Mobile phone makers Xiaomi and Oppo can be fined Rs 1,000 crore for violating the law, the Income Tax department said today after searches across India last week, underling that inflated expenses led to a reduction of taxable profits of over 1,400 crore.
The searches were carried out on December 21 in Delhi and 11 states – Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, and Rajasthan.
“The search action has revealed that two major companies have made remittance in the nature of royalty, to and on behalf of its group companies located abroad, which aggregates to more than Rs 5,500 crore,” the tax department said in a statement today.
“These companies had not complied with the regulatory mandate prescribed under the Income-Tax Act, 1961 for disclosure of transactions with associated enterprises. Such lapse makes them liable for penal action under the Income-Tax Act, 1961, the quantum of which could be in the range of more than Rs 1,000 crore,” the statement added.
The source of foreign funds is also doubtful, the central agency has said, stressing: “The search has brought to fore another modus operandi whereby foreign funds have been introduced in the books of the Indian company but it transpires that the source from which such funds have been received are of doubtful nature, purportedly with no credit-worthiness of the lender.”
The quantum of such borrowings is about Rs 5,000 crore, on which interest expenses have also been claimed, it underscored.