Income Tax Department Update: Mobile phone maker Xiaomi and Oppo can be fined Rs 1,000 crore for violating the tax law. The Tax Department had conducted a nationwide search and seizure operation on 21.12.2021 in respect of these foreign mobile communication and mobile hand-set manufacturing companies and persons associated with them. Various campuses in the states of Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan, Delhi and NCR have been involved in the action.
In the action of the Income Tax Department, it has been found that these two major companies have paid more than Rs 5500 crore as royalty to their group companies located abroad and on their behalf. In the light of the facts and evidence gathered during the search operation, the claim of such expenditure cannot be held to be true.
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The search operation has also revealed the modalities of procurement of parts for manufacturing of mobile handsets. In which it has been found that both the companies have not complied with the regulatory orders prescribed under the Income Tax Act, 1961 in dealing with the respective enterprises. Due to this negligence, companies are liable to penal action under the Tax Act, 1961 and tax liability of more than 1000 crores is created.
The Income Tax Department’s action has come to the fore in which foreign funds have been introduced in the books of the Indian company, but it turns out that the sources from which such funds are received are of dubious nature, allegedly But the lender has no creditworthiness. The quantum of such borrowing is about Rs 5000 crore, on which interest expense has also been claimed.
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Evidence regarding inflation of expenses, payments on behalf of associated enterprises, etc. has also been observed leading to reduction in the taxable profit of the Indian Mobile Handset Manufacturing Company. Such amount may exceed Rs 1400 crore.
The Income Tax Department’s action against another company found that a company had utilized the services of any other entity located in India but did not comply with the provisions of deduction of tax at source, which were made effective from 01.04.2015. 01.04.2020. The TDS liability on this account can be around Rs 300 crore.
In the case of another company involved in the search operation, it is learned that the control of the affairs of the company was largely influenced by a neighboring country. The Indian directors of this company accepted that they had no role in the management of the company and gave their names to the directorship for the purposes of the name. The company tried to transfer Rs 42 crore out of India without paying tax in India, evidence of which has been found.
In the case of some fintech and software services companies, survey action has revealed that many such companies have been created with the aim of increasing expenditure and taking out funds. For this purpose, such companies have made payments for unrelated business purposes and also used bills issued by a Tamil Nadu based business establishment which does not carry on any business. In this way an amount of Rs 50 crore has been sent out. Action is going on in the case of Income Tax Department.
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