TaxTMI 
TaxTMI 
2023 (6) TMI 1063
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....011. 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:- 1. Payment of royalty for technical documentation, information and technical know Rs. 6,54,03,000/- 2. Payment of royalty for central services Rs.11,65,31,532/- 3. Purchase of raw material and the sale/ Export of HPC & P&B Rs.40,11,63,635/- 5. The Assessing Officer passed the draft assessment or....
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....ntral services flowing from the aforesaid agreement. Admittedly, the same agreement was in operation for both the assessment years and therefore, the nature of services rendered in terms of the agreement was also same. The Assessee company has paid Central Services Charge @ 1% of estimated turnover and it has paid Total Central Service Fees of Rs.11,65,31,532/-. The assessee company has chosen external CUP method as MAM for determination of ALP for underlying transaction. In Transfer Pricing Study Report (TPSR), the Assessee company has compared royalty rate as available from Royalty Stat Database @ 5.75% (pg 119 of paper book), with the rate of 1 % (pg 107 of paper book) charged by the AE to the Assessee-company and accordingly, concluded that since the rate charged by the AE is less than the aforementioned rate available from Royalty Stat, the transaction concluded to be arm's length. The Ld. TPO, on perusal of the TPSR and benchmarking of the assessee, observed that there is a need to furnish details relating to nature of services received and also justify the payment(s) made by undertaking cost benefit analysis. Accordingly assessee was asked to furnish details relating to natu....
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....and corresponding foreign exchange contracts with banks. This enables UIEL to Manage the foreign exchange risk efficiently and effectively and ensure compliance with the approved forex policy. PB Pg. 393 to 394 PB Pg. 348 Accounting - The accounting entries for forex transactions are generated from the finance kit. This is then posted in UIEL's SAP ERP. It similarly automates the accounting for investment transactions there by eliminating manual accounting and tracking. Finance Kit also has direct feeds from information service providers such as Reuters and market information such as MTM can be directly accessed from Finance Kit. It also helps generate various accounting reports. PB Pg. 392 to 394 PB Pg. 347 to 349 Reporting and MIS - The System provides management with various reports on forex and investment transactions and helps the management to have a bird's eye view of the status of the forex exposure and corresponding hedge against the same. Cash flows, investment positions etc. can be directly obtained from the Finance Kit. PB Pg. 347 to 349 Counterparty Risk Management - UIEL investments and foreign exchange transactions ....
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.... This helps the line managers to initiate such requests for their team. Employees manage their personal information through this application. The home page of the website HR Online is accessed by the employees. Further, it provides various tabs to the employees according to the information to be accessed by the employees. PB Pg. 406 to 408 PB PB Pg. 359 to 361 Peoplesoft - An Oracle ERP application which manages employee data and their position-related details. A specific requirement is through the request service page and the request status page. PB Pg. 409 PB Pg. 362 to 364 Learning Hub - It is a learning application, of different types i.e. web-based, virtual and blended learning modules. This is used for learning and development and capability agendas. The home page, guidelines for the Learning Hub application and the learning calendar. PB Pg. 410 to 429 PB Pg. 365 to 384 Unify - It is a leave management Module. The employee uses this application to manage their assigned annual leaves. Homepage, request for encashment and the email from Unify Team for leave approval request. PB Pg. 430 to 432 PB Pg. 385 to 387 Sparkle - It is a tool to manage....
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....l quality processes needed to design, manufacture and distribute safe products for use by consumers. Some of the recent quality standard documents issued by the Global QMS Team are on Good Manufacturing Practice (GMP) for the Foods Category, HPC, Refreshments, etc., Cleaning and Disinfection, Consumer relevant quality standards, Disposal of non-conforming products, Foreign matter management and control, Integrated Pest Management, Personnel Hygiene & Employee facilities, Prevention of Cross Contamination, Quality Sampling, Monitoring &Testing, Guidelines on Warehouse and Transport, etc. The home page displays various documents such as Supplier Assurance and Audit, microbiological and hygiene issues, customer services, complaint handling and management of errors etc. UIEL gets significant inputs on consumer-relevant quality standards (CRQS) from the global teams, and in addition, there is significant value addition by doing category-specific deep dives, recommending solutions based on experiences in other Unilever countries and in educating UIEL teams on quality standards for new product innovations. PB Pg. 461 to 462 PB Pg. 416 to 417 Safety - UIE....
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....Hon'ble Bombay High Court has repeatedly held in various decisions that ad-hoc transfer pricing additions, without following any one of the prescribed methods, are not sustainable in law. • In AY 2012-13 and AY 2013-14, the Tribunal has deleted the transfer pricing addition arising from TPO‟s identical determination of ALP. The facts of the impugned are the same accordingly, the findings of the said decision ought to apply mutatis-mutandis to the impugned assessment years. • In AY 2015-16 and AY 2016-17, the Tribunal has deleted the transfer pricing addition arising from TPO‟s identical determination of ALP. The facts of the impugned are the same accordingly the findings of the said decision ought to apply mutatis-mutandis to the impugned assessment years. 11. The ld AR also submitted that the scientific CUP analysis done by the assessee ought to be upheld, instead of the ad-hoc nil determination of ALP by the TPO. The summary of the economic analysis undertaken by the assessee sin AY 2017-18 is as under: Particulars AY 2017-18 FAR and benchmarking discussion in TPSR PB Pg. 104 No. of Comparable instances 4 PB Pg.118 to 123....
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....by the ld DR is not applicable in assessee's case. 14. We heard the parties and perused the material on record. We notice that the coordinate bench of the Tribunal has been consistently holding the impugned issue in favour of the assessee. The coordinate bench in assessee's own case (supra) while considering the issue of payment of inter group services has held that - 16.It has been further submitted that the Tribunal in assessee's own case for A.Y.2012-13 and 2013-14 have decided this issue in favour of the assessee. The relevant observation of the Tribunal reads as under:- "30. We have considered rival submissions and perused the material on record. Undisputedly, the assessee has benchmarked the payment of royalty under central service agreement by applying CUP method. Whereas, the Transfer Pricing Officer has determined the arm's length price of the royalty payment at nil on purely conjecture and surmises without following any prescribed method. In fact, the observations of the Transfer Pricing Officer on the issue are very cryptic and non-speaking. Therefore, simply for the reason that the determination of arm's length price by the Transfer....
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....e cost base of the Assessee on which it has charged mark-up. In such a case, disallowance of royalty would reduce the income of the Assessee, which is not given the overall facts and circumstances, the Tribunal deleted the adjustment. 18.After considering the facts and material on record and the relevant finding given in the impugned order as well as the order of the Tribunal in earlier years, we find that before the authorities below, the assessee has given all the detailed submission and analysis not only demonstrating the rendition of central services but also commensurate benefits derived from such services to the assessee. This is evident from the details discussed above has called upon by us during the course of hearing. Accordingly, it cannot be held that either there was no rendition or no benefit as observed by the ld. TPO. Apart from that the CUP analysis done by the assessee by taking four comparables in both the assessment years in providing advisories, management advisory, strategic planning, business administration services, marketing plan, protocols, procedures, etc., wherein mean margin determined was 2.75% in A.Y.2015- 16 and 5.75% in A.Y.2016-17; whereas ....
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....ssee has suo-moto disallowed an amount of Rs. 66.150/- under u/s 14A of the Act in respect of Expenditure incurred in relation to Income not includible in total income in A.Y 2017-18 at the time of filing income tax return. In this connection, it is submitted that the expenses disallowable u/s 14A of the Act do not limit only to the proportionate salaries of one or two persons. There is a larger environment consisting of Board Directors, senior officials, maintenance costs to keeping these people operational and a host of other indirect expenses. Further during the scrutiny assessment the assessee has re-computed disallowance u/s 14A and accordingly on the basis average investment is Rs.49,02,45,834/- and 1% thereon is Rs. 49,02,458/- is disallowed. In this regard it is seen that the annual average of monthly average of the opening and closing investments has been computed only based on investment wise monthly summery for four month instead of twelfth month. 7.4 Furthermore, the assessee state that for the purpose of computing monthly average of investment for Rule 8D, have been ignored and investment like Growth Scheme of Liquid Funds, Hindustan Unilever Foundation and Po....
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....g that "there is a large environment consisting of Board of Directors, senior officials, maintenance costs to keeping these People operational and a host of other indirect expenses". Both AO and the Hon'ble DRP failed to appreciate that the treasury team of the Assessee was capable and authorized(AY 2017-18 PB Pg. 502) to carry out the investment activities and the proportionate cost was already disallowed(AY 2017-18 PB Pg. 475). No specific defects were found by either of the authorities in the said work. It is further submited that the AO has proceeded to invoke Rule 8D mechanically, without any cogent satisfaction to reject the Ld AR's suo-moto disallowance, which manifests from the facts that: • The AO has not applied his mind at all, despite submission from the Ld AR on the aspect that investments that yielded taxable capital gains ought to be removed from the calculation. • The AO has not applied the amended Rule 8D(2)(ii), which required the calculation of "annual average of the monthly average" and instead had computed the disallowance based on an unamended provision wherein average investment is calculated based on "the first day and last day of t....
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.... of Rs.147.50 lakhs towards benefit provided to employees of the company in respect of "Employees Share Option Scheme (ESOP)" The assessee made a detailed submission before the assessing officer explaining the nature of the ESOP and the reasons why the same is allowable u/s.37(1). However the assessing officer did not accept the contentions of the assessee by stating that the ESOP expenses has not crystalised and that the same is capital in nature. Accordingly the AO disallowed the ESOP expenditure. The DRP upheld the disallowance. 17.2 We heard the parties. We notice that the issue is covered by the decision of the coordinate bench in assessee's own case for AY 2015-16 & 206-17 where it is held that - 29. This issue again is covered by the decision of the Tribunal in the case of Unilever Industries Pvt. Ltd. supra where the Tribunal has followed the decision of the Hon'ble Karnataka High Court in the case of M/s. Biocon Ltd, the relevant observation of the Tribunal reads as under:- 10. The Ld. AR has made elaborate submissions on the ESOP scheme & expenditure and provisions of law on the allowability of claim. We found that the Hon'ble High Court of Karnataka ....
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....hy that in the aforesaid decision, the Supreme Court was dealing with a proceeding under Section 201 of the Act for non deduction of tax at source and it was held that there was no cash inflow to the employees. The aforesaid decision is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is also pertinent to mention here that in the decision rendered by the Supreme Court in the aforesaid case, the Assessment Year in question was 1997-98 to 1999-2000 and at that time, the Act did not contain any specific provisions to tax the benefits on ESOPs. Section 17/2)/ita) was inserted by Finance Act, 1999 with effect from 01.04.2000. Therefore, it is evident that law recognizes a real benefit in the hands of the employees. For the aforementioned reasons, the decision rendered in the case of Infosys Technologies is of no assistance to the revenue. The decisions relied upon by the revenue in Gajapathy Naidu, Morvi Industries and Keshav Mills Ltd. supra support the case of assessee as the assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on ESOPS has rightly been debited as expenditur....