The Income–Tax Department on Thursday claimed to have detected irregularities on the part of a multinational group engaged in the distribution of telecom products and providing captive software development services.
The Department had initiated the searches on the premises of the company and its key office–bearers in Delhi, Gurugram and Bengaluru on February 15. An agency source confirmed the group’s identity as Huwaei.
In a statement on February 16, Huawei had said: “We have been informed of the visit of Income–Tax team to our office and also of their meeting with some personnel. Huawei is confident our operations in India are firmly compliant to all laws and regulations. We will approach related government departments for more information and fully cooperate as per the rules and regulations and follow the right procedure.”
Without naming the company, the I–T Department in a statement on Thursday alleged that the group had made inflated payments against receipt of technical services from its related parties outside India.
“The assessee company could not justify the genuineness of obtaining of such alleged technical services in lieu of which payment has been made as also the basis of determination of consideration for the same,” it said, adding that the expenses debited by the company towards receipt of such services were to the tune of ₹129 crore over five years.
As alleged, in recent financial years, the group had debited over ₹350 crore in its books of account towards royalty to its related party. “Such expenses have been incurred for the use of brand and technical know–how related intangibles...the group has failed to substantiate receipt of any such services/technical know–how, or the basis of quantification of royalty rate for such claim,” said the agency.
The Department said one of the group entities, which is into software development services, had allegedly been disclosing lower net margins from the related parties, by claiming its operation to be of low-end nature.
“However, the evidence collected during the investigation indicated that this entity has been rendering significant services/operations of high–end nature. On this aspect, suppression of income of ₹400 crore has been detected,” it said.
According to the agency, the group manipulated its books of account to reduce its taxable income in India through creation of various provisions for expenses.
