ACIT -4(1)(1), MUMBAI V. M/S CIGNA HEALTH SOLUTIONS INDIA PRIVATE LIMITED, MUMBAI

ITA 1623/MUM/2023

AI Insights

The case involves the Assistant Commissioner of Income Tax (ACIT) appealing against the decision of the CIT (A) which had deleted the addition of 20% of expenses claimed by Cigna Health Solutions India Pvt. Ltd. for services rendered to its sister concern, Cigna TTK. The ACIT argued that the assessee should have charged a mark-up on the services provided to its sister concern, as it was a commercial decision and transactions between related entities should be at arm's length. However, the CIT (A) and the Tribunal found that the assessee did not earn any income from these transactions and that the provisions of specified domestic transactions did not apply, following a precedent set in the assessee's own case for the assessment year 2013-14.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125509 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-07-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 09-05-2023
• Other Referred Cases: Calcutta Discount Co. Ltd. vs. Income Tax Officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI KULDIP SINGH, JM ITA Nos. 1622 & 1623/Mum/2023 (Assessment Years: 2014-15 & 2015-16) ACIT 4(1) (1 ) Room No.640, 6 th Floo r, Aa ykar B havan, M.K. road, Mum bai-400 020 Vs. M/s Cigna Health Solutions India Private Limited Cabin No.7.2, 7 th Floor, Boston House, Suren Road, Chakala, Andheri East, Mumbai-400 093 (Appellant) (Respondent) PAN No. AAECC3118J Assessee by : Mr. Madhur Agarwal, Adv Revenue by : Mr. H.M. Bhatt, Sr. DR Date of hearing: 20.07.2023 Date of pronouncement : 24.07.2023 O R D E R PER PRASHANT MAHARISHI, AM: 01. These are two appeals filed by The Assistant Commissioner Of Income Tax – 4 (1) (1), Mumbai (The Learned Assessing Officer) for assessment year 2014 – 15, 2015 – 16 in case of the assessee involving similar issue. 02. We take up the appeal of the learned assessing officer for assessment year 2014 – 15. This appeal is filed by the learned assessing officer against the order of National faceless appeal Centre, Delhi (the learned CIT – A) dated 7/3/2023 for a by 2014-15 wherein the appeal filed against the assessment order passed under section 143 Page | 2 ITA No. 1622 & 1623/Mum/2023 M/s Cigna Health Solutions India Pvt. Ltd; A.Y. 14-15 & 15-16 (3) dated 28/12/2016 passed by The Deputy Commissioner Of Income Tax 12 (1) (2), Mumbai was partly allowed. 03. The learned assessing officer has raised following grounds of appeal:- “whether on the facts and in the circumstances of the case and in the law, the learned CIT (A) was justified in deleting the addition of ₹ 64,087,601/– being 20% of expenses incurred by the assessee for services rendered to M/s Cigna TTK during the year whether on the facts and in the circumstances of the case and in law, the learned CIT (A) was justified in accepting the claim of the assessee that there was no profit element involved in the transaction wherein the assessee had provided a highly technical and professional services to the other party, that too by utilising its own funds whether on the facts and circumstances of the case and in law, the learned CIT (A) was justified in not appreciating the fact that the functions (by the assessee company involved not only highly technical and professional skill but also the expert eyes of its directors et cetera, which cannot be believed to have been carried out without charging any professional fees or service charges.” 04. Brief facts of the case shows that assessee is a company engaged in providing marketing research in health insurance and healthcare services system. It filed its return of income on 29/11/2014 for assessment year 2014 Page | 3 ITA No. 1622 & 1623/Mum/2023 M/s Cigna Health Solutions India Pvt. Ltd; A.Y. 14-15 & 15-16 – 15 declaring total income of ₹ 12,412,690/–. The return of income was picked up for scrutiny. The learned assessing officer noted that assessee has received professional fees of ₹ 25.80 crores from Cigna TTK healthcare insurance Co Ltd and tax was deducted at source of ₹ 258 lakhs. The AO noted that this income was not offered to tax in the profit and loss account. When the assessee was asked, it was explained that the receipts are nothing but the reimbursement of expenses. The claim of the assessee is that assessee has not debited these expenses in the books to P & L A/c in the first instance and hence this is revenue neutral and there is no tax impact. The learned AO noted that for assessment year 2013 – 14 the facts were similar and then assessing officer went on to charge 20% mark-up on this amount received from that company. The learned AO questioned the assessee that why the same addition should not be repeated in the present assessment year also. The assessee gave the similar explanation. This was rejected by the learned assessing officer. The AO also questioned whether assessee is providing the same services to that entity to develop the infrastructure. The AO questioned that why an entity will provided services without charging any mark-up on the services rendered by it. The learned AO noted that it is not feasible for assessee to provide same services to its sister concern for which it is not its domain. The assessee is also charging Mark up on those services when provided to the others. The learned assessing officer further noted that there is an agreement between the assessee and the service receiver. As per the Page | 4 ITA No. 1622 & 1623/Mum/2023 M/s Cigna Health Solutions India Pvt. Ltd; A.Y. 14-15 & 15-16 terms and condition contained in the agreement assessee has agreed to not to charge any service charges or any fees from that entity for development of initial infrastructure such as transfer of initial infrastructure from assessee to that company as its cost. The learned AO noted that though it is a commercial decision taken by the assessee and mutually agreed between the parties however in commercial decision there should necessarily be an element of income. The AO further noted that assessee has received advances from that entity which is less than 50% of the actual expenditure incurred by the assessee. Therefore the assessee is utilising its own fund to incur the expenses on behalf of that entity. The learned AO considering the responsibility, risk involved to perform this functions, held that it is difficult to believe that no profit is embedded in the activities performed by the assessee. The AO also rejected the explanation that it is the sister concern stating that for income tax act each companies are separate legal entity and hence transaction between two companies whether related or not, has to be at arm’s-length. Therefore according to the AO the assessee should have charged mark-up on the services provided to its sister concern. Accordingly as per the last year where the learned assessing officer charged the mark-up at the rate of 20% was considered to be appropriate. Therefore the profit embedded in the development of infrastructure for the sister concern required to be considered as income of the assessee. The learned AO noted that assessee has incurred expenditure of ₹ 324,038,007/– for services rendered to sister concern Page | 5 ITA No. 1622 & 1623/Mum/2023 M/s Cigna Health Solutions India Pvt. Ltd; A.Y. 14-15 & 15-16 during the year and therefore the service charges the rate of 20% of the above amount amounting to ₹ 64,087,601/– was treated as income of the assessee and added to the total income. There was also disallowance of late payment of provident fund of ₹ 1,188,808/–. Accordingly assessment order under section 143 (3) of the income tax act, 1961 (the act) was passed on 28/12/2016 determining the total income of the assessee at ₹ 78,451,497/–. 05. The assessee is aggrieved with the above assessment order and preferred appeal before the learned CIT – A. The learned CIT – A noted that identical ground arose in the case of the assessee for assessment year 2013-14 wherein the identical addition on similar grounds for that assessment year was decided by the coordinate bench in favour of the assessee. Therefore accordingly, following the decision of the ITAT, the AO was directed to delete the addition. 06. The learned AO is aggrieved with the decision of learned CIT – A – and is in appeal. 07. The learned departmental representative reiterated the facts stated by the learned assessing officer and submitted that when the assessee is providing services to its sister concern which is highly technical, not charging the mark- up over the same, is not correct. Therefore the learned assessing officer has decided the mark-up at the rate of 20% of the expenditure incurred by the assessee. It was further stated that assessee has incurred the expenditure throughout the year but has received only advances which Page | 6 ITA No. 1622 & 1623/Mum/2023 M/s Cigna Health Solutions India Pvt. Ltd; A.Y. 14-15 & 15-16 is less than 50% and therefore the assessee is not correct in not charging the mark-up. Even otherwise, no independent party would have provided services to the sister concern without charging any profit element therein. 08. The learned authorised representative vehemently submitted that identical issue arose in case of the assessee for assessment year 2013- 2014 wherein the coordinate bench has decided the issue in favour of the assessee. He referred to the copy of the decision placed at page number 215 – 226 of the paper book. The learned authorised representative also referred to the submission filed before the learned assessing officer placed at page number 1 – 86 and also the submission before CIT (A) at serial number 87 – 214 of the paper book. Thus he claimed that the issue is squarely covered in favour of the assessee and there is no change in the facts and circumstances of the case. The learned CIT – A has followed the decision of the coordinate bench in assessee’s own case for earlier years and therefore same deserves to be upheld. 09. We have carefully considered the rival contention and perused the orders of the lower authorities as well as the submission made before us. We find that in case of the assessee for assessment year 2013 – 14 coordinate bench has decided identical issue in ITA number 1117/M/2019 (A) & 1650/M/2019 ( By AO ) by order dated 25/11/2020 wherein identical ground was raised by the revenue before the coordinate bench as per Para number 8. The Page | 7 ITA No. 1622 & 1623/Mum/2023 M/s Cigna Health Solutions India Pvt. Ltd; A.Y. 14-15 & 15-16 coordinate bench in paragraph number 12 has categorically held as under:- “12. We have heard the rival submissions and perused the relevant materials on record. Giving that the assessee received development cost for developing and transferring the initial infrastructure to Cigna TTK, the transaction is not expenditure in the hands of the assessee. For the assessee (the recipient of the amount) the provisions of specified domestic transaction would not be applicable. Further we find that (i) the vendor agreement between the assessee and Cigna TTK has been entered at cost and no income has been earned by the assessee, (ii) there is neither any evidence nor allegation that assessee has received any consideration over and above to what is mentioned in the aforesaid agreement. In Calcutta Discount Co. Ltd. (supra), the assessee company transferred certain shares held by it to its subsidiary company at loss than their book value. Though the ITO had not found that the assessee has made secret profits, he held that the assessee must be deemed to have made a profit amounting to the difference between the market price of the shares and their book value. The Hon'ble Supreme Court held that when one trader transfers his goods to another trader at a price less than the market price, the taxing authority cannot take into consideration, the market price of those goods, ignoring the real price fetched. Unless the officer was able to come to the conclusion, on the material before him, that the Page | 8 ITA No. 1622 & 1623/Mum/2023 M/s Cigna Health Solutions India Pvt. Ltd; A.Y. 14-15 & 15-16 assessee had really made profits in the transaction, it was not permissible for him to add any fictional income to the assessee's return. In the absence of any evidence to show either that the sales were sham transactions or that the market prices were in fact paid by the purchasers, the mere fact that the goods were sold at a concessional rate to benefit the purchasers at the expense of the company would not entitle the income-tax department to assess the difference between the market price and the price paid by the purchasers, as profit of the company. 12.1 In view of the above factual scenario and position of law we affirm the order of the Ld. CIT(A) deleting the addition of Rs. 3,68,97,011/-made by the AO.” 010. We find that there is no change in the facts and circumstances of the case compared to assessment year 2013 – 14. As the issue has already been decided by the coordinate bench in assessee’s own case for assessment year 2013 – 14, respectfully following the decision of the coordinate bench we also direct the learned assessing officer to delete the addition made in this year being 20% of the expenditure incurred by the assessee. Accordingly, the order of the learned CIT – A is confirmed and appeal of the learned assessing officer is dismissed. 011. Accordingly appeal of the learned AO for assessment year 2014 – 15 is dismissed. 012. The fact in appeal for assessment year 2015 – 16 is identical. Both the parties also agreed that there is no Page | 9 ITA No. 1622 & 1623/Mum/2023 M/s Cigna Health Solutions India Pvt. Ltd; A.Y. 14-15 & 15-16 change in the facts and circumstances of the case and their arguments are also similar. 013. As we have followed the decision of the coordinate bench in assessee’s own case for assessment year 2013 – 14 while deciding the appeal of the learned AO for assessment year 2014 – 15, there is no reason to deviate from the same. Therefore respectfully following the decision of the coordinate bench in assessee’s own case for assessment year 2013 – 14, we direct the learned assessing officer to delete the addition and confirmed the order of the learned CIT – A. Accordingly appeal of the learned AO is dismissed. 014. Accordingly appeal of the learned AO for assessment years 2014 – 15 and 2015 – 16 are dismissed. Order pronounced in the open court on 24.07. 2023. Sd/- Sd/- (KULDIP SINGH) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated:24.07.2023 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai