According to the Income Tax Department, Xiaomi and Oppo failed to comply with the regulatory mandate for transaction declaration and could face a penalty of up to Rs 1,000 crore.
Xiaomi And Oppo Could Be Penalized For Violating Income Tax Laws!
On December 21, the IT department conducted a pan-India search and seizure operation in Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan, and Delhi NCR in the case of certain foreign-controlled mobile communication and mobile handset manufacturing companies and their associated persons.
In a statement issued on Friday, the Central Board of Direct Taxes (CBDT), the parent body of the IT department, said: “The search action has revealed that two major companies (referring to Oppo and Xiaomi) have made remittance in the nature of royalty, to and on behalf of its group companies located abroad, which aggregates to more than ?5,500 crores.”
“The claim of such expenses does not seem to be appropriate in light of the facts and evidence gathered during the search action,” it said.
“It is gathered that both these companies had not complied with the regulatory mandate prescribed under the Income-tax Act, 1961 for disclosure of transactions with associated enterprises. Such lapse makes them liable for penal action under the Income-tax Act, 1961, the quantum of which could be in the range of more than ?1,000 crores,” the CBDT statement added.
What The Investigation Has Brought Out?
The investigation has revealed the method of purchasing components for mobile handset manufacturing as well as the introduction of foreign funds into the Indian company’s books, but it has also revealed that the source of such funds is of dubious nature, purportedly with no creditworthiness of the lender.
“The quantum of such borrowings is about ?5,000 crore, on which interest expenses have also been claimed,” it added. The department added that it has come across evidence with regard to the inflation of expenses, payments on behalf of the associated enterprises, etc, which led to the reduction of taxable profits of the Indian mobile handset manufacturing company. “Such amount could be in excess of ?1,400 crores,” it further said.
Another mobile company was also raided by IT on December 21, about which, without divulging the name, the department said that “it has been detected that the control of the affairs of the company was substantively managed from a neighbouring country”.
“The Indian directors of the said company admitted that they had no role in the management of the company and lent their names for directorship for the namesake purposes. Evidence has been gathered on an attempt to transfer the entire reserves of the company to the tune of ?42 crores out of India, without payment of due taxes,” the CBDT added.
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