New Delhi
Pointing to alleged manipulation of account books to reduce taxable income in India, the income tax department said a multinational group, engaged in distribution of telecom products and providing captive software development services, inflated payments against receipt of technical services from its related parties outside India. The reference was made for searches and seizure done on February 15 against Chinese telecom company Huawei, an official said.
Without naming the company in its official statement, the Central Board of Direct Taxes (CBDT) said the group “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 and 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,” it alleged.
The company, during the searches, had said it was firmly compliant with Indian laws, as per the report.
The assesse group has debited more than Rs 350 crore in its books of account in recent financial years towards royalty to its related party, the CBDT said. “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,” it said.
“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,” it added.
Evidence gathered and statements recorded during the search also reveal that one of the group entities allegedly 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,” it claimed, adding that further investigations are in progress.
