The income tax department has uncovered alleged manipulation of books of accounts to reduce taxable income in India by Chinese telecommunications company Huawei which it recently raided, sources said on Thursday.
The searches were carried out on February 15 in the main commercial and residential premises of the “main office managers” of a multinational group, engaged in the distribution of telecom products and providing captive software development services, the CBDT indicated in a statement.
Sources identified the company as Huawei. “The ultimate shareholding of the group belongs to a foreign entity from a neighboring country,” said the statement issued by the governing body of the tax authorities.
The CBDT alleged that the group “manipulated its books of accounts to reduce its taxable income in India by creating various expense allowances, such as obsolescence allowances, warranty allowances, bad debts/loans and advances, etc., which have little or no scientific/financial justification”.
“During the investigation, the group provided no substantial and proper substantiation for such allegations,” he alleged.
Queries sent to Huawei did not elicit any response. The company, during the searches, had said that it was “firmly compliant” with Indian laws.
“Huawei is confident that our operations in India are firmly in compliance with all laws and regulations. We will approach relevant government departments for further information and cooperate fully in accordance with rules and regulations and follow due process,” the company said in a statement. a statement.
The CBDT statement laid several charges against the company, including that it “made inflated payments against receipt of technical services from its related parties outside India.”
“The assessed company could not substantiate the genuineness of obtaining these purported technical services in lieu of which payment was made as the basis for determining the consideration for them. The expenses debited by the assessed company for receipt of these services owes up to Rs 129 crore over a period of five years,” he said.
The assessee group has debited more than Rs 350 crore from its books in recent years in royalties to its related party, CBDT said.
“These expenses were incurred for the use of brand-related intangible assets and technical know-how. claim,” he said.
Therefore, the provision of services and such royalty payments become highly questionable and prima facie ineligible as business expenses under applicable income tax law, the statement said.
Evidence gathered and statements recorded during the search also reveal that one of the group’s entities engaged in the provision of software development services, disclosed “lower net margins” from related parties, claiming that its business was low-end in nature.
“However, evidence collected during the investigation indicated that this entity rendered significant services/operations of a high end nature. On this aspect, a revenue cut of Rs 400 crore was detected,” it said. -he assures.
The Indian government has kept Huawei out of trials of 5G services.
However, telecom operators have been allowed to source telecom equipment from Huawei and ZTE under their old agreements for the maintenance of their networks, but they will need government approval before concluding. any new commercial agreement in accordance with the national security directive on the telecommunications sector.