HUL Receives ₹1,986 Crore Income Tax Assessment Order for FY21

HUL Receives ₹1,986 Crore Income Tax Assessment Order for FY21

Issue: The Income Tax Department issued a large assessment order and notice of demand against the FMCG major Hindustan Unilever Limited (HUL) pertaining to the financial year 2020-21 (Assessment Year 2021-22).

Facts:

• Hindustan Unilever Limited (HUL) received an assessment order, along with a notice of demand of ₹1,986.25 crore, issued by the Assistant Commissioner of Income Tax, Central Circle 5(2), Mumbai.
• The assessment order pertains to the financial year 2020-21 (Assessment Year 2021-22).
• The disputed tax additions primarily involve transfer pricing adjustments, including the disallowance of payments made to related parties, and challenges to the company’s corporate tax depreciation claims.

Decision:

(The company’s response to the order.)

HUL stated that the order is not expected to have any material impact on the company’s financials, operations, or other activities, and it intends to file the necessary appeal with the appellate authority within the permissible timeline.

Key TakeDowns:

• Large Contingent Liability: The order creates a large contingent liability for the company, although the amount is disputed and HUL will contest it at the higher appellate levels. * Focus on Transfer Pricing: The core of the dispute centers on complex tax issues prevalent among multinational corporations, namely the determination of the arm’s length principle for transfer pricing adjustments in related party transactions.
• Routine Tax Litigation: The order is part of the routine cycle of tax litigation faced by large corporations, often leading to a long process of appeals before the Income Tax Appellate Tribunal (ITAT) and beyond.