribunal as not good cornparables on comparable facts. On this facts of present case too, we are of opinion, they are not appropriate external CUPs. 'external CUP' by definition is price charged in comparable Uncontrolled price between third parties when compared to price of controlled transaction with AE. None of CUPs used by TPO falls within said definition of external CUP. Thus, there are no 'internal CUP' on one side and CUPs used by TPO/CIT(A) are also outside scope of definition of 'external CUP', Further, as stated earlier, we find that 'bank guarantee' rates are practically different from that of 'corporate guarantee' rates. 25. Further, we find there are various GC rates in existence. While there is GC rate of 0.38% which is approved by Tribunal in case of Reliance Industries Ltd, supra, there is GC rate of 0.5% as approved by Tribunal in case of Everest Kanto Cylinders Ltd, Supra and M/s Nimbus communication Ltd, supra, there is GC rate of 0.25% as approved by Tribunal in case of Sutherland Healthcare Solutions Pvt. Ltd., :- 5 -: (Formerly known as Apollo Health Street Ltd) Asian Paints Ltd, supra. GC rate of 3% as announced by Bank for Bank guarantee Transactions stand dismissed by Tribunal in all above cases. Reasons for such rejection include: (i) these are 'naked quotes'; and (ii) said 3% is always subjected to negotiations between Bank and its customer; (iii) TPO has not provided adjustments at all before benchmarking impugned transactions at 3%, etc. In any case, it is our opinion that Bank Guarantee Commission Prices cannot be used as External CUPs to benchmark Corporate Guarantee Commission Prices. Further, we find that. unlike in other cases of NIL corporate guarantee commission, present assessee has charged GC Rate of 0.53% and 1.47% from its AEs. Therefore, in our opinion, these rates are competent given facts of present case qua rates discussed and approved by Tribunal in adjudicating other cases relating to Guarantee commission transactions bench marked using CUP method. Therefore, TPO's comparables are 'IUPs' i.e., Incomparable Uncontrolled Prices, Therefore, we are of opinion, GC rates of 0.53% and 1.47% benchmarked by assessee are fair and reasonable and they should be accepted without any modification. Therefore, we dismiss TPO's CUP and order deletion of additions made by AO on account of Transfer pricing provisions. In result, order of CIT(A) ITPO/AO on TP adjustments is set aside. Thus, grounds 1 to 5 are allowed as above". 7.1. Since TPO/A.O. did not analyse issue properly and DRP also has not applied his mind 00 objections raised by assessee, we are of opinion that this matter has to be set aside to TPO to analyse issue afresh by giving due opportunity to assessee and considering objections raised by assessee in 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 guarantee provided by assessee to it's AE is restored to file of A.O. for fresh adjudication . 5.1. Since issue has arisen in earlier years and findings thereon has bearing in this year and order of AO and DRP also relies on findings in earlier year, we set aside issue to file of AO/TPO to consider this afresh on lines determined in earlier years. Needless to say assessee is free to raise any other contentions also, if required. Assessee s grounds on this issue are considered allowed and entire issue of determination of Arm s Length Price [ALP] on corporate guarantee Sutherland Healthcare Solutions Pvt. Ltd., :- 6 -: (Formerly known as Apollo Health Street Ltd) provided by assessee to its AE is restored to 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 AO to examine set-off of brought forward losses and depreciation on basis of record and follow directions of DRP, which are already in record. AO is also directed to examine credit given for TDS and advance tax paid after giving due opportunity to assessee. Interest u/s. 234A, 234B & 234C are consequential in nature. Hence, these does not require any fresh adjudication. With these observations, assessee s grounds are allowed for statistical purposes. 7. Revenue has raised two grounds in its cross-appeal. Ground No. 1 is on issue that Hon'ble DRP erred in not considering risk borne by taxpayer by way of proving [sic] corporate guarantee. Since issue of entire TP adjustment in corporate guarantee is restored to file of AO for fresh adjudication in assessee s appeal, AO is directed to keep this aspect in mind while considering issue. Revenue s ground is considered allowed for statistical purposes. 8. next issue in Revenue s appeal is with reference to direction of DRP in excluding Communication Expenses from Total Turnover also. This issue is squarely covered by decision of Hon ble Bombay High Court in case of CIT Vs. Gem Plus Jewellery India Ltd., [330 ITR 175] (Bom) and also Special Bench decision of ITAT, Chennai in case of ITO Vs. Sak Soft Ltd. [313 ITR (AT) 353] wherein it has been held that communication charges etc., attributable to delivery of Sutherland Healthcare Solutions Pvt. Ltd., :- 7 -: (Formerly known as Apollo Health Street Ltd) computer software outside India which are to be reduced from export turnover should be reduced from total turnover as well, while computing deduction u/s. 10A. Therefore, following ratio laid down in aforesaid cases, we affirm order of DRP. This ground is rejected. In view of this, Revenue s appeal is partly allowed for statistical purposes. 9. To sum-up, appeal of assessee is allowed for statistical purposes and appeal of Revenue is partly allowed for statistical purposes. Order pronounced in open Court on 21st October, 2016 Sd/- Sd/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 21st 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), 2nd & 3rd Floor, Kalajyothi Process, Kondapur Village, Serilingampalli, Hyderabad. 2. Dy. Commissioner of Income Tax, Circle-3(2), Hyderabad. 3. Dy. Commissioner of Income Tax, Circle-1(1), Hyderabad. 4. Dispute Resolution Panel (DRP), Hyderabad. 5. Director of Income Tax, International Taxation, Income Tax Towers, Hyderabad. 6. Addl. Commissioner of Income Tax (Transfer Pricing), Hyderabad. 7. D.R. ITAT, Hyderabad. 8. Guard File. M/s. Sutherland Healthcare Solutions Private Ltd., (Formerly known as Apollo Health Street Ltd) v. Dy. Commissioner of Income-tax, Circle-1(1), Hyderabad