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Hindustan Unilever Limited Versus Addl. CIT-Range-1 (1) , Mumbai

2018 (1) TMI 450 - ITAT MUMBAI

Transfer Pricing Adjustment - Held that:- We find that the Tribunal had dealt with all the issues of TP adjustments in detail, that the TPO had benchmarked the IT's of the assessee at entity level, that the Tribunal found that the benchmarking was within the permissible limit( +/- 5%), that the IT's were held to be at armís length, that it was further held that all other adjustments like payment of royalty, receiving of royalty, advertisement and sales promotion and advertisement, adjustment out .....

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on record that the facts for the year under consideration are different in any manner, except for the amount involved, from the facts of the last AY. Therefore, following the order of the Tribunal for that year, and the aforesaid judgment of the Honíble Bombay High Court for the same year, we decide the effective ground of appeal in favour of the assessee. - Disallowance under section 14A - Held that:- AO has not pointed out as to why the disallowance made by the assessee was not acceptable. .....

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addition u/s. 14A r. w. r. 8D of the Rules. - Disallowance of expenses incurred on shifting of office, treating it as a capital expenditure - Held that:- We find that the AO and the DRP has held that the expenditure incurred by the assessee was transactional expense, that the assessee has claimed that expenditure was incurred for a temporary site and that before shifting to the new office premises the assessee had incurred the expenditure. From the order of the AO the factual position is n .....

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ge Patil (2014 (10) TMI 402 - BOMBAY HIGH COURT)of the Honíble Bombay we decide the ground in favour of the assessee - Interest income - treated as income from other sources or busniss income - Held that:- If surplus available with an assessee earns interest from the deposits made by it, then it cannot be taxed under the head business income. In short, the DRP has rightly observed that the assessee is not in the business of money-lending/earning income from its business. Therefore, in our op .....

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e TP adjustment made for that year, that the Honíble Bombay High Court had dismissed the appeal filed by the department in that regard. In our opinion, the issue of TP adjustment has attained finality. Until and unless the AO brings new facts for making TP adjustment there is no need to discuss the issue in length. - Decided against revenue - Allocating interest expenses only to units claiming Section 10A & 10B exemption and not to units claiming section 80 IB & 80IC deductions - Held that:- .....

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essee, for the AY. 2006-07 the Tribunal [2012 (12) TMI 458 - ITAT MUMBAI] held interest could not be allocated to 80IB and 80 IC units also confirmed by HC. - Adjusted value of closing stock - Held that:- We are of the opinion that the directions of the DRP do not suffer from any legal infirmity. Closing Balance of an year automatically becomes Opening Balance for the later year. Therefore, we are unable to comprehend the logic behind raising the ground. Secondly, the AO as per the judgment .....

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aving direct nexus with exports business. Therefore, in our opinion the DRP had rightly held that same could not be again considered for disallowance u/s. 14A of the Act. - I.T.A./1321/Mum/2014 And I.T.A./1445/Mum/2014 - Dated:- 5-1-2018 - Sh. Rajendra, Accountant Member And Ravish Sood, Judicial Member For The Revenue : Shri Saurabh Deshpande-DR For The Assessee : Shri Hiten Chander-AR Order u/s. 254(1)of the Income- tax Act, 1961(Act) -PER RAJENDRA, AM Challenging the order, dtd. 31/12/2013 of .....

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leted the assessment determining the income of the assessee at ₹ 11, 17, 15, 69, 050/-. ITA/Mum/1321, AY. 2009-10: First three Gs. OA, raised by the assessee, for the year under appeal, are of general nature. Hence, same are not being adjudicated. 2. First effective ground of appeal(Gs. OA-4to11)is about Transfer Pricing Adjustment of Rs. ₹ 3, 68, 00, 000/-. During the assessment proceedings, the AO found that the assessee had entered in to various International transactions(IT. s)wi .....

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tment for the amount charged for business auxiliary services, that a mark-up of 30. 56% was rightly charged in respect of such services as against the mark-up charged by the assessee, that that business auxiliary services rendered by the assessee were functionally comparable with the seven comparable companies, namely Ajcon Global Services Ltd. , Brescon Corporate Advisors Ltd. , Epic Energy Ltd. , Sumedha Fiscal Services Ltd , Integrated Enterprises (India) Ltd. and NIS Sparta Ltd. , that no ro .....

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x amounting to ₹ 7. 94 crores and R&D Cess amounting to ₹ 2. 49 crores, paid by the assessee, on royalty remitted to Unilever Plc. -under the Technical Collaboration Agreement, between the assessee and the AE-was excessive. It alternatively held that if royalty were to be bifurcated then the tax payment made by the assessee could not be regarded an IT. It also upheld the adjustment, made by the AO, on account of Advertising & Sales promotion expenses amounting to ₹ 5, 0 .....

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. e. within permissible arm's length range (Para 34 to 36 on page 30 to 31 of ITA/7868/M/2010, dtd. 10/12/2012), that the Hon ble Jurisdictional High Court had upheld the order of the Tribunal. The DR stated that matter could be sent back to the AO/TPO. 2.3. We find that the Tribunal had dealt with all the issues of TP adjustments in detail, that the TPO had benchmarked the IT. s of the assessee at entity level, that the Tribunal found that the benchmarking was within the permissible limit( .....

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transfer pricing adjustment of ₹ 368. 79 crores made for that year, that the Hon ble Bombay High Court dismissed the appeal filed by the departments on this issue of deletion of adjustment of ₹ 3, 68, 79, 26, 000/-(ITA No. 1873 of 2013-Para 2, Pg. 66, Para 3-Pg. 68-69, dtd. 26/07/2016 ). Nothing has been brought on record that the facts for the year under consideration are different in any manner, except for the amount involved, from the facts of the last AY. Therefore, following the .....

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before DRP in that regard. But, as the issue is part of the umbrella of TP adjustment, so, in our opinion, there is no need to adjudicate the issue separately, raised by the assessee. 3. Disallowacne of deductions under sections 80IB, 80IC, 10A and 10B of the Act, is the subject matter of second effective ground of appeal (GOA-12&13). 3.1. It was brought to our notice that the ITAT had partly allowed the identical issue in favour of the assessee, while adjudicating the appeals for the AY. 1 .....

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turnover on gross basis which included excise duty and had total turnover on net basis that was excluding excise duty. The DR left the issue to the discretion of the Bench. 3.2. We direct the AO to decide the issue, after considering the orders of the Tribunal for the AY. 2006-07. Second effective ground of appeal is partly allowed. 4. Next effective ground (Gs. OA 14-15)is about Allocation of Research expenses. We find that the issue stands allowed by ITAT. While deciding the appeal, filed by t .....

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d the appeal of the assessee for the AY. s 1991-92 to 1997-98 & AY. 2006-07[Para 11 of the order for the AY. 1996-97(Pg. 83 of the PB), Para 8 of the order for the AY. 1997-98(Pg. 93 of the PB), and Para 48 the order for the AY. 2006-07(Pg 41 of the PB)]. It is also found that the department has not preferred any appeal before the Hon ble High Court for the AY. 2006-07, against the relief granted by the Tribunal. Therefore, following the orders of the Tribunal for the earlier AY. s, we decid .....

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103/-. He applied the provisions of Rule 8D of the Income tax Rules, 1962(Rules)to work out the expenditure attributable to exempt income and made a disallowance of ₹ 7. 72 lakhs under the head interest expenditure and ₹ 2. 78 crores under the head 0. 5% of average investment . 6.1. The DRP, after considering the objections of the assessee held that out of the total interest expenditure of ₹ 21. 78 crores expense to the tune of ₹ 20. 64 crores, related to export income, s .....

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elied upon the cases of Godrej & Boyce Manufacturing Company Ltd. (394 ITR 449) (SC), Aditya Birla Finance Ltd. (165 ITD 659)Smartchem Technologies Ltd. (85 taxmann. com 43). The DR stated that the matter could be decided on merits. 6.3. We find that while making the disallowance under section 14A of the Act, the AO/DRP has not dealt with the objections raised by the assessee, that AO has not pointed out as to why the disallowance made by the assessee was not acceptable. In our opinion the p .....

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ot make any addition u/s. 14A r. w. r. 8D of the Rules. We are reproducing the relevant part of the order of Aditya Birla Finance Ltd. (supra) and it reads as under: 3. 26 So far as, the expression satisfaction is concerned, it postulates a bona-fide belief about the incorrectness of the claim of the assessee and existence of objective reason for such belief. Further, this expression also does not mean a purely subjective satisfaction of the Assessing Officer or pretence based on suspicion and c .....

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the record/annual accounts of the assessee that no borrowed funds were utilized and the investment made by the assessee is out of its own funds, therefore, the provision cannot be invoked arbitrarily. It is also noted that the assessee suo-moto made the disallowance, wherever, it was suppose to do so. Thus, on this count, we allow this ground of the assessee, more specifically when own funds are much more in excess of the borrowed funds. . . . . . . xxxxx 3.28. In the light of the foregoing dis .....

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Mum/2013) and M/s White Water Mass Media vs ACIT (ITA No. 2963/Mum/2013) supports the case of the assessee. It is also noted that during assessment proceedings, the report of the accountant, specifying the basis for calculating the amount disallowable u/s 14A of the Act was submitted by the assessee and the Ld. Assessing Officer without rejecting the report mechanically applied Rule-8D and computed the amount of disallowance, which cannot be said to be justified. At best, the disallowance may be .....

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ut, he fairly conceded that the ITAT, while deciding the appeal for the AY. 2006-07 had restored the matter back to the file of AO. The DR left the matter to the discretion of the Bench. 7.1. As There is no difference in the facts for both the AY. s. , so, following the order of the Tribunal for the AY. 2006-07(Para 60 at Pg. 51 of the PB), we are directing the AO to decide the issue afresh after affording a reasonable opportunity of hearing to the assessee. Ground no. 19 is allowed, in part. 8. .....

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of ₹ 2.68 crores was added back by the assessee itself while computing its total income. Referring to the orders of his predecessors for the earlier two AY. s he proposed an addition of ₹ 14, 06, 92, 000/-to the income of the assessee, in the draft assessment order. 8.1. However, the DRP directed it that rental expenditure of ₹ 9. 63 crores was to be allowed as an expenditure and that the balance amount of ₹ 4. 43 crores was to be added to the income of the assessee. Acco .....

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8.3. We have heard the rival submissions and perused the material before us. We find that the AO and the DRP has held that the expenditure incurred by the assessee was transactional expense, that the assessee has claimed that expenditure was incurred for a temporary site and that before shifting to the new office premises the assessee had incurred the expenditure. From the order of the AO the factual position is not emerging clearly. Therefore, we are of the opinion that matter needs to be furth .....

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he assessee. Accordingly, we decide the ground in favour of the assessee, in part. 9. Ground no. 21 is about incorrect disallowance u/s 36(1)(va)of the Act. Before us, it was submitted that PF/ESIC dues were paid by the assessee within grace period, that no dis - allowance was called for. The assessee placed reliance on cases of WMI Cranes Ltd (326 ITR 523)and Pruthvi Brokers & Shareholders (349 ITR 336). 9.2. As the payment towards PF/ESIC were made within the grace period, therefore, in ou .....

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he DRP. It enquired from the assessee as to why the interest expenditure on export packing credit loan should not be allocated to export dismiss alone. The assessee replied that if it was to be allocated to only one business then interest income should be allocated to all units, that interest income was assessable as business income, that same should be allocated to all the units. The DRP observed that assessee had not demonstrated as to how the earning of interest was allocable to various units .....

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he case of Swani Spices P. Ltd. (332 ITR 288) of the honorable Bombay High Court and held that interest income earned by the assessee was assessable under the head income from other sources. 10.2. Before us, the AR made the same submissions that were advanced before the DRP by the assessee. The DR supported the order of the departmental authorities. 10.3. We find that the DRP had specifically directed the assessee to file justification for treating the interest income as business income, that it .....

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ht on record that finding given by the DRP is not based on facts. In our opinion, if surplus available with an assessee earns interest from the deposits made by it, then it cannot be taxed under the head business income. In short, the DRP has rightly observed that the assessee is not in the business of money-lending/earning income from its business. Therefore, in our opinion there is no need to disturb the directions of the DRP. Last ground of appeal is decided against the assessee. ITA/1445/Mum .....

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e assessee's margin fitted within +/-5% arm's length range, that the Tribunal deleted the entire TP adjustment made for that year, that the Hon ble Bombay High Court had dismissed the appeal filed by the department in that regard. In our opinion, the issue of TP adjustment has attained finality. Until and unless the AO brings new facts for making TP adjustment there is no need to discuss the issue in length. As the facts for the year under appeal are identical to the facts for the AY. 20 .....

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s, that the DRP directed to the AO to allocate the same to Section 10A and Section 10 B units. As the units claiming deduction u/s. 80 IB and 80IC were not engaged in exports and therefore no interest could be allocated to those units. While deciding the appeal, filed by the assessee, for the AY. 2006-07 the Tribunal held interest could not be allocated to 80IB and 80 IC units. (ITA/7868/Mum/2010/Dtd. 10. 12. 2012). The Hon ble Bombay High Court( Question no. 2 on Pg. 67 of the paperbook and par .....

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