Xiaomi, Oppo May Be Fined Rs 1,000 Cr for Tax Law Violation: Report

The I-T department conducted a search and seizure operation on 21 December, in the case of two phone manufacturers.

The Income Tax (I-T) department conducted a pan-India search and seizure operation on 21 December, in the case of certain foreign-controlled phone manufacturing companies that have broken the law and can be fined Rs 1,000 crore.

As per sources in the I-T department cited by NDTV, those two companies are Xiaomi and Oppo, and the searches were carried out in their premises in Delhi, Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, and Rajasthan.

In a press release on Friday, 31 December, the department without naming the two companies said:

“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.”

It added that “such lapse makes them liable for penal action under the Income-tax Act, 1961, the quantum of which could be in the range of more than Rs 1,000 crore”.

During the search, it was revealed that the companies “made remittance in the nature of royalty, to and on behalf of its group companies located abroad, which aggregates to more than Rs 5,500 crore”.

However, the I-T department said, the claim of such expenses does not stand true in light of the evidence gathered during the search.

Revealing details about the modus operandi, the department added, "The search has brought to fore another modus operandi whereby foreign funds have been introduced in the books of the Indian company but it transpires that the source from which such funds have been received are of doubtful nature, purportedly with no creditworthiness of the lender".

The quantum of these borrowings is close to Rs 5,000 crore, on which, as per the department, interest expenses have also been claimed.

Further, evidence has been noticed, which led to the “reduction of taxable profits of the Indian mobile handset manufacturing company. Such amount could be in excess of Rs 1,400 crore".

Xiaomi had said on the day of the searches, "As a responsible company, we give paramount importance to ensuring that we are compliant with all Indian laws. As an invested partner in India, we are fully cooperating with authorities to ensure they have all the required information”, NDTV reported.

(With inputs from NDTV.)