The Income Tax department has revealed that two major companies have made remittances in the nature of royalty, to and on behalf of its group companies based abroad, which aggregates to more than 5500 crores, despite the fact and evidence gathered during the search action, the IT department said in an official statement.
The raids were carried out in premises belonging to these mobile companies in Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan and Delhi NCR.
The statement also stated that the search operation revealed the modus operandi of purchase of components for the production of mobile handsets and said that the two companies have not complied with the regulatory mandate that is prescribed under the Income-tax Act, 1961. The Income-tax Act, 1961, makes the lapse of such a lapse liable for criminal action, the amount of which could be in the range of more than 1,000 crore, it said.
The search also revealed the modus operandi by which foreign funds have been introduced in the books of the Indian company, but it turns out that the source from which such funds have been received is of doubtful nature, purportedly with no credit worthiness of the lender and that interest expenses have also been claimed. Moreover, expenses and payments on behalf of the associated enterprises have been inflated, leading to the reduction of taxable profits of the Indian mobile handset manufacturing company. This amount could be in excess of Rs 1,400 crore It is further found that one of the companies used the services of another entity in India but did not comply with the provisions of the tax deduction at source introduced w.e. The liability of TDS on this account could be around Rs. The IT department said that it had 300 crore.
One of the two companies found that the control of affairs was substantively managed from a neighbouring country. The Indian directors of the company admitted that they had no role in the management of the company and lent their names for directorship for namesake purposes. Evidences have been gathered on an attempt to transfer the entire company's reserves to the tune of Rs 42 crore out of India without payment of due taxes, the release states.
A number of companies have been created in the past for the purpose of inflating expenses and siphoning out of funds, according to separate survey action in the case of certain fintech and software services companies. Such companies have made payments for unrelated business purposes and also used bills issued by a non-existent business concern in Tamil Nadu. The department said in its statement that the out-flow of such out-flow is estimated to be around Rs 50 crore.
It said further investigations are currently in progress.
The press statement did not identify any of the companies, but raids were carried out at Oppo and Xiaomi's offices and factories earlier this month, and both companies told Business Today that they were fully cooperating with the authorities.