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HINDUSTAN UNILEVER LTD (As successor to Bon Ltd) Versus INCOME TAX OFFICER 1 (1) (2)

2017 (1) TMI 568 - ITAT MUMBAI

Addition u/s 40A (2)(a) - payments under various heads for goods and services procured from its holding company - Held that:- Adhoc disallowance cannot be made on mere suspicion rather the AO should have brought some cogent material in the form of comparables so as to justify that the impugned payments are excessive or unreasonable. Moreover, both entities being in the same tax bracket, hence the transactions are tax neutral and covered by CBDT circular number 6-P dated 06/07/1968 as stated that .....

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s that although complete details were made available by the assessee before lower authorities but additions were made for want of verification of vouchers for 3 months on test check basis. There is nothing adverse on record with respect to expenditure in Tax Audit Report. Gujrat High court in CIT Vs. Vallbh Glass Works Ltd. (2013 (9) TMI 806 - GUJARAT HIGH COURT ) has held that where audited accounts were available with regard to the expenses claimed by the assessee and there were no adverse com .....

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- Decided in favour of assessee - I.T.A. No. 1144/Mum/2011 - Dated:- 9-11-2016 - SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM For The Appellant : Shri Percy Pardiwala / Shri Nishant Thakkar / Ms. Jasmine Amalsadwala For The Respondent : Shri J.P.Jangid, DR ORDER Per Manoj Kumar Aggarwal (Accountant Member) 1. The captioned appeal of the assessee for Assessment Year [AY] 2004-05 challenges the order of Commissioner of Income Tax (Appeals) - 1 [CIT(A)], Mumbai dated 22/01/2009 which co .....

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s. The original appeal was filed within time on 09/04/2009 by M/s Bon Limited as ITA No. 2271/M/09 but the same was dismissed by ITAT vide its order dated 19/01/2011, being not maintainable as assessee was not in existence at the time of hearing. Therefore, a new appeal was filed in the name of M/s Hindustan Unilever Ltd. vide ITA No. 1144/M/2011 within 9 days of receipt of Tribunal order. Further, there is actual delay of only 296 days and not 662 days as calculated by registry. With this backg .....

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he same and hence, under the circumstances, we are inclined to condone the same and proceed to decide the issue on merits. 3. Facts qua the dispute are that assessee was resident company who filed its return of income for AY 2004-05 during October, 2004 declaring total income of Rs. Nil after setting off of brought forward business losses for AY 2003-04. The book profit declared u/s 155JB was ₹ 54.14 Lacs. The return was taken up for scrutiny assessment u/s 143(3) wherein total income was .....

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disallowance of 20% was made under the heads Trade & Primary Expenses, Other Misc. Expenses & Cartage & Freight as assessee failed to submit the requisite vouchers for verification on test check basis. Thus, disallowances which are subject matter of this appeal were made in the following manner:- No. Nature of Expenditure Total Amount (Rs.) Disallowance made (%) Amt. of disallowance 1. Payment made to entities covered u/s 40A(2)(b) 2,05,61,370/- 20% 41,12,274/- 2. Trading & Prim .....

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L and paid amounts to use these facilities. The assessee contended that payments are made for goods & services procured from M/s HUL and the payments are reasonable vis-à-vis prevailing market conditions and therefore, adhoc disallowance made by AO is without any basis. CIT(A) noted that Dalda being famous brand, but strangely no money was paid by assessee to obtain manufacturing/selling rights to M/s HUL. Further, whether such payments were reasonable keeping in view the quantity of .....

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in appeal before us. A paper-book containing inter-alia various submissions made before AO along-with final accounts and Tax Audit Report of the assessee has been placed before us. Qua 40A(2) disallowance, the Ld. Counsel for assessee has contended that the impugned payments were reasonable and fair keeping in view the prevailing market conditions. AO could not point out any basis on which adhoc disallowance has been made. Further, the payment has been made from one subsidiary to holding company .....

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rther, during Assessment proceedings before AO, the assessee has vide its reply dated 21/12/2006 had confirmed that the payments made for Processing Charges, purchase of raw material and purchase of goods were based on prevailing market price of the goods and services and have been fixed only after evaluating the cost of inputs etc. The prices have been fixed on the same basis and the norms, which are applied for purchase of goods/services from third parties. Further, the assessee was engaged in .....

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(2), the bifurcation of amounts paid are as follows: Sl. No. Payments debited to Profit & Loss Account Rupees 1. Processing Cost 71,44,968/- 2. Common Cost 21,80,000/- 3. Service Charges 3,36,000/- 4. Excise Duty Reimbursed 27,31,452/- 5. Payment for raw material / packing material / chemicals 81,68,950/- TOTAL 2,05,61,370/- Admittedly, the assessee do not have any manufacturing facility as no investment in fixed assets have been made by it rather it availed manufacturing facility of its hol .....

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nt of excise duty and hence accepted the factual situation. In such a scenario, we are of the considered opinion that an adhoc disallowance cannot be made on mere suspicion rather the AO should have brought some cogent material in the form of comparables so as to justify that the impugned payments are excessive or unreasonable. Moreover, both entities being in the same tax bracket, hence the transactions are tax neutral and covered by CBDT circular rightly pointed by Ld. AR. Our view is further .....

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een less and both being taxable at the same rate, there would be no difference in the aggregate tax payable by the assessee and its subsidiary. Similarly view has been expressed by Bombay High Court in the case of CIT Vs. Indo Saudi Services (P) Ltd. (supra). In view of the fact that that there are no allegations of tax evasion by revenue and keeping in view the above judicial pronouncements, we are inclined to delete the impugned disallowance of 20% made u/s 40A(2). Hence, Ground Nos. 1 to 4 of .....

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