The Income Tax Department has finally provided some details about the raids conducted on some of the leading smartphone makers in India. On 21 December, a search and seizure operation was carried out across India. According to the IT department, these organizations were foreign controlled mobile communications and mobile hand-set manufacturing companies. The raids were conducted in the states of Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan, Delhi and NCR. So far the government has not named anyone. Earlier reports said that the raids were conducted at the offices of OnePlus, Xiaomi and Oppo India.
According to a Finance Ministry statement, the raids have revealed that the two major companies have made remittances in the nature of royalty to and on behalf of their group companies located abroad, aggregating over Rs 5,500 crore. The ministry says that the claim of such expenses does not seem justified in the light of the evidence found during the raid.
The search operation also revealed the modus operandi of procurement of parts for manufacturing of mobile handsets. The government claims that both these companies had not complied with the regulatory order prescribed under the Income Tax Act, 1961 for disclosure of transactions with related enterprises. Companies are liable to penal action under the Income Tax Act, 1961 with fines exceeding Rs 1000 crores.
Further investigation revealed that foreign money has been introduced into the books of the Indian company but it turns out that the source from which the money is received is of dubious nature. The borrowing is estimated to be around Rs 5000 crore, on which interest expense has also been claimed.
Inflation of expenses, payments on behalf of associated enterprises etc. have also been taken care of which has resulted in reduction of taxable profit of Indian Mobile Handset Manufacturing Company. This amount may exceed Rs 1,400 crore.
It is further found that one of the companies used the services of another entity located in India but did not comply with the provisions of deduction of tax at source with effect from April 2020. The amount of TDS liability on this account is approximately Rs. 300 million.
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 managed from a neighboring country. The Indian directors of the company acknowledged that they had no role in the management of the company and gave their names as directors for name purposes. Evidence has been collected on an attempt to transfer the entire reserves of the company out of India for Rs 42 crore, without payment of due taxes.
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 spending and taking out funds. For this purpose, such companies have made payments for unrelated business purposes and also used bills issued by a non-existent business based in Tamil Nadu. The amount of such outflow is found to be around Rs 50 crore.
A post disclosing about the Income Tax Department raids on mobile manufacturing companies by the government first appeared on BGR India.