Income Tax conducted raids at multinational Chinese company Huawei and premises of its top brass in Delhi, Gurugram and Bengaluru for allegedly suppressing its income to the tune of Rs 400 crore to reduce its Income tax and transferring the money abroad to its other related companies by manipulating its books.
Preliminary investigations revealed that the Huawei group had made inflated payments against receipt of technical services from its related parties outside India, said a senior officer of the Finance Ministry here on Thursday. “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 Ministry said.
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. Investigations further revealed that the accused company had also 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 Ministry said.
The IT sleuths had conducted its first raid on February 15 and since then gathered evidence and examined documents seized during the raids. The documents revealed 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.
Whereas evidence disclosed that the entity has been rendering significant services, operations of high-end nature and suppressing income of Rs 400 crore. The accused company has allegedly only manipulated its books of account to reduce its taxable income in India through creation of various provisions for expenses, which has little or no financial rationale, the the Ministry said.