Income Tax Dept detects Rs 400 crore suppression of income in India by multinational telecom firm
Mar 03, 2022
New Delhi [India], March 3 : The Income Tax Department said on Thursday it has detected suppression of income of Rs 400 crore during a raid conducted at various premises linked to a multinational telecom group.
"The ultimate shareholding of the group lies with a foreign entity of a neighbouring country. The searches, which were spread across Delhi, Gurugram, and Bengaluru covered the main business premises and also the residential premises of the key office bearers," according to an official statement released by the Ministry of Finance.
Although the company's name is not mentioned in the statement released by the Union Finance Ministry, the official sources said the concerned company is Chinese telecom firm Huawei.
The search and seizure operations by the Income Tax Department were conducted on February 15, 2022.
In a statement released on February 16 Huawei had confirmed about the raids. "We have been informed of the visit of the Income Tax team to our office and also of their meeting with some personnel," the company had said in the statement.
According to the Finance Ministry, the search action has revealed that the group has made inflated payments against receipt of technical services from its related parties outside India.
"The assessee company could not justify the genuineness of obtaining of such alleged technical services in lieu of which payment has been made as also the basis of determination of consideration for the same. The expenses debited by the assessee company towards receipt of such services are to the tune of Rs 129 crore over a period of five years," it said.
Evidence gathered and statements recorded during the search also revealed that one of the group entities engaged in providing software development services, has been disclosing lower net margins from the related parties, by claiming its operation to be of low-end nature.
"However, the evidences collected during the investigation indicated that this entity has been rendering significant services/ operations of high-end nature. On this aspect, suppression of income of Rs. 400 crore has been detected," the Finance Ministry said.
The search action has further revealed that the group has manipulated its books of account to reduce its taxable income in India through creation of various provisions for expenses, such as provisions for obsolescence, provisions for warranty, doubtful debts/ loans & advances etc., which have little or no scientific/financial rationale.
According to the Finance Ministry, during the investigation, the group has failed to provide any substantial and appropriate justification for such claims.
During the search, it was found that, the assessee group has debited more than Rs 350 crore in its books of account in recent financial years towards royalty to its related party. Such expenses have been incurred for the use of brand and technical know-how related intangibles.
During the search, the group has failed to substantiate receipt of any such services/technical know-how, or the basis of quantification of royalty rate for such claim. Consequently, the rendering of services and such royalty payments become highly questionable and prima facie, disallowable as business expenses as per extant Income Tax law.
