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IT raids on 2 cellphone firms find Rs 1,400-crore understating of profit

The tax department has carried out raids across the premises of foreign mobile phone manufacturers, who could be liable to pay fines of up to Rs 1,000 crore, the finance ministry said on Friday.

The search and seizure operations were carried out across multiple states on December 21. “The search action has revealed that two major companies have made remittance in the nature of royalty, to group companies located abroad, which aggregates to over Rs 5,500 crore. The claim of such expenses does not seem to be appropriate…,” the statement said.

Evidence has emerged that the two companies could be under-stating taxable profit by more than Rs 1,400 crore.

The statement did not name the two firms. A report by NDTV said that they were Xiaomi and Oppo. However, this could not be confirmed independently. “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,” the ministry said.

The raids revealed a modus operandi, whereby foreign funds were introduced in the books of the Indian company but sourced from dubious lenders with no credit worthiness. The quantum of such borrowings is about Rs 5,000 crore, on which interest expenses have been claimed.

It was found that one of the companies utilised the services of an Indian entity but did not comply with the provisions of tax deduction at source, which would make it liable for dues of an additional Rs 300 crore.

The ministry said that the tax department would investigate the matter further. PTI

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