In a recent legal development, Hindustan Unilever (NS:HLL) faced a setback regarding a tax dispute involving a significant demand raised by the Income Tax authorities. The order relates to a tax demand of INR 962.75 crore, which includes an interest component of INR 329.33 crore. The dispute arose over the company’s alleged failure to deduct tax deducted at Source (TDS) on payments made to acquire India HFD intellectual property rights (IPR) from GlaxoSmithKline (GSK) Group entities.
The company filed a Writ Petition with the Bombay High Court, challenging the Assessment Order and the subsequent demand notice. In its petition, the company contested the validity of the TDS demand, claiming that the provisions of the Income Tax Act, 1961, were not applicable in this particular transaction.
However, in the recent ruling, the Hon’ble Bombay High Court dismissed the petition on procedural grounds. The court noted that the company had not exhausted its statutory remedy of filing an appeal against the AO Order and therefore could not pursue relief through a writ.
Despite the dismissal, the court granted the company some relief by allowing its arguments on facts and legal matters to remain open. Additionally, the Bombay High Court provided the company with 15 days to file a stay application against any fresh order issued by the Assessing Officer and to address the penalty proceedings that may arise from the dispute. Notably, the court advised the tax department not to enforce any demand recovery until the stay application is resolved.
The company is now assessing its legal options and determining the next steps in response to the court's ruling. While the immediate petition was unsuccessful, the company retains the opportunity to appeal the original tax demand and seek relief through other legal avenues.
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This demanded tax is roughly 9-10% of the company’s FY24 net income of INR 10,277 crore which could dent investors’ sentiment. Also, the stock is currently overvalued with its fair value being INR 2,488.3 per share, depicting a decent 15.7% correction from the CMP of INR 2,950. For those who like to follow technicals, ProTips (a game-changing AI-generated information-giving tool) is suggesting an overbought zone of the stock.
This means it is currently too high to make fresh long positions. Having a glance at ProTips can save investors from making a wrong decision.
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