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Rs 850 crore black money trail detected in tax raid on telecom giant’s premises in Delhi, Gurugram & Bengaluru

Rs 850 crore black money trail detected in tax raid on telecom giant’s premises in Delhi, Gurugram & Bengaluru. (Photo for representation)

The Income Tax Department has detected a black money trail to the tune of a whopping Rs 850 crore in search and seizure operations on Chinese multinational telecom giant Huawei engaged in distribution of telecom products and providing captive software development services.

The searches were carried out on Feb 15 across Delhi, Gurugram and Bengaluru mainly on the business premises of the company but some residential premises of the key office bearers were also covered, according to information provided by the Income Tax department today.   

During the search, it was found that, the assessee group has debited more than Rs 350 crore in its books of account in recent financial years towards royalty to its related party. Such expenses have been incurred for the use of brand and technical know-how related intangibles. During the search, 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. Consequently, the rendering of services and such royalty payments become highly questionable and prima facie, disallowable as business expenses as per extant Income Tax law, the official statement said.

Evidence gathered and statements recorded during the search also reveal that one of the group entities engaged in providing software development services, has been disclosing lower net margins from the related parties, by claiming its operation to be of low-end nature. However, the evidences 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 Rs. 400 crore has been detected, the Income Tax department revealed.

The search action has also revealed that the group has 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. The expenses debited by the assessee company towards receipt of such services are to the tune of Rs. 129 crore over a period of five years.

The search action has further detected that the group has manipulated its books of account to reduce its taxable income in India through creation of various provisions for expenses, such as provisions for obsolescence, provisions for warranty, doubtful debts/ loans & advances etc., which have little or no scientific/financial rationale. During the investigation, the group has failed to provide any substantial and appropriate justification for such claims.

Further investigations are still in progress.

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