Unilever India Exports Limited Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that disallowance u/s 14A untenable as AO has mechanically applied rule 8D without having recorded his satisfaction or examining the nature of investments whether they have yielded any exempt income or not.
Facts- The assessee, Unilever India Exports Limited (UIEL) is a wholly owned subsidiary of Hindustan Unilever Limited (HUL). The assessee company is engaged in the manufacturing of branded FMCG products, namely Foods and Beverages and Home and Personal Care (HPC) products. These brands are owned either by Unilever Plc / Unilever NV, the ultimate parent companies of the Unilever Group of HUL.
Since the assessee had international transactions with its AE a reference was made to the Transfer Pricing Officer (TPO) for determination of Arm’s Length Price (ALP) of such transactions.
AO passed the draft assessment order incorporating adjustments towards payment of royalty for technical documentation, information and technical knowhow; payment of royalty for central services and payment of raw material and the sale/ export of HPC & P&B. Besides, AO also made a disallowance u/s. 14A for Rs.83,83,273/- and also disallowance of ESOP expenses to the tune of Rs.1,47,50,000/-.
Aggrieved, the assessee filed its objection before the DRP. The DRP gave relief to the assessee with respect to the TP adjustment made towards payment of royalty for technical documentation and towards purchase of raw material and sale / export of HPC & F&D. With regard to the disallowance made by AO, DRP upheld the same. AO passed the final assessment order in accordance with the directions of the DRP against which the assessee is in appeal before the Tribunal.
Conclusion- We notice that the assessee has submitted evidences not only demonstrating the rendition of central services but also commensurate benefits derived from such services to the assessee. Further the assessee has done the bench marking analysis similar to AY 2015-16 and 2016-17 for the year under consideration also and therefore the impugned issue is squarely covered by the above decision of the coordinate bench and therefore respectfully following the same we direct the AO/TPO to delete the addition made towards inter group services.
Noticed that AO has applied Rule 8D without having recorded his satisfaction or examining the nature of investments whether they have yielded any exempt income or not. Therefore respectfully following the above decision of the coordinate bench in assessee s own case we delete the disallowance u/s 14A made by the assessing officer.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals of the assessee are directed against the order of the Assistant Commissioner of Income-tax, Central Circle-5(3), Mumbai passed under section 143(3) read with section 144C(13) dated 28/06/2022 and 28/07/2022 for the Assessment Years 2017-18 and 2018-19, respectively. Since identical issues are agitated in these appeals, both the appeals are disposed of by way of this common order.
2. The assessee, Unilever India Exports Limited (UIEL) is a wholly owned subsidiary of Hindustan Unilever Limited (HUL). The fast moving consumer goods (FMCG) exports business of HUL was transferred to UIEL under a court approved scheme of arrangement with the appointed date of April 1, 2011.
3. The assessee company is engaged in the manufacturing of branded FMCG products, namely Foods and Beverages and Home and Personal Care (HPC) products. These brands are owned either by Unilever Plc / Unilever NV, the ultimate parent companies of the Unilever Group of HUL.
I.T.A. No.2108/Mum/2022 for AY 2017-18
4. The assessee has e-filed its return of income for A.Y. 2017-18 declaring total income of Rs.156,38,060/- on 30/11/2017 Statutory notices along with questionnaire were issued by the Assessing Officer which have been complied with by the assessee by electronically submitting the details called for from time to time. Since the assessee had international transactions with its AE a reference was made to the Transfer Pricing Officer (TPO) for determination of Arms Length Price (ALP) of such transactions. The TPO made the following adjustments:-
