Income tax service searches all over India for mobile manufacturing companies

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Ministry of Finance

Income tax service searches all over India for mobile manufacturing companies

Posted on: Dec 31, 2021 6:06 PM by PIB Delhi

The Income Tax Department conducted India-wide search and seizure operations on 12.21.2021 in the case of certain foreign-controlled mobile communication and mobile device manufacturing companies and of their associates. Various premises in the states of Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan, Delhi and the NCR have been covered by the action.

The research action revealed that two large companies have made royalty payments to and on behalf of its group companies located overseas, amounting to more than Rs.5,500 crore. The claim for such expenses does not seem appropriate in light of the facts and evidence gathered during the search action.

The research operation also revealed the procedure for purchasing components for the manufacture of mobile terminals. It is understood that these two companies did not comply with the regulatory mandate prescribed by the Income Tax Act 1961 for the disclosure of transactions with associated companies. Such forfeiture makes them liable to criminal prosecution under the Income Tax Act 1961, the amount of which could be in the order of over Rs 1,000 crore.

The research has brought to light another modus operandi whereby foreign funds were introduced into the books of Indian company, but it turns out that the source of these funds is questionable in nature, allegedly without creditworthiness of the lender. The amount of these loans is around Rs. 5,000 crore, on which interest charges have also been claimed.

Evidence regarding inflation of expenses, payments on behalf of associated companies, etc. were also noted, which led to the reduction in taxable profits of the Indian cell phone manufacturing company. Such an amount could exceed Rs. 1400 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 withholding tax provisions introduced on 01.04.2020. The liability amount of TDS on this account could be around Rs.300 crore.

In the case of another company covered by the research action, it was detected that the control of the affairs of the company was largely managed from a neighboring country. The Indian directors of the said company admitted that they had no role in the management of the company and lent their names as directors for homonymous purposes. Evidence has been gathered of the attempted transfer of the entire company’s reserves to the tune of Rs.42 crore out of India without payment of taxes owed.

The investigation of some financial and software services companies revealed that a number of these companies were formed with the aim of inflating expenses and siphoning funds. To this end, these companies made payments for unrelated business purposes, such as also used invoices issued by a non-existent Tamil Nadu-based business enterprise. The quantum of such flow turns out to be around Rs.50 crore.

Further investigations are in progress.

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RM / KMN

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