New Delhi: Income Tax Department has served a massive tax notice of 1.986 crore to Hindustan Unilever Limited (HUL) one of the most popular companies in India that deals with daily use products such as dove, Surf Excel, and Lifebuoy. The notice is connected to the period of 2020-21 financial year.
The tax department indicated that HUL had committed some errors during the presentation of its accounts in that year. They are of the opinion that the company failed to compute its tax on two matters one of them is how it paid their money to other businesses associated with it (they are known as related party transactions) and the other is how they claimed to depreciate certain assets. Depreciation refers to the process whereby the company can deduct its old machines or buildings and also this will influence the amount of tax to be paid.
Under the order as received by HUL, the company is now to pay the tax amount as provided under some sections of the Income Tax Act. The notice was provided in accordance with the sections 143 (3) and 144 C(13) of the Act and a demand notice had also been issued in section 156. This simply implies that the government is technically requesting HUL to pay the tax sum after scrutinizing its financial records.
But HUL has claimed that it does not concur with the tax department findings. The firm has clarified that it will challenge the notice as it should be done under the legal process. HUL stated in its statement that in spite of the large size of the amount, it will make no significant difference to the company finances or business operations. It further added that the company observes all the taxation regulations with a thorough scrutiny and thinks that its financial processes are not the wrong ones.
Such a tax intimation is not quite atypical of big companies. The government tends to audit the way in which large companies treat their financial statements and payment of taxes. Such notices are sent in case of any confusion or differing opinion. The problem, in this case, is primarily related to transfer pricing, in other words, the way a company prices deals between its branches, or between India and other countries. This is one of the areas that bring about some disagreements between the tax department and the companies.
This tax notice is timed against the changing markets where HUL is already struggling with the slow growth in the FMCG sector. Nevertheless, analysts think that these tax issues are normally time consuming to resolve and that they may undergo a series of hearings before a final ruling is arrived at.
The firm believes that it stands a good ground and will appeal against tax requirement in the Income Tax Appellate Tribunal (ITAT). According to many industry observers, these legal wrangles are a normal occurrence and do not necessarily imply that a company has not done anything wrong. This is part and parcel of the process as both sides of the case lay their arguments, and the tribunal decides.
This is a warning to the companies though to be particularly cautious when they submit taxes and demonstrate the manner in which they arrive at values such as depreciation and transfer pricing. This is because these little details may create big variations in the total amount of tax.
Ultimately, HUL has been able to assure all that it is not ending its business, and that it is operating within the law. The company indicated that it is optimistic that the issue would be solved in its favor. Until then, everyone is watching the way the appeal process proceeds and the ultimate decision will be made.
Thus, the government is putting big 1986 crore taxes on Hindustan Unilever, which is one of the largest and most reliable companies in India. The company however claims that it will challenge the case and is of the view that its accounts are on the right track. It demonstrates that even such giants of a business industry may struggle with their finances at times, and the importance of remaining cautious, sincere, and transparent with their finances.
