TaxTMI 
TaxTMI 
2023 (2) TMI 1392
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....roved. The National company law Tribunal, Chandigarh bench also passed an order on 26/2/2020 according to which all the property, rights and powers of the assessee company pursuant to the provisions of section 230 to 232 of the companies act 2013 were transferred to be vested in Hindustan Unilever limited (the transferee company). The effective date of merger was 1 April 2020. This fact was intimated by email dated 3/4/2022 the joint Commissioner of income tax (OSD) circle 4 (1) Chandigarh and copy was marketed to (1) the principal chief Commissioner of income tax, Northwest region, Chandigarh, (2) the principal Commissioner of income tax - 2, Chandigarh, (3) the joint Commissioner of income tax range 4, Chandigarh, (4) the deputy Commissioner of income tax, transfer pricing officer - 1 (3) (1), New Delhi, (5) the Commissioner of income tax, transfer pricing - 1, New Delhi. In the body of the email it was submitted that a letter involved format with digital signature as well as a PDF copy of the same as an intimation/communication of approved merger/amalgamation of GlaxoSmithKline consumer healthcare Ltd with Hindustan Unilever limited with effective from 1 April 2020. In the above....
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....ng the total income of the assessee at Rs. 14,094,748,600/- against the returned income of the assessee filed on 30/11/2007 at a total income of Rs. 1,858,727,920/-. 04. Assessee has raised following grounds of appeal:- 1. That on the facts and circumstances of the case and in law, the order passed under section 143(3) read with section 144C of the Income Tax Act, 1961 (the Act) on the non-existing amalgamating entity, is unlawful, void-ab-initio and liable to be quashed. 1.1 That on the facts and circumstances of the case, the impugned order having been passed without complying with the binding directions issued by the Dispute Resolution Panel (DRP) is without jurisdiction, illegal and bad-in-law. 1.2 That the assessing officer ('AO') erred on facts and in law in completing the assessment under section 143(3) read with section 144C of the Income-tax Act ("the Act") at an income of Rs. 1409,47,48,600 as against the returned income of Rs. 1085,87,27,920. Re: Transfer pricing adjustment in relation to AMP Expenses: 2. That the AO erred on facts and in law in making addition of Rs. 16,001 lacs on protective basis applying Bright ....
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.... in law in not discharging the onus of bringing on record any tangible material to demonstrate, existence of the international transaction in relation to the advertisement, marketing and brand promotion expenses unilaterally incurred by the appellant, so as to establish that the same constituted an international transaction. 2.7 The AO/TPO/ DRP erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm's length price ('ALP') and the contract or declared price, but the said provision could not be invoked to determine the 'quantum' / extent of business expenditure. 2.8 That the AO/ TPO/ DRP erred on facts and in law in not appreciating that the AMP expenses were incurred by the appellant for its own benefit and the benefit to the AE, if any, being incidental cannot be a basis to construe an international transaction between the appellant and the associated enterprises. 2.9 That the AO/ TPO/ DRP erred on facts and in law in concluding that the AMP efforts undertaken by the appellant was to promote the brand of the AE and to deve....
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....he adjustment applying RPSM at Rs. 17,303.59 lakhs by wrongly considering the non-routine AMP expenses at 20,781.61 lakhs instead of Rs. 15,083.89 lakhs. 2.18 That the AO/ TPO/ DRP erred in law and in facts in not appreciating that protective adjustment can only be made in two separate entities to ensure that income does not escape taxation. Re: Disallowance of Market Research Expenses 3. That the AO/ DRP erred on facts and in law in disallowing market research expenses amounting to Rs.1587.33 lacs (1190.49750 lacs after allowing depreciation) under section 37(1) of the Act, alleging the same to be capital in nature. 3.1 Without prejudice, the AO erred on facts and in law in not appreciating that since the Transfer Pricing Officer vide order dated 31.01.2021 has proposed adjustment in relation to AMP expenses by considering portion of such market research expenses of Rs. 1265.22 lacs as part of AMP expenses incurred by the assessee, any further disallowance of the same expense will result in double disallowance/adjustment of Rs. 1265.22 lacs. 3.2 Without prejudice, the AO/ DRP erred on facts and in law in not allowing depreciation @ 25% ....
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....g officer/ DRP erred in completing the assessment by taking the income as determined in intimation issued under section 143(1) as the starting point without appreciating that as per section 144B of the Act, variation, if any, can be made only to the returned income. 7.1 That on the facts and circumstances of the case and in law, the DRP erred in not adjudicating upon the objections raised by the appellant regarding (a) of import of income as determined in intimation and (b) merits of the adjustment made in the intimation and simply directing the assessing officer to verify and pass a speaking order. 7.2 That on the facts and circumstances of the case and in law, the AO/ DRP erred in confirming the disallowance of Rs. 33,26,26,510 being amounts out of disallowances made in preceding years and reversed and credited to profit and loss account in the relevant previous year without considering the evidences submitted before him/ DRP merely by repeating the allegations made in the draft assessment order. 7.3 That the AO erred on facts and in law in sustaining the disallowance of Rs. 33,26,26,510 being amounts out of disallowances made in preceding years and rev....
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....pellant being a resident company subject to tax under section 115-0 of the Act and not the shareholder, tax treaty benefits are not available to it. Re: Depreciation on expenses capitalized in earlier years by the assessing officer 9. That the AO erred on facts and in law in not allowing depreciation aggregating to Rs. 9,05,911 on Renovation expenses and DLF deferred expenses, which were held to be capital in nature by the assessing officer in earlier years, allegedly holding that (a) the assessee has not claimed the depreciation in the return of income and (ii) the DRP has not allowed such depreciation in the assessment year 2016-17. Re: Disallowance of incremental balance in PLA 10. That the AO erred on facts and in law in not appreciating that since the deduction of Excise PLA closing of Rs. 21,27,074 (as on 31.03.2016) claimed in the preceding assessment year 2016-17 was not allowed by him, the same ought to have been reduced from the assessed income of assessment year 2017-18 since the same has been added back by the assessee in the Returned Income of the assessment year 2017-18. 11. That the assessing officer erred on facts and in ....
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....egal structure created by the assessee company, it clearly emerges that the steps of purchasing from a person entity and selling it so the same person/entity without doing any value addition are a mere contrivance bereft of any commercial purpose" 2.2 That the DRP erred on facts and in law in holding that "the expenses have actually been incurred for providing market support services, and advertising marketing and promotion of brand Horlicks for which the assesse should have been appropriately compensated, especially the explicitly mentioned Marketing Expense and Marketing research which are for improving Horlicks brand, ensuring quality and creating goodwill for PMI. But by creating a structure of a make-believe trading arrangement, an attempt has been made to characterize these AMP expenses a trading." 2.3 That the DRP erred on facts and in law in arbitrarily holding that in the appellant's case the expenses incurred for the purpose of promoting brand image of the AE was an international transaction in as much as the only substantial activity is marketing and promoting the brand image of AE products and the legal structure of trading created by the assessee ....
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....unt of AMP expenses was warranted in terms of decision of Maruti Suzuki India Ltd vs. CIT 381 ITR 117, which deals with the case of manufacturers. 2.11 The AO/TPO/DRP erred on facts and in law in incorrectly applying Profit Split Method for benchmarking the alleged international transaction of provision of brand building services and not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying TNMM. 2.12 Without prejudice, that the AO/ DRP/ TPO erred on facts and in law in inconsistently applying rPSM and BLT method for benchmarking the alleged transaction of incurring AMP expenses without appreciating that in the preceding assessment year 201314 intensity approach was considered for benchmarking the AMP expense. 2.13 Without prejudice, that the AO/DRP/TPO erred on facts and in law in considering selling expenses (market research expenses) as brand building expenses for the purpose of benchmarking alleged AMP expense applying rPSM and BLT method. 2.14 Without prejudice, the AO/TPO DRP erred on facts and in law in considering inappropriate comparables for the purpose of benchmark....
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....on has also been claimed by the appellant in respect of medical insurance premium paid during the relevant year. 4.2 That the AO/DRP erred on facts and in law in observing that the provision has been made by debiting the general reserves without appreciating that the said provision was made by debiting the profit and loss account and not the general reserves. Disallowance of Royalty Expenses 5. That the AO/DRP erred on facts and in law in making disallowance of payment of royalty of Rs.96,03,60,000 (after allowing depreciation @25% on Rs.12804.80 lacs) incurred during the year allegedly holding the same to be capital in nature. 5.1 Without prejudice, that the AO/DRP erred on facts and in law in not allowing depreciation@25% on the written down value of royalty expenses disallowed in the assessment years, i.e. AY 2008-09 to 2017-18 (except AY 2011-12), by treating the same as capital in nature. Disallowance adjustments made under section 1431) of the Act 6. That on the facts and circumstances of the case and in law, the assessing officer DRP erred in completing the assessment by taking the income as determined in intimation issue....
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....ot the shareholder, tax treaty benefits are not available to it. Depreciation on expenses capitalized in earlier years by the assessing officer 8. That the AO erred on facts and in law in not considering additional claim of the appellant to allow depreciation aggregating to Rs.8,15,319 on Renovation expenses and DLF deferred expenses, which were held to be capital in nature by the assessing officer in earlier years. 8.1 That the AO erred on facts and in law in not complying with the binding direction of DRP. wherein, at Para 47 of the direction, the DRP has asked the AO to follow their direction issued for AY 2016-17 and allow such depreciation. Short TDS/TCS Credit 9. That the AO/DRP erred on facts and in law in allowing partial TDS credit of Rs. 45,86,40,640/- and partial TCS Credit of Rs.2,43,595/- as against TDS credit of Rs.45,95,50,556 and TCS Credit of Rs 2,59,649 claimed by the appellant in the return of income filed for the year under consideration. 9.1 That the AO erred on facts and in law in not considering the unclaimed TDS credit of Rs.9,09,916 (Rs.45,95,50,556 - Rs.45,86,40,640) brought forward from earlier years, ....
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....New Delhi also in the caption subject mentioned the above fact. In the letter dated April 5, 2021 addressed to the income tax officer national e-Assessment Centre, Delhi in the subject and caption, the above fact was mentioned. In the letter dated March 22, 2021 addressed to the income tax officer national e-Assessment Centre, Delhi in the subject caption the fact of Hindustan Unilever Ltd is the assessee was mentioned. Wide letter dated February 24, 2021 address to the income tax officer national e-Assessment Centre in the captioned subject this fact was once again mentioned. iv. Assessee preferred objection before the learned dispute resolution panel. Objections were filed to the learned dispute resolution panel where the name and address of the eligible assessee was mentioned that Hindustan Unilever limited (as legal successor of GlaxoSmithKline consumer healthcare limited). v. Ld DRP passed its direction on 26/05/2022. The direction issued by the dispute resolution panel - 1, New Delhi was passed in the name of Hindustan Unilever limited (as legal successor of GlaxoSmithKline consumer healthcare limited). Submission before DRP dated January 17, 2022 also menti....
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.... above companies has approved the scheme effective from 1st April, 2020. The assessee also submitted that vide letter dated 3rd April, 2020 attached with e-mail along with sanctioned orders and the board resolution to the jurisdictional Assessing Officer at circle 4(1), Chandigarh, duly intimating the aforesaid merger. Further, assessee submitted the details required by the learned Transfer Pricing Officer. On 16th July, 2021, the learned Transfer Pricing Officer further issued a show cause notice in the name of Glaxo Smithkline Consumer Healthcare Ltd. This was replied on 23rd July, 2021. Once again, in the first paragraph of the above letter, the assessee submitted the factum of amalgamation by merger of Glaxo Smithkline Consumer Healthcare Ltd with Hindustan Unilever Ltd. with effect from 1st April, 2020 and intimation of the same to the jurisdictional Assessing Officer. Based on above proceedings, the learned Transfer Pricing Officer passed an order under Section 92CA(3) of the Act on 31st July, 2021, wherein in the first paragraph, he mentioned that the assessee Company M/s Glaxo Smithkline Consumer Healthcare Ltd. is legally succeeded by Hindustan Unilever Ltd. He passed an o....
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....ine Consumer Healthcare Ltd with Hindustan Unilever Ltd. is effective from 1st April, 2020. Along with the intimation a zip file was attached which contain letter dated 1st April, 2020 address to JCIT, OSD Circle 4(1), Chandigarh and carbon copy marked to PCCIT Chandigarh, PCIT-2, Chandigarh, JCIT Chandigarh and DCIT Transfer Pricing-1, New Delhi. It also enclosed both the orders of NCLT. iii. He also referred to letter dated 29th April, 2021, address to Deputy Commissioner of Income Tax, Circle 1(1), Chandigarh, requesting that now the Glaxo Smithkline Consumer Healthcare Ltd has amalgamated with Hindustan Unilever Ltd. with effect from 1st April, 2020. The PAN No. of Glaxo Smithkline Consumer Healthcare Ltd. is lying with DCIT, Chandigarh. It was further stated that several appeals and demands for several assessment years are pending in case of Glaxo Smithkline Consumer Healthcare Ltd. and now such tax proceedings pending on the effective date shall continue against Hindustan Unilever Ltd. Therefore, the assessee requested to transfer and address all communications, notices, orders, demands, proceedings, etc. pertaining to all years of Glaxo Smithkline Consumer Healthcar....
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....learned Assessing Officer, the learned Transfer Pricing Officer and learned Dispute Resolution Panel, despite that the assessment order is passed in the name of Glaxo Smithkline Consumer Healthcare Ltd. ix. He further referred to the decision of the Hon'ble Supreme Court in case of PCIT(Central-2) Vs Mahagun Realtors Pvt ltd. [ [2022] 137 taxmann.com 91 (SC)/] that the facts of that case are clearly distinguishable as in this case the learned Assessing Officer was intimated. He further referred that draft assessment order is also passed in the name of a non-existing company. x. He submitted that according to the provision of Section 144C of the Act, it can be passed in the assessment of an 'eligible assessee' as defined under Section 144C (15) (b) of the Incometax Act, 1961 (the Act). The eligible assessee means 'any person'. He submitted that 'person' is defined under Section 2 (31) of the Act and all of these entities must be in existence. Here the person in whose name the assessment order is passed is not an existing entity, therefore, there is no valid draft assessment order passed in the case of the assessee. Accordingly, as the dr....
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....ect from 1/4/2020 and the said fact was also intimated to jurisdictional assessing officer of GlaxoSmithKline consumer healthcare limited i.e. ACIT circle 4 (1), Chandigarh by its letter dated 3/4/2020 along with section orders and board resolution. However in this regard no documentary evidences were submitted to the national e-Assessment Centre, Delhi. On perusal of the letter dated 1/4/2020 of Hindustan Unilever limited, it is observed that there is no specific mention of any ongoing tax proceedings in the name of GlaxoSmithKline consumer healthcare limited for the assessment year under consideration. Further as per the records available with this charge, Hindustan Unilever Ltd has not made any submission in this charge being the jurisdictional assessing officer of eight, regarding amalgamation of GlaxoSmithKline consumer healthcare Ltd with Hindustan Unilever Ltd during the assessment proceedings and otherwise. Considering the above mentioned facts of the case and provisions of section 292B of the act, the ground number 1 raising the assessee that the order under section 143 (3) read with section 144C of the act was passed on the nonexisting amalgamating entity is unlawful, voi....
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....are limited (legally succeeded by Hindustan Unilever limited) 3 Draft assessment order 13/8/2021 GlaxoSmithKline consumer healthcare limited though various submissions made by the assessee as mentioned above were named in the name of Hindustan Unilever limited 4 Objections filed in form number 35A before DRP 10/9/2021 Hindustan Unilever limited (as legal successor of GlaxoSmithKline consumer healthcare limited) 5 Direction issued by the learned dispute resolution panel 23/5/2022 Hindustan Unilever limited (as legal successor of GlaxoSmithKline consumer healthcare limited) 6 Intimation letter for order under section 144C (5) issued by DRP - 1, Delhi 26/05/2022 GlaxoSmithKline consumer healthcare limited 7 Order giving effect to direction under section 144C passed by DCIT - transfer pricing - 1 (3) (1) Delhi 9/6/2022 GlaxoSmithKline consumer healthcare limited 8 Assessment order passed under section 143 (3) read with section 144C (13) by the DRP 30/6/2022 GlaxoSmithKline consumer healthcare limited Assessment Year 2018-19 Serial number Particulars Date Name of the assessee 1 return of income ....
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.... by the learned assessing officer on 29/9/2022 and by the secretary of the learned dispute resolution panel on 9/11/2022 does not support the case of the revenue at all. Further the reply in paragraph number 3.1 of the secretary DRP - 1, New Delhi stating that the learned DRP passed the direction in the name of 'M/s Hindustan Unilever limited (legal successor of GlaxoSmithKline consumer healthcare limited)' only because in form number 35A filed by the assessee it stated the name of the assessee as 'Hindustan Unilever limited (legal successor of GlaxoSmithKline consumer healthcare limited)', is supporting the case of the assessee. If the reply of the secretary of the DRP is to be believed, then the DRP passes the direction not based on the assessment records and transfer pricing records but on the names mentioned in form number 35A filed by the assessee. We disagree with the reply of the secretary to the learned dispute resolution panel. The reply of the learned AO also does not support the case of the revenue that there was no mention of assessment year in letter dated 1/4/2020 of Hindustan Unilever limited. This is also once again not correct for the simple reason ....
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.... The directors of MRPL and MIPL made a combined statement under section 132 of the Act, on 27-8-2008. (iv) A total of Rs. 30 crores cash, which was seized- was surrendered in relation to MRPL and other transferor companies, as well as MIPL, on 278-2008 in the course of the admission, when a statement was recorded under section 132(4) of the Act, by Mr. Amit Jain. 5. Upon being issued with a notice to file returns, a return was filed in the name of MRPL on 28-5-2010. Before that, on two dates, i.e., 22/27-7-2010, letters were written on behalf of MRPL, intimating about the amalgamation, but this was for AY 2007-08 (for which separate proceedings had been initiated under section 153A) and not for AY 2006-07. 6. The return specifically suppressed - and did not disclose the amalgamation (with MIPL) - as the response to Query 27(b) was "N.A". 7. The return - apart from specifically being furnished in the name of MRPL, also contained its PAN number. 8. During the assessment proceedings, there was full participation - on behalf of all transferor companies, and MIPL. A special audit was directed (which is possible only after issuing notice under....
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....erent transferor companies (Mahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor Pvt. Ltd.). The mere choice of the AO in issuing a separate order in respect of MRPL, in these circumstances, cannot nullify it. Right from the time it was issued, and at all stages of various proceedings, the parties concerned (i.e., MIPL) treated it to be in respect of the transferee company (MIPL) by virtue of the amalgamation order - and section 394 (2). Furthermore, it would be anybody's guess, if any refund were due, as to whether MIPL would then say that it is not entitled to it, because the refund order would be issued in favour of a non-existing company (MRPL). Having regard to all these reasons, this court is of the opinion that in the facts of this case, the conduct of the assessee, commencing from the date the search took place, and before all forums, reflects that it consistently held itself out as the assessee. The approach and order of the AO is, in this court's opinion in consonance with the decision in Marshall & Sons (supra), which had held that: "an assessment can always be made and is supposed to be made on the ....