We have an issue where if the calling number is saved into iPhone contacts the Group Name is not displayed on inbound calls to distinguish which call flow received the call. Is this expected behaviour? If so, can we have an option to instead prefer the Group Name to be displayed instead of the iPhone contacts details?

This is the expected behaviour. We recommend disabling the "Show Calls in iPhone Recents" setting on your device. This will prevent the calls from being saved in the iPhone's recent call log and allow the group name to be displayed as you prefer, rather than the saved contact details.
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To disable the setting, open the Menu tab, select Call settings, and disable "Show Calls in iPhone Recents."