Manufacturers did not comply with the regulatory mandate to disclose transactions with associated companies
The income tax department said on Friday it had detected multiple irregularities from two companies in the manufacture of Chinese mobile phones, during the Pan-Indian research initiated on December 21.
In the case of some foreign-controlled mobile communication and mobile phone manufacturing companies and their associated entities, searches were carried out in Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra, Assam, West Bengal, Madhya Pradesh, Gujarat, Bihar, Rajasthan, Delhi and its neighboring cities.
“Research has revealed that two large companies have made royalty payments to and on behalf of its group companies located overseas, amounting to over ₹ 5,500 crore. The claim for such expenses does not seem appropriate in light of the facts and evidence gathered … “, said the agency.
According to the agency, the two companies had failed to comply with the regulatory mandate under the Income Tax Act for the disclosure of transactions with associated companies. “Such failure makes them liable to criminal prosecution under the Income Tax Act, the amount of which could be in the order of over 1,000 crores,” he said.
The agency alleged that foreign funds had entered the Indian company’s books, but the source of these funds was questionable in nature, allegedly without creditworthiness of the lender. The amount of these loans was approximately 5,000 crore, on which interest charges were also claimed.
“Evidence regarding inflation of expenses, payments on behalf of associated companies, etc. were also found, which led to the reduction in taxable profits of the Indian mobile phone manufacturing company. Such an amount could exceed 1,400 crore yen, ”the IT department said in its statement.
A company allegedly used the services of another entity located in India, but failed to comply with the withholding tax deduction provisions introduced as of April 2020. The liability amount on this account could be up to about 300 crore. In the case of another company, control of its affairs was essentially “managed from a neighboring country”, as it is claimed.
“The Indian directors of the said company admitted that they had no role in the management of the company and that they lent their names for the post of director … evidence has been gathered on the attempted transfer. of the company’s entire reserves up to 42 crore outside India, without payment of taxes owed, ”he said.
Research on some financial and software services companies has revealed that many such entities have been created to inflate expenses and siphon off funds. “These companies have made payments for unrelated business purposes, as have also used invoices issued by a non-existent Tamil Nadu-based trading company. The amount of these outflows is around 50 crores, ”the agency said.